Arbitration / Court Decisions

REINSURANCE GUARANTORS’ APPEAL DISMISSED FOR LACK OF APPELLATE JURISDICTION

April 28, 2009 by Carlton Fields

The Third Circuit has determined it lacked jurisdiction to hear the appeal of parties disputing their obligations in connection with certain reinsurance guarantees. In a breach of contract action, an insurer (Everest) alleged that certain guarantors failed to fulfill their obligations following the reinsurer’s (Founders) refusal to pay over $76 million to Everest under a reinsurance agreement. The guarantors filed counterclaims, in part seeking a declaration that no monies are due and owing under the guarantees because Everest unnecessarily reimbursed lenders for certain claims. In connection with a separate arbitration between Everest and Founders, an arbitral panel ordered Founders to post $70 million in favor of Everest as security. Founders failed to comply. Everest then moved for partial summary judgment in the lawsuit, seeking an order requiring the guarantors to satisfy Founders’s obligation to post security. Everest also moved to dismiss the counterclaims. The district court granted Everest’s motion for partial summary judgment and granted, in part, Everest’s motion to dismiss.

The appellate court found it lacked jurisdiction to hear the appeal on the one remaining counterclaim and on Everest's breach of contract claim, as there was no final order being appealed from, and because the district court’s award was merely one for the payment of money, and not an injunction (which would have accorded the guarantors the right to an interlocutory appeal). The appeal was dismissed. Everest Nat'l Ins. Co. v. Sutton, No. 08-4643 (3d Cir. Apr. 7, 2009).

This post written by Brian Perryman.

ASSIGNEE OF REINSURANCE CLAIMS NOT EXEMPT FROM ARBITRATION

April 24, 2009 by Carlton Fields

Plaintiff, the assignee of remaining reinsurance claims possessed by the estate of the insolvent insurer, originally brought an action against the defendants in state court, but the defendants removed to federal district court by alleging that the New York Convention (the “Convention”) and the Federal Arbitration Act governed the arbitration clauses in the excess-of-loss reinsurance contracts. Plaintiff then moved to remand and defendants moved to stay the action and compel arbitration. In granting the defendants’ motion, the district court ruled that the parties’ dispute was encompassed by the arbitration clauses and thus fell under the Convention, the liquidator’s right not to be compelled to arbitrate was not assigned to the plaintiff, and the service-of-suit clauses in the reinsurance contracts did not constitute a waiver of the defendants’ right to removal. B.D. Cooke & Partners Ltd. v. Certain Underwriters at Lloyds, London, Case No. 08-3435 (USDC S.D.N.Y. Mar. 31, 2009).

This post written by Dan Crisp.

PLAINTIFF WAIVED CONTRACTUAL RIGHT TO ARBITRATE AFTER SUBSTANTIALLY LITIGATING MATTER IN COURT

April 22, 2009 by Carlton Fields

This case arose out of a severance agreement, containing an arbitration clause, between an employer and employee. Following the employee's death, his widow, who was aware of the agreement's arbitration provision, sued the employer in court alleging that the employer breached the severance agreement. After ten months of litigating in court, the plaintiff moved to compel arbitration. The district court denied her motion, finding that she waived her right to arbitrate by having invoked the judicial process to such an extent as to have prejudiced the employer. The plaintiff appealed the decision, but the Fifth Circuit Court of Appeals affirmed, finding that, while disfavored, a court may nonetheless find that a party has waived its contractual right to arbitration by substantially invoking the judicial process to its opponent’s detriment, despite awareness of its contractual right to arbitrate, and that the trial court therefore did not abuse its discretion in denying the motion to compel arbitration. Nicholas v. KBR, Inc., No. 08-20140 (5th Cir. April 15, 2009)

This post written by John Pitblado.

JURY RETURNS DEFENSE VERDICT FOR AON RE, INC. IN SIX-YEAR BATTLE WITH RELIASTAR LIFE INSURANCE COMPANY

April 21, 2009 by Carlton Fields

Reliastar Life Insurance Company (“Reliastar”) sued Aon Re, Inc. (“Aon”) in state court, alleging, under various legal theories, that Aon misled Reliastar to believe that Reliastar continued to be reinsured through a reinsurance pool (“the Pool”), when in fact it had less coverage than it had been led to believe. Reliastar alleged that Aon, and an individual broker working with Aon, were Reliastar’s agents responsible for administering Reliastar’s reinsurance needs through the Pool, and fraudulently misrepresented the level and extent of reinsurance protecting Reliastar.

Aon’s defense was two-fold. First, it asserted that another broker exclusively handled Reliastar’s reinsurance placement, and thus Aon was not Reliastar’s agent relative to the conduct at issue in the suit, and thus Aon had no duty to ensure Reliastar had any particular reinsurance protection through the Pool. Second, Aon contended that Reliastar was an active participant in the administration of reinsurance through the Pool, and as such was fully aware that certain other Pool members had withdrawn from participation, leaving Reliastar with a greater share of the overall risk. After a lengthy trial, the jury returned a verdict in favor of Aon. Reliastar Life Insurance Company v. Aon Re, Inc., No. 3916-03 (N.J. Super. Ct. March 26, 2009). Details of the case are available in the Final Joint Pre-Trial Order.

This post written by John Pitblado.

ARROWOOD AND COVENANT SETTLE REINSURANCE PREMIUM BATTLE

April 16, 2009 by Carlton Fields

Arrowood Indemnity Co., as reinsurer, sued The Covenant Group, a reinsurance program administrator, alleging that Covenant agreed to hold harmless and indemnify Arrowood for Covenant’s “failure to collect all premium audits arising under insurance policies issued pursuant to certain” agreements. The complaint sought payment for $363,669.10 in premiums never remitted to Arrowood in breach of a reinsurance agreement. Covenant counterclaimed for $157,181.79 in alleged unpaid premiums. The parties stipulated to dismissal of the action with prejudice on February 23, 2009, after they agreed to settle all claims. The terms of the settlement are confidential. Arrowood Indem. Co. v. The Covenant Group, Case No. 08-1414 (USDC D.Conn. Feb. 23, 2009).

This post written by John Black.