In an earlier ruling in this case, the Court had held that the “follow the fortunes” doctrine applied to a request for payment under a reinsurance agreement. The Court then granted the reinsurer a six month period of discovery during which it might take discovery on whether the claims made against its reinsured were within either of two exceptions to the “follow the fortunes” doctrine, i.e., that the claims were manifestly outside the scope of the underlying policy, or that the decision to pay the claims had been fraudulent, collusive, or in bad faith. After the discovery period was completed, the reinsured moved for summary judgment, contending that there was no evidence to support the applicability of either exception to the “follow the fortunes” doctrine. The District Court agreed, and granted the reinsured summary judgment. , Case No. 03-6999, in the United States District Court, Southern District of New York (July 28, 2006).
Arbitration / Court Decisions
At the request of the sole member of a Lloyd's syndicate that is in run-off, the London Commercial Court has issued an injunction to restrain a party to a UK arbitration from seeking to intervene in a related action pending in a United States District Court, in which it would seek to restrain the Claimant in the UK arbitration from proceeding with the UK arbitration. ,  EWHC 1730 (Queen's Bench Div. Commercial Court July 12, 2006). The Court held that the parties were obligated to arbitrate in the UK, as contractually agreed. This is an interesting example of a jurisdictional conflict between two countries.
The United States Court of Appeals for the Eleventh Circuit, in B. L. Harbert International, LLC v. Hercules Steel Co., Case No. 05-11153 (11th Cir. Feb. 28, 2006), in a non-reinsurance case, strongly endorsed the finality of arbitration under the Federal Arbitration Act, by affirming the confirmation of an arbitration award (and the denial of a motion to vacate the award). The Court obviously believed that the Appellant appealed merely because it disagreed with the arbitration decision. The Appellant contended that the arbitration award reflected a manifest disregard for the law, which the Court held was an exceptional circumstance requiring clear evidence that an arbitrator was conscious of the law and deliberately disregarded it. Concluding that the proof did not come close to satisfying this standard, the Court considered imposing sanctions on Appellant for the appeal, voicing a strong disapproval for continuing arbitration proceedings through post-award court challenges.
A US District Court rejected the application of the “follow the settlements” doctrine in a facultative reinsurance context, entering judgment for the reinsurer. The Court found that the reinsured had failed to conduct a reasonable and businesslike investigation and determination of the claims, paying claims that were outside the time frame of the insurance, resulting in grossly negligent and bad faith conduct by the reinsured. Suter v. General Accident Insurance Company of America, Case No. 01-2686 (USDC D. N.J. July 14, 2006). If you ever questioned whether inquiries into whether the application of exceptions to the follow the settlement doctrine should be fact specific, this 67 page opinion will provide the answer.
The Seventh Circuit, in a case involving an appeal from an arbitration award in an NASD securities case, stated that “[i]t is tempting to think that courts are engaged in judicial review of arbitration awards under the Federal Arbitration Act, but they are not” due to the narrow grounds for vacating such an award. The Court affirmed the confirmation of an award entered by a panel based upon a motion for summary judgment by the Respondent after the Claimant had presented his case, rejecting the contention that there was no evidence to support the award. Noting that the non-statutory “manifest disregard of the law” basis for vacating an award is limited to matters in which the arbitrators “direct the parties to violate the law,” the Court deferred to whatever inferences the arbitrators might have drawn from what the evidence presented shows, and what it omits. Wise v. Wachovia Securities, Case No. 05-2640 (7th Cir. June 7, 2006). Since the Respondent had not presented any evidence prior to the decision on the merits by the panel, this case demonstrates very substantial deference by a court to an arbitration panel's determination of facts and the sufficiency of evidence.