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Arbitration / Court Decisions

COUNTERCLAIMS ALLEGING FRAUD BY UNLICENSED INSURERS DISMISSED

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A motion to dismiss counterclaims alleging that a property and casualty insurer and reinsurer (collectively, “Everest”) fraudulently conspired to engage in insurance business without the appropriate regulatory approval has been granted. In the primary action, Everest had asserted claims against a group of guarantors for breach of their guaranty obligations. Everest moved for partial summary judgment seeking an order that the guarantors were required to post security in an arbitration, which the court granted. The guarantors filed counterclaims for civil conspiracy, fraud, and negligent misrepresentations, among others. The conspiracy claim was predicated on a violation of state insurance licensing regulations, for which no private right of action existed. The misrepresentation claims asserted that Everest falsely stated that it was validly licensed to write a particular line of insurance, but the claims were barred by the statute of limitations. The court applied a choice-of-law analysis, determining that Colorado limitations periods applied to the parties’ transaction. The court also granted Everest’s motion to strike certain affirmative defenses, holding that the defenses had not been raised at the time of the motion for partial summary judgment, and so had been waived. Everest National Insurance Co. v. Sutton, Case No. 07-722 JAP (USDC D.N.J. Oct. 14, 2009).

This post written by Brian Perryman.

DISTRICT COURT REMANDS CLAIM AGAINST LIQUIDATOR TO STATE COURT

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In a recent action, Granite Re filed suit against Federal Crop Ins. Corp., Risk Management Agency and Ann Frohman, in her capacity as Liquidator for the insolvent insurer, American Growers Ins., alleging that Growers owes unpaid reinsurance premiums to Granite Re. Following removal to Federal Court, the Liquidator moved to dismiss, advising that she claims no interest in the outcome of Granite Re’s litigation against FCIC/RMA and she will therefore forego any right she may have had to remain in the litigation as an interested or intervening party. Though the case was properly removed, the Court explained that a Nebraska statute prevented the federal court from entering a judgment against the Liquidator, and that the McCarran-Ferguson Act prevented the Court from entering an order for distribution of any FCIC/RMA judgment proceeds. Rather than dismissing the claim against the Liquidator, the District Court remanded the claim to Nebraska state court while also granting FCIC/RMA’s request to transfer the claims against those parties to the District Court for the District of Columbia. Granite Reinsurance Co., LTD v. Ann M. Frohman, Case No. 08-410 (D. Neb. Oct. 26, 2009).

This post written by John Black.

COURT HOLDS THAT QUESTION OF ARBITRABILITY IS RESERVED TO ARBITRATORS BY PARTIES’ AGREEMENT

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A New York court has affirmed the trial court’s denial of the plaintiff’s motion to stay or enjoin arbitrations pending before the American Arbitration Association. Although noting that the question of arbitrability is generally an issue for judicial determination, the parties’ agreement incorporated the AAA rules, which provide that the arbitration panel had the power to rule on its own jurisdiction. The court therefore found that the scope and validity of the arbitration agreement were properly presented to the arbitators. One justice filed a concurring opinion expressing his view that the United States Supreme Court decision in Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008), rendered unenforceable the agreement’s provision allowing for judicial review of legal errors by the arbitrator. The panel opinion had declined to reach that issue since it was included among the arbitrability issues to be decided by the arbitrators. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 194N 601244/08 (N.Y. App. Div. Oct. 13, 2009).

This post written by Brian Perryman.

NEW YORK APPELLATE COURT ADDRESSES NUMEROUS CONTRACT INTERPRETATION ISSUES IN REINSURANCE DISPUTE

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Gulf Insurance Company sued Gerling Global Reinsurance Corporation of America (“Gerling”) and others who participated in reinsurance treaties covering a portfolio of Gulf’s automobile residual value insurance. Gerling denied Gulf’s claims for its portion of payments Gulf made in connection with underlying coverage litigation which settled for $266 million. Gulf sued Gerling, and Gerling countersued, seeking rescission of the treaties on the basis of nondisclosures and misrepresentations made by or on behalf of Gulf. The issues turned in part on the interpretation under the treaties of the percentage of the reinsurers’ participation. That interpretation was impacted by a further determination as to the amount of premium paid, but Gerling argued, and the trial court agreed, that the amount of premium was miscalculated by its bookkeeping department, and that Gulf improperly based its premium payment on those miscalculations. The premium payments were also not made until after formation of the treaties, and thus, the trial court found, did not affect interpretation of the treaties. After addressing a number of other contract interpretation issues, the Appellate Court essentially affirmed, with partial modification, the trial court’s decisions granting partial summary judgment to Gerling, and denying partial summary judgment to Gulf. Gulf Insurance Company v. Transatlantic Reinsurance Company, Nos. 6016023/03 and 601077/04 (N.Y. App. Div., Oct. 1, 2009)

This post written by John Pitblado.

PLAINTIFFS ORDERED TO SUBMIT FRAUD CLAIMS TO ARBITRATION IN BERMUDA

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In October, 2007, Alternative Re Holdings Ltd. (“ARH”) commenced separate arbitrations in Bermuda against each of the plaintiffs seeking funds pursuant to Shareholder Agreements. In December, 2008, the plaintiffs brought suit in the Southern District of New York alleging that a 2005 Settlement Agreement was fraudulently induced in that the plaintiffs’ liability for reinsurance more than doubled. Arch Insurance Co. subsequently moved to stay the litigation pending arbitration. ARH and Alternative Re Ltd. also moved to stay, and to compel the plaintiffs to submit their fraud claims to arbitration pursuant to an arbitration clause in the Shareholder Agreements requiring “all disputes” between the parties to be submitted to arbitration in Bermuda. The plaintiffs opposed, arguing that their complaint fell within the parameters of the Settlement Agreement, which specified that the U.S. District Court for the Southern District of New York was the exclusive forum and venue for dispute resolution. The district court summarily granted the defendants’ motions, staying the lawsuit and ordering that arbitration proceed in Bermuda. TPG Group v. Alternative Re Holdings Ltd., Case No. 08-11244 (USDC S.D.N.Y. Sept. 22, 2009).

This post written by Dan Crisp.