Arbitration / Court Decisions

COURT CONFIRMS REINSURANCE ARBITRATION AWARD, REJECTING NUMEROUS PROCEDURAL CHALLENGES

February 3, 2009 by Carlton Fields

When a dispute arose over the allocation and payment of losses under a reinsurance agreement pursuant to which Global International Reinsurance Company agreed to reinsure TIG Insurance Company, the parties took their dispute to arbitration. An arbitrator granted TIG’s motion for partial summary judgment, finding that Global had released its right to audit and dispute certain claims. The dispute arose out of transactions and claims which had been the subject of a prior arbitration and settlement agreement. The parties disagreed as to their current claim audit rights and payment obligations under the reinsurance agreement and the prior settlement agreement. The arbitrator granted partial summary judgment based upon an interpretation of the various agreements and the prior arbitration award, after four hours of oral argument but no evidentiary hearing.

Global sought the vacation of the award, contending that it had been denied a fundamentally fair hearing because the arbitrator had refused to hear evidence, disregarded the standards of summary judgment, and resolved material factual disputes without discovery or an evidentiary hearing, in violation of the standards contained in Section 10(a)(3) of the Federal Arbitration Act. The district court confirmed the award, noting: (1) that the settlement agreement gave the arbitrator the authority to resolve “any dispute” arising from or relating to the settlement agreement and other agreements; (2) that arbitrators have “great latitude to determine the procedures governing their proceedings and to restrict or control evidentiary proceedings;” and (3) that a court has very narrow authority to vacate arbitration awards, even if it disagrees with the merits of the arbitrator’s decision, so long as there is a “barely colorable justification for the outcome reached.” The court found that the arbitrator had acted within the scope of the authority delegated by the very broad provision and within the scope of his broad authority to manage the arbitration process. This opinion illustrates the expansive authority that arbitrators have to manage and conclude arbitrations. Global Int’l. Reinsur. Co. v. TIG Insur. Co., Case No. 08-7338 (USDC S.D.N.Y. Jan. 20, 2009).

This post written by Rollie Goss.

MANIFEST DISREGARD OF LAW OPINION POSSIBLY EN ROUTE TO SUPREME COURT

January 30, 2009 by Carlton Fields

Last October, the Supreme Court vacated the Ninth Circuit's opinion in Comedy Club, Inc. v. Improv West Associates, and remanded the case for further consideration in light of Hall Street Associates. In the vacated opinion, the Ninth Circuit had vacated an arbitration award, finding that the arbitrator had acted in manifest disregard of law. On remand, the Appellee filed an initial brief, the Appellant filed a responsive brief, and the Appellee filed a reply brief. The case is now fully briefed. As of this writing, oral argument had not been scheduled. We will continue to monitor this case, which may provide authoritative guidance as to whether the manifest disregard of law doctrine survived the Supreme Court's Hall Street Associates opinion.

This post written by Rollie Goss.

ARBITRATION AWARDS CONFIRMED DESPITE SOME CREATIVE CHALLENGES

January 29, 2009 by Carlton Fields

Courts have continued to confirm arbitration awards in the face of a variety of challenges:

Manifest disregard of law: Grain v. Trinity Health, No. 08-1410 (6th Cir. Dec. 24, 2008) (manifest disregard is not a basis for modifying an award, only potentially for vacating an award – appellant sought a doubling of the award amount based upon manifest disregard and evident miscalculation); Martin Marietta Materials, Inc. v. Bank of Oklahoma, No. 07-6422 (6th Cir. Dec. 17, 2008) (arbitrator not exceed his powers; no manifest disregard of law demonstrated – the Court assumed that the doctrine survived Hall Street Associates, noting a conflict on that issue between the First and Second Circuits); Donato-Young v. Wachovia Securities, LLC, Case No. 08-1557 (USDC S.D. Cal. Jan. 5, 2009) (not in manifest disregard of law – not mention Hall Street).
Arbitrators acted in excess of their authority: This basic for vacating an award seems often to be a guise for a disagreement with the merits of the arbitration decision. Donato-Young (cannot show that the arbitration award was in excess of authority because the award was not reasoned); Martin Marietta; Associated Int’l. Insur. Co. v. Montenegro Re, Ltd., No. B203064 (Cal. Ct. App. Dec. 22, 2008) (interpretation of reinsurance agreement); Dealer Computer Services, Inc. v. Hammonasset Ford Lincoln-Mercury, Inc., Case No. 08-1865 (USDC S.D. Tex. Dec. 22, 2008); Vandenavond v. i2Technologies, Inc., Case No. 08-1000 (USDC N.D. Tex. Dec. 19, 2008) (permissible for arbitrator to decide breach of contract claim on provision of contract other than those argued by parties).
Doctrine of functus officio: In a case interpreting American Arbitration Association Rule 47, which governs modification of a final award, the First Circuit reversed a decision of a district judge which adopted the recommendation of a magistrate judge that an award that purported to “clarify” an earlier award be vacated, on the basis that the arbitrator did not retain authority to modify the substance of the prior award. The Court of Appeal held that there was a “latent ambiguity” in the prior award, and that the later award properly “clarified” the prior award. Eastern Seaboard Constr. Co. v. Gray Constr., Inc., No. 08-1679 (1st Cir. Dec. 31, 2008) (see May 1, 2008 post to this blog relating to the magistrate judge’s recommendation).
Procedural claims: Scott v. Amaregal, Inc., Case No. 08-219 (USDC N.D. Tex. Jan. 5, 2009) (not have to address each claim specifically if state that there is no liability); AAMCO Transmissions, Inc. v. Rizvi, Case No. 08-151 (USDC ED. Pa. Dec. 17, 2008) (no notice problem where arbitration notice sent to business and one partner hid the notice from the other); New Jersey Regional Council of Carpenters v. Maximum Constr., LLC, Case No. 08-2942 (USDC D.N.J. Dec. 5, 2008) (absence of counsel for one party from a second arbitration hearing not a basis for vacating an award) (opinion and separate Order).

This post written by Rollie Goss.

UK COURT OF APPEALS DISMISSES REINSURER’S APPEAL OF DECISION FINDING CREATION OF REINSURANCE CONTRACT PRIOR TO CASUALTY

January 27, 2009 by Carlton Fields

We previously posted on November 12, 2008 about a British court’s decision holding that a reinsurance contract was created prior to a putatively covered ocean-going casualty, based on certain written exchanges between the parties reflecting their negotiations. The reinsurer, Aigaion Insurance Company S.A. (“Aigaion”), appealed, arguing that the lower court’s decision was unclear, and that even if a contract had been formed, it contained a warranty provision allowing the policy to lapse without notice in the case of non-payment of premium (the parties did not dispute that the reinsured, Allianz Insurance Company of Egypt, forwarded timely premium payment to an intermediary broker, who failed to then forward payment to Aigaion).

The Court of Appeals disagreed with Aigaion, finding no basis for its appeal, which it dismissed. The Court found that whether or not the parties negotiated the warranty provision Aigaion sought, it was nonetheless not explicitly included in the terms of the agreement that the lower court had found the parties made by a date certain which, at the latest, preceded the casualty. Allianz Insurance Company of Egypt v. Aigaion Insurance Company, S.A. [2008] EWCA Civ 1455 (Court of Appeals, Civ. Div. Dec. 19, 2008).

This post written by John Pitblado.

COURT COMPELS TRUSTEE OF TRUST AGREEMENT INCORPORATED INTO REINSURANCE CONTRACT TO ARBITRATION

January 26, 2009 by Carlton Fields

Homestead Insurance Company (“Homestead”) entered into a reinsurance contract with Interstate Guaranty Insurance Company (“Interstate”). Under applicable Georgia insurance regulations, Interstate was required to place funds in a trust for Homestead’s benefit to protect Homestead in case Interstate became insolvent. Thereafter, Homestead, Interstate and Wachovia Bank entered into a trust agreement, with Wachovia serving as Trustee. The trust agreement contained provisions incorporating it into the reinsurance contract. The reinsurance contract contained an arbitration clause mandating arbitration as a condition precedent to a lawsuit where disputes arose concerning either “the interpretation of [the reinsurance] Agreement” or the “rights of either party” thereunder.

After dispute arose between Homestead and Wachovia pertaining to Wachovia’s conduct as Trustee, Homestead filed an action in New Jersey state court (which was ultimately removed and transferred to Georgia federal court) to compel Wachovia to arbitration as required under the reinsurance contract. Wachovia argued that it was not a party to the reinsurance contract, and thus was not bound by the provision mandating arbitration. However, the court agreed with Homestead, citing terms of the trust agreement that indicated the parties’ intent to incorporate it in its entirety into the reinsurance contract, and finding that the Trust Agreement incorporated by reference the arbitration clause of the Reinsurance Agreement. The court found that the interpretation of the Trust Agreement came within the scope of arbitrable issues. After the court denied Wachovia’s motion to reconsider, Homestead dismissed the case with prejudice. Homestead Insurance Company v. Wachovia Bank, N.A., Case No. 07-2821 (USDC N.D. Ga. 2008).

This post written by John Pitblado.