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Arbitration / Court Decisions

UK COMMERCIAL COURT DENIES BROKER’S APPLICATION TO WITHDRAW ADMISSIONS REGARDING MARKET ISSUES

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We previously reported on problems in the London Personal Accident Reinsurance market in the 1990s, including an extensive Commercial Court opinion involving Sphere Drake Insurance Limited and its broker, Stirling Cooke Brown. In the present action, American Reliable Insurance Company, one of the participants in that market, sued its reinsurance broker in the UK Commercial Court, seeking to recover damages. Prior to the case management conference, after admitting certain factual findings made by the court in the prior Sphere Drake case, the defendant broker, Willis Limited (“Willis”), sought to withdraw some of those admissions, including admissions regarding the nature of the Personal Accident Reinsurance market. Willis had also been sued by another one of its former clients, CNA Insurance Company Limited, and had made admissions in that case which were inconsistent with those it had made in the American Reliable case.

The Court denied Willis’ application to withdraw its admissions. In support of the denial, the Court explained that Willis neither presented new evidence nor made any positive challenges to the prior admissions. This opinion demonstrates some of the substantial differences between civil case management in US and UK courts. American Reliable Insurance Company v. Willis Limited [2008] EWHC 2677 (Comm. Oct. 24, 2008) (Note: Carlton Fields has represented American Reliable Insurance Company in disputes in the Personal Accident Reinsurance market).

This post written by Dan Crisp.

SECOND CIRCUIT COURT OF APPEALS STRICTLY CONSTRUES FEDERAL ARBITRATION ACT’S SUBPOENA POWER PERTAINING TO NON-PARTIES

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Life Settlements Corp. d/b/a Peachtree Life Settlements (“Peachtree”) entered into a contingent cost insurance contract with Syndicate 102 at Lloyd’s of London (“Syndicate 102”) to insure against the risk that living insureds under life policies which Peachtree purchased might live past his or her projected life expectancy. Some of the purchased life policies were placed by Peachtree with Life Receivables Trust (the “Trust”), an entity created by Peachtree for the express purpose of holding the policies. Syndicate 102 declined a claim by Peachtree after an insured outlived his life expectancy, asserting that the Trust made fraudulent misrepresentations regarding the date on which the underlying life policy was purchased, and also regarding the insured’s life expectancy. Syndicate 102 and the Trust arbitrated the dispute under the parties’ agreement, which commanded arbitration under American Arbitration Association rules.

After Syndicate 102 unsuccessfully attempted to join Peachtree as a party to the arbitration (Peachtree was also a party to the contract containing the arbitration agreement), it successfully sought the arbitrators’ issuance of subpoenas commanding Peachtree to produce certain documents that the Trust was unable to obtain from Peachtree, due to Peachtree’s expressed position that it was not a party to the arbitration, and the arbitrators thus had no jurisdiction to issue orders binding on Peachtree. After Peachtree refused to comply with the subpoenas, Syndicate 102 filed an action in the federal district court seeking to compel compliance. The court ordered Peachtree to comply. Peachtree appealed, and the Second Circuit held – noting a split among the circuits – that the plain language of §7 of the Federal Arbitration Act does not authorize pre-hearing discovery from non-parties, and that a non-party may only be compelled to produce documents or testimony in conjunction with an appearance before the arbitral panel. The Court thus reversed the district court’s ruling ordering Peachtree to comply with the subpoenas. Life Settlements Corporation d/b/a Peachtree Life Settlements v. Syndicate 102 at Lloyd’s of London, No. 07-1197-cv (2d. Cir. Nov. 25, 2008).

This post written by John Pitblado.

COURT OF APPEALS AFFIRMS TRIAL COURT’S CHALLENGED “ENFORCEMENT” OF ARBITRATION AWARD

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The United States Court of Appeals for the Fourth Circuit affirmed the judgment of a federal district court which enforced an arbitration award between plaintiff, Qorvis Communications, LLC (“Qorvis”) and defendant, Christopher S. Wilson. Wilson and Qorvis were parties to an employment contract whereby Wilson agreed to provide certain research, polling, and political consulting services to Qorvis in his position as a public affairs executive, and CEO of the company’s Research Strategies Division (“RSD”). As part of the employment contract, Wilson agreed that he would devote his “full time, attention, skill and energy” to developing and building Qorvis’s RSD. The agreement also obligated Wilson not to solicit Qorvis clients for his own account during his employment and for eighteen months thereafter. Qorvis later alleged that Wilson did, in fact, solicit Qorvis clients for his own account during his employment and misappropriated certain confidential trade secrets, all to Qorvis’s financial detriment. Qorvis invoked the agreement’s arbitration provision as a result of the dispute.

Without objection, the parties proceeded to arbitration, after which the arbitrator ruled on all of Qorvis’s claims, as well as counterclaims which Wilson had raised during the course of the proceeding. The arbitrator awarded Qorvis $366,037.72, plus post-judgment interest. Qorvis then moved to confirm the award in the federal district court, and Wilson moved to vacate. The district court entered judgment in favor of Qorvis. Wilson appealed on the primary basis that the arbitration agreement did not explicitly provide the parties a right to enforce an award in court, but rather merely referred to the rules of Judicial Arbitration and Mediation Services, Inc. (“JAMS”). However, the Court of Appeals agreed with the district court that the JAMS rules clearly contemplated enforcement of any award in court under the Federal Arbitration Act, and that, combined with the strong public policy in favor of arbitration, “only an explicitly expressed intention that the award NOT be enforced by the courts would suffice to make the award unenforceable.” On that and other ancillary issues raised by Wilson, the Court of Appeals affirmed the district court’s judgment. Qorvis Communications, LLC v. Wilson, No. 07-1967 (4th Cir. Dec. 3, 2008).

This post written by John Pitblado.

SECOND CIRCUIT VACATES DECISION GRANTING THE DISMISSAL OF CONTINGENT COMMISSION CLASS ACTION

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On October 14, 2004, the Office of the New York State Attorney General filed a lawsuit against Marsh, Inc. for the practice of accepting contingent commissions and cited a number of insurers, including The Hartford, in the complaint. The following day, Appellant Staehr filed his complaint against The Hartford on behalf of a putative class of shareholders. Staehr’s complaint alleged that shareholders were misled into investing in The Hartford based on the strength of its business, which was in part due to paying contingent commissions to brokers, which The Hartford failed to disclose. The district court found that the Plaintiffs’ claims were time-barred by the Sarbanes-Oxley two-year statute of limitations based on publicly available information that placed the Plaintiffs on inquiry notice in July of 2001.

On appeal, the main issue to be decided was whether the publicly available facts amounted to a “storm warning,” which triggered a duty to inquire and started the running of the limitation period. For a duty of inquiry to exist, the facts must “relate directly to the misrepresentations and omissions the Plaintiffs later allege in their action against the defendants,” analyzed under an objective standard. The Hartford contended that a duty to inquire arose based upon media reports, regulatory filings, and state court complaints. The circuit court determined that the media reports would not put an ordinary investor on notice because the reports primarily contained industry information, not information specific to The Hartford, the regulatory filings were not specific enough with respect to contingent commissions, and an unpublicized lawsuit containing similar allegations that was filed against subsidiaries of The Hartford in a California state court would not put an ordinary investor on notice. The Second Circuit vacated the decision granting the motion of dismiss as time-barred and remanded the case to the district court. Staehr v. The Hartford Financial Services Group, Inc., No. 06-3877-cv (2d Cir. Aug. 18, 2007).

This post written by Dan Crisp.

ARBITRATION AWARD ALLOWED TO BE FILED UNDER TEMPORARY SEAL

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A group of reinsurers successfully moved to file under temporary seal a final arbitration award and motion to dismiss for lack of subject matter jurisdiction in an action petitioning for confirmation of the arbitration award. The Respondent moved to dismiss, contending that the jurisdictional amount in controversy requirement was not satisfied, and sought to file the award under seal in support of its motion to dismiss. All parties had expressed the concern that filing the award as a matter of the public record would violate the arbitration panel’s confidentiality order. The court permitted the Respondent to “temporarily file” its motion to dismiss and the award under seal, pending a determination of the motion to dismiss. Follow the links to view the petition to confirm the arbitration award, the memorandum of law supporting the motion to file under seal, and the court’s order. American Bankers Insurance Co. of Florida v. National Casualty Co., Case No. 08-13522 (USDC E.D. Mich. Oct. 10, 2008).

This post written by Brian Perryman.