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Arbitration / Court Decisions

STATE INSURER LIQUIDATION ACT PREEMPTS FEDERAL REMOVAL STATUTE

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The Florida Department of Financial Services (“FDFS”) filed a claim in state court against General Reinsurance Corporation (“Gen Re”) after discovering that in the course of Aries Insurance Company’s (“Aries”) receivership, Aries made improper preferential transfers to Gen Re within six months of the rehabilitation date. Alleging diversity jurisdiction, Gen Re removed the action to Florida district court. FDFS moved to remand the claim to state court pursuant to the McCarran-Ferguson Act. The district court first determined that, under the Florida Insurers Rehabilitation and Liquidation Act (the “Liquidation Act”), the assets at issue are subject to the exclusive jurisdiction of the Leon County Circuit Court. Granting the motion to remand, the district court stated that the federal removal statute does not specifically relate to the business of insurance, found that the Liquidation Act provision vesting exclusive jurisdiction in the state court served to regulate the business of insurance, cited similar findings by other courts regarding such jurisdictional provisions, and concluded that the McCarran-Ferguson Act applies causing the Liquidation Act to preempt the federal removal statute. Fla. Dep’t. of Fin. Servs. v. Gen. Reins. Corp., Case No. 08-443 (USDC N.D. Fla. Feb. 2, 2009).

This post written by Dan Crisp.

FEDERAL COURT GRANTS SUMMARY JUDGMENT TO REINSURER BASED ON EXCLUSION IN UNDERLYING POLICY FOR CLAIMS SEEKING SOLELY EQUITABLE RELIEF

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A federal court granted summary judgment to Northfield Insurance Company (“Northfield”) on claims brought by the Pennsylvania Counties Risk Pool (“PCORP”), and the Counties of Monroe and Beaver, Pennsylvania (“the Counties”), after Northfield declined a claim under a reinsurance agreement with PCORP, which reinsured insurance issued by PCORP to the Counties. The plaintiffs sought coverage pertaining to an underlying class action suit brought by residents against the Counties, which suit alleged that various county officials failed to provide state-mandated per diem foster care payments to “kinship caregivers” of special needs foster children. The suit sought declaratory and injunctive relief, as well as costs and attorneys fees. The underlying suit eventually settled, with the result that PCORP paid an amount which “include[ed] the settlement and attorneys fees and litigation expenses,” of $213,799.71.

Northfield denied the reinsurance claim based in part on an endorsement to the underlying policy which excluded coverage for “any costs or expenses incurred by the Assured in any claim or suit seeking solely declaratory, injunctive, or equitable relief, including but not limited to any attorney’s fees or expenses incurred to defend the claim.” The Court agreed with Northfield that, strictly confined to the four corners of the operative pleading, the underlying suit did not seek compensatory damages or any other form of legal relief, but was limited in its demand to solely declaratory and injunctive relief, both of which are strictly equitable forms of relief. The Court disagreed with the plaintiffs that the catch-all claim for relief alleged in the underlying suit for “such additional or alternative relief which [the] Court deems just, proper, or equitable” did not negate the proper application of the exclusion. Pennsylvania County Risk Pool v. Northland Insurance, Case No. 07-00898 (USDC M.D. Pa. Feb. 27, 2009).

This post written by John Pitblado.

CASE UPDATE: MISSISSIPPI WINDSTORM UNDERWRITING ASSOCIATION LOSES MOTION FOR SUMMARY JUDGMENT IN BREACH OF FIDUCIARY DUTY CASE

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In two prior posts, this blog reported on a breach of fiduciary duty case filed against Directors of the Mississippi Windstorm Underwriters Association (MWUA) for failing to secure adequate reinsurance to cover the 2004-2005 hurricane seasons. (MWUA is composed of all insurers who write property insurance on a direct basis anywhere in Mississippi). The defendants filed a motion for summary judgment arguing that they did not owe any fiduciary duty to the plaintiffs and asserted that, regardless, the decisions made by the alleged Board members relating to the 2004-2005 reinsurance purchase met the applicable standard of care and are protected from liability by the business judgment rule.

The district court agreed that the business judgment rule applied, but denied summary judgment concluding that there were “myriad factual disputes regarding whether the decisions regarding reinsurance were indeed an exercise of good business judgment.” Association Casualty Ins. Co., et. al. v. Allstate Ins. Co., et. al, Case No. 07-525 (USDC S.D. Miss. July 29, 2008).

This post written by Lynn Hawkins.

CASE UPDATE: COURT DISMISSES HUNTSMAN CASES WITH PREJUDICE TO ALLOW ALTERNATIVE DISPUTE RESOLUTION

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In the latest development in the Huntsman v. Int’l Risk Ins. Co. cases previously covered by this blog, the parties (including a group of Third Party Defendant Reinsurers) entered a joint stipulation agreeing to dismiss the case with prejudice. The stipulation specified that the case is to be dismissed in order to allow the parties to resolve the disputes between most of the third party defendants and Huntsman in mediation or arbitration. The Southern District of Texas expressed some apprehension at dismissing the case with prejudice because the decision was not based upon the merits of the case. However, because some case law existed within the circuit supporting dismissal with prejudice, the court granted the parties’ request and dismissed the action with prejudice. Huntsman Corp. v. Int’l Risk Ins. Co., Case No. 08-1542, (USDC S.D. Tex. Feb. 19, 2009).

This post written by John Black.

SUPREME COURT “LOOKS THROUGH” FAA § 4 PETITION TO UNDERLYING DISPUTE TO DETERMINE JURISDICTION

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Last week, in a decision authored by Justice Ginsburg, the Supreme Court announced that a federal court may “look through” a Federal Arbitration Act § 4 petition to determine whether it is predicated on a controversy that arises under federal law. Under the well-pleaded complaint rule, a suit “arises under” federal law when the plaintiff’s statement of the cause of action shows that it is based on federal law. The Court held that the language of § 4 (“save for the arbitration agreement…”) directs federal courts to “look through” the petition itself to determine proper jurisdiction. Justice Ginsburg stated that federal courts should assume the absence of the arbitration agreement and determine jurisdiction based on the parties’ underlying dispute.

With this in mind, the Court held that the underlying controversy between Vaden and Discover Bank did not support federal jurisdiction. The controversy arose from Vaden’s alleged debt and not any federal law or other basis for federal jurisdiction. The Court thus declined federal jurisdiction. Chief Justice Roberts filed an opinion concurring in part and dissenting in part. Vaden v. Discover Bank, No. 07-773, (U.S. Mar. 9, 2009).

This post written by John Black.