Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Arbitration / Court Decisions

Arbitration / Court Decisions

COURT OF APPEAL ADDRESSES PRECLUSIVE EFFECT OF COLLUSIVE FOREIGN COURT JUDGMENT AND PROCESS FOR DETERMINING ARBITRABILITY OF DISPUTE

by

It is not unusual for there to be parallel or serial legal proceedings in arbitration disputes, and the preclusive effect of the first matter to go to a final decision has resulted in a number of opinions addressing the application of the doctrines of res judicata and collateral estoppel in arbitration proceedings. In Telnor Mobile Communications AS v. Altimo Holdings & Investments Limited, 07-4974 (2d Cir. Oct. 8, 2009), the Court held that: (1) the district court did not err in not holding a trial to determine whether a dispute before it was arbitrable based upon a dispute as to whether the person who signed the contract containing an arbitration provision had apparent authority to sign the document on behalf of a corporate party, when the factual record clearly demonstrated that the signer had apparent authority to do so; and (2) the district court did not act in manifest disregard of law by confirming an arbitration award that failed to give preclusive effect to a collusive judgment of a Ukrainian court adjudicating an issue before the arbitration panel.

This post written by Rollie Goss.

SCOTTISH COURT DISAPPROVES A SOLVENT SCHEME OF ARRANGEMENT

by

The Scottish Court of Session Decisions has nixed a scheme of arrangement under the UK Companies Act of 2006, stating it could not be judicially sanctioned without the assent of all creditors. A scheme of arrangement is a reorganization device in which, with the approval of at least three-quarters of a company’s creditors, the company may compromise the claims of all its creditors. A somewhat analogous device might be a “cram-down” under U.S. bankruptcy law, with the important distinction that a scheme of arrangement may be used even by a solvent company. This procedure has been criticized by US insurance companies. There are three stages to a scheme of arrangement. First, there must be an application to the court for an order that a meeting of creditors be summoned. Second, the scheme proposals are put to the meeting and are approved (or not) by the requisite majority. Third, if approved at the meeting, there must be a further application to the court to obtain the court’s sanction to the arrangement.

In the case before the Court of Session Decisions, Scottish Lion Insurance Company had been in runoff since late 1994, and in 2008 had proposed a scheme of arrangement to terminate its exposures under short- and long-tail policies. The scheme was opposed by various U.S.-based creditors which were insureds under general liability or general aviation insurance policies with Scottish Lion. The court, noting it was not bound to sanction a scheme which had achieved the statutory majority at the creditors’ meeting, declined to exercise its discretion to approve the scheme. Scottish Lion was solvent and appeared to have made provision to meet its potential liabilities in the future. Thus, the court asked rhetorically, “in a situation where the Company is sound financially, why should one group of creditors who might wish to enter into a commutation agreement with the Company be entitled to force other creditors to participate against their will?” In such a case, sanctioning a solvent scheme smacked of “unreasonableness” to the minority. In the Petition of Scottish Lion Insurance Company, Ltd. [2009] CSOH 127.

This post written by Brian Perryman.

ROUND-UP OF RECENT ARBITRATION AWARD CHALLENGES

by

Awards upheld

TIG Ins. Co. v. Global Int’l Reinsurance Co. Ltd., 09-Civ-1289 (USDC S.D.N.Y. Aug. 7, 2009) (arbitration award confirmed, no manifest disregard of law)

UTGR Inc. d/b/a Twin River v. Mutuel/Gaming Clerks of Rhode Island, Local 334, No. 09-046-S (USDC D.R.I. Aug. 6, 2009) (arbitrator’s award in CBA dispute confirmed)

Waddell v. Holiday Isle, LLC, No., CV-09-0040 (USDC S.D. Ala. Aug. 4, 2009) (several motions to vacate arbitration award denied, no manifest disregard, one motion to vacate granted as beyond the submission)

WellPoint, Inc. v. John Hancock Life Ins. Co., No. 07 C 943 (7th Cir. Aug. 7, 2009) (affirming district court’s denial of motion to vacate arbitration award)

Parsons, Brinckerhoff, Quade & Douglas, Inc. v. Palmetto Bridge Constructors, No. RDB-09-633 (USDC D. Md. Aug. 25, 2009) (motion to confirm arbitration award granted) .

Award reversed

Globe Newspaper Co. v. Int’l Assoc. of Machinists, Local 264, District 15, No. 08-cv-11945 (USDC D. Mass. Aug. 5, 2009) (vacating arbitrator’s award in CBA dispute as against public policy)

This post written by John Pitblado.

PERSONAL ACCIDENT REINSURANCE DISPUTE SETTLES FOR $130 MILLION

by

On July 29, 2009, we reported on Willis Limited (“Willis”) settling a dispute with American Reliable Insurance Company and Assurant General Insurance Limited over alleged irregularities in Willis’ placement of personal accident reinsurance. Willis has now settled a similar placement dispute with CNA Financial Corporation for $130 million. The settlement includes a release and waiver of all claims and no admission of wrongdoing. Willis has filed a Form 8-K relating to this settlement.

This post written by Dan Crisp.

District Court Finds “Attorney Fees and Court Costs” Ambiguous: Upholds Arbitration Panel

by

Following a dispute over eight reinsurance agreements, Century Indemnity moved to confirm in part and vacate in part an arbitration award ordering Fencourt Reinsurance to pay a certain sum owed under the agreements. The paragraph at issue stated that “all other claim for relief are denied,” meaning that Century could not recover interest, attorneys’ fees and court costs under the agreement. The District Court for the Eastern District of Pennsylvania denied Century’s motion to vacate, finding the portion of the agreement concerning interest, fees and costs was ambiguous as it did not explicitly specify whether it applied before or after arbitration proceedings. Accordingly, the arbitration panel’s interpretation was not “completely irrational” nor did the panel exhibit a “manifest disregard” for the agreement. Century Indem. Co. v. Fencourt Reinsurance, Case No. 09-MC-53 (E.D. Pa. July 22, 2009).

This post written by John Black.