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New reinsurance-related and arbitration developments from Carlton Fields

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Arbitration / Court Decisions

ARBITRATORS’ DISREGARD OF CUBAN ASSETS CONTROL REGULATIONS IS GROUND FOR SETTING ASIDE AWARD

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A court has vacated a FINRA arbitration award on the ground that the arbitrators exhibited manifest disregard of controlling law. Plaintiff moved to vacate the arbitration award denying its claims in FINRA proceedings that the defendant sold it Cuban bearer bonds that had been defaulted on in the wake of the 1959 communist revolution. After a two-day evidentiary hearing, the arbitators denied all of plaintiff’s claims. Plaintiff sought to vacate the defendant’s award on the ground that the arbitrators exceeded their powers, urging that they ignored the Cuban Assets Control Regulations, which prohibits transactions involving Cuban assets. The arbitration decision recognized the Regulations as applicable, but made no other mention of them, and made no findings of fact or conclusions of law regarding them. The court therefore awarded plaintiff its principal, compounded at the legal rate of interest. See More Light Investments v. Morgan Stanley DW Inc., Case No. CV 08-580 (USDC D. Ariz. July 29, 2009).

This post written by Brian Perryman.

DISTRICT COURT FINDS NO SUBJECT MATTER JURISDICTION IN AIG SUIT

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The District Court for the District of New Jersey recently granted defendant AIG’s motion to dismiss Robert Plan Corporation’s claims arising out of a series of reinsurance agreements between the parties. The procedural history of the action is complex, and it involves underlying state court action, financial rehabilitation and bankruptcy proceedings. Robert Plan filed a Notice of Removal in January, 2009, and AIG subsequently moved to dismiss for lack of subject matter jurisdiction. The court granted the motion to dismiss, finding that that there was no case or controversy for the court to decide because the underlying state court action had been dismissed by the time plaintiffs filed their notice of removal. Additionally, because the Court found subject matter jurisdiction lacking, it denied as moot Robert Plan’s Motion to Transfer Venue. The Robert Plan Corp. v. American Int’l Group, Case No. 09-200 (D.N.J. Aug. 10, 2009).

This post written by John Black.

SETTLEMENT REACHED IN REINSURANCE FRAUD DISPUTE

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In a December 22, 2008 post, we reported on a group of litigants in two related lawsuits voluntarily withdrawing motions and claims against each other. In one of the lawsuits, the plaintiff, National Indemnity Company (“NIC”), alleged that the defendants schemed to coerce NIC into relinquishing certain contractual rights and the defendants counterclaimed that NIC schemed to defraud the defendants into purchasing certain stock. The judge in this case has since issued an order removing the motion to dismiss and summary judgment motion from the court’s calendar, stating that the parties reached an agreement to settle the claims and counterclaims. National Indem. Co. v. Greenwich St. Invs. II, LLC, Case No. 08-4067 (USDC S.D.N.Y. Aug. 26, 2009).

This post written by Dan Crisp.

COURT VACATES ARBITRAL AWARD FINDING IT “COMPLETELY IRRATIONAL” AND IN MANIFEST DISREGARD OF LAW

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Platinum Underwriters Bermuda, Ltd. reinsured PMA Capital Ins. Co., under a reinsurance agreement that contained a “deficit carry forward” provision. The parties disputed how certain deficits were to be calculated under the provision and arbitrated the claim. The arbitral panel awarded PMA $6,000,000, but eliminated the “deficit carry forward” provision from the contract, which provision ran to the benefit of Platinum. Both parties sought to vacate or modify the award. The court found the panel’s decision “completely irrational” – even under the broad grant of authority provided to the panel under the contract’s “Honorable Engagement Clause” – as the deficit carry forward provision was part of the essence of the contract and could not be written out of it. Moreover, the court saw no justification for the $6,000,000 award, other than as an equally irrational attempt to “compensate” Platinum for the elimination of the deficit carry forward provision. The Court granted PMA’s application to vacate the award, finding that an arbitration award that is not drawn from the essence of the contract is completely irrational, and therefore, in manifest disregard of the law. PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., No. 09-84 (USDC E.D. Pa. Sept. 15, 2009).

This post written by John Pitblado.

NO JUMPING THE GUN ON DISCOVERY: MOTION TO COMPEL REINSURANCE AGREEMENT DENIED

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The plaintiff, Dartmouth Hitchcock Medical Center, moved to compel the defendant, CHG Medical Staffing, to produce a reinsurance agreement between CHG and CNA. In support of its motion, Dartmouth represented that the court had ordered CHG to produce insurance policies during a hearing in a related case. CHG refused to produce the agreement on the ground that discovery has not yet begun, citing the automatic discovery moratorium imposed by Federal Rule of Civil Procedure 26(d). Dartmouth argued in its Motion to Compel Production of Documents that CHG is in violation of the “intent and spirit of this Court’s Order, if not the letter.” The court found in favor of CHG, noting that because the parties agreed that the court did not order production of the reinsurance agreement, CHG’s refusal to produce it did not violate an existing court order and that discovery would progress in accordance with the Federal Rules. Dartmouth Hitchcock Medical Center v. Cross Country Travcorps, Inc., Case No. 09-160 (USDC D.N.H. July 31, 2009).

This post written by Brian Perryman.