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Arbitration / Court Decisions

UNDERLYING INSURED DENIED RIGHT TO SEEK DISCOVERY FROM FORMER REINSURER

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A reinsurer successfully appealed a Connecticut court’s ruling granting plaintiffs, the underlying insured, a bill of discovery. In December 2000, the plaintiff, H&L Chevrolet, purchased an insurance policy from National Warranty Insurance Group (“National Warranty”). At that time, the defendant, Berkley Insurance Company, reinsured National Warranty for certain losses, including losses that might arise from the policy issued to H&L. Unbeknownst to H&L at the time it purchased coverage, the reinsurance policy issued by the defendant was scheduled to expire (and did expire) on January 1, 2001. In mid-2003, National Warranty filed a petition for bankruptcy and ceased making payments to H&L for claims made.

Plaintiffs filed a petition for a bill of discovery, seeking from the defendant disclosure of documents and other information concerning its reinsurance agreement with National Warranty. The appellate court concluded that plaintiffs did not meet their burden of demonstrating that probable cause existed to bring a cause of action for breach of contract, fraud, or violation of the Connecticut Unfair Trade Practices Act against the defendant, nor did plaintiffs demonstrate that they were third party beneficiaries to the reinsurance contract. The court’s based its decision largely on the fact that the reinsurance contract expired on January 1, 2001, more than two years prior to the time National Warranty ceased making payments. H and L Chevrolet, Inc., et al., v. Berkley Ins. Co., No. 27670 (Ct. App. Ct. September 23, 2008).

This post written by Lynn Hawkins.

COURT PERSISTS IN PUSHING ARBITRATION AWARDS TOWARDS FINALITY

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There have been a series of interesting orders entered in a case involving the allocation of response and remedial costs in an environmental contamination case. On March 31, 2008, the Court entered a 99 page order confirming two arbitration awards in a bifurcated arbitration proceeding, rejecting arguments that the arbitrators had acted in manifest disregard of both substantive and procedural laws, made procedural errors and that there was arbitrator misconduct. Noting uncertainty as to whether the Supreme Court’s opinion in Hall Street Associates eliminated the manifest disregard of law doctrine, in part because of uncertainty as to whether the doctrine was or was not a non-statutory ground for vacatur, the court considered the manifest disregard of law standard as both a non-statutory ground for vacatur and as a summary of statutory grounds for vacatur, finding no manifest disregard under either standard.

Next, on July 2, 2008, the court entered an order granting partial final judgment under FRCivP 54(b), entering judgment on the arbitration awards and leaving for further adjudication issues relating to other parties relating to the pollution sites. On the same day, the court entered a separate order denying a stay without a bond and providing for a stay upon the posting of a bond in an amount in excess of $14.3 million. The bond was posted that day.

Finally, on August 4, 2008, the court entered an order denying a Rule 59 motion to set aside the partial final judgment, rejecting Halliburton’s argument that the court’s ruling on manifest disregard of law violated its constitutional due process rights and essentially constituted manifest legal error.

Halliburton Energy Services, Inc. v. NL Industries, Case No. 05-4160 (USDC S.D. Tex.).

This post written by Rollie Goss.

COURT ORDERS THE PRODUCTION OF DOCUMENTS RELATING TO ANTICIPATED LATE NOTICE DEFENSE FROM REINSURER’S CLAIM FILE, DESPITE CLAIMS OF PRIVILEGE AND WORK PRODUCT

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AIU Insurance Company (“AIU”) sued its reinsurer, TIG Insurance Company (“TIG”), for breach of contract arising from underlying coverage litigation pertaining to asbestos claims. After AIU, an excess carrier, settled claims, it provided written notice to TIG under the reinsurance contracts. Suspecting the possibility of a late notice defense to AIU’s claim, TIG undertook an investigation, including an audit under the “access-to-records” clause of the reinsurance contracts. Prior to the audit, TIG retained outside counsel, who provided TIG’s claims investigators with advice pertaining to the conduct of the audit. The investigators took notes during the audit and submitted them to outside counsel.

During the course of the litigation, AIU issued discovery requests, seeking information pertaining to TIG’s late notice investigation and records audit. TIG provided some documents, and withheld others (including the records made during the audit) on the basis of attorney-client privilege and the work product doctrine. While the Court upheld a few of TIG’s assertions of privilege (as set forth in a privilege log TIG produced in conjunction with its objections to AIU’s discovery requests), it ordered TIG to produce the majority of the withheld documents. As to the claim of attorney client privilege, the Court held that TIG failed, for the most part, to demonstrate with specific evidence that each document withheld in fact contained communications between TIG and its attorneys reflecting the request for or provision of legal advice. As to the claims of work product protection, the Court generally found that the documents were not clearly prepared in anticipation of litigation, and TIG failed to rebut the presumption that documents prepared by or for an insurer prior to a coverage decision are prepared in the ordinary course of the insurer’s business, and thus are not entitled to work product protection. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Aug. 28, 2008).

This post written by John Pitblado.

ARBITRATION AWARD CONFIRMED, FINDING ARBITRATION CLAUSE APPLIED, DESPITE FAILURE TO NAME BOTH PARTIES IN FORM CONTRACT

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Plaintiff, Philip Green, filed a wrongful discharge complaint in federal court in the Southern District of Texas against Defendant, Service Corporation International (“SCI”), an affiliate of his former employer. SCI moved to compel arbitration of the claim under Green’s employment contract, which contained an arbitration clause which explicitly applied to the employer’s “affiliates.” Green objected to SCI’s motion to compel arbitration, arguing that the employment contract left blank the name of the employer, though the cover page of the contract identified SCI. The Court granted SCI’s motion to compel arbitration, finding that the only possible reading of the contract indicated that SCI, as an “affiliate” of Plaintiff’s employer, was clearly covered by the arbitration clause, insofar as Green was plainly aware of the identity of his employer, and SCI was indisputably its affiliate. Reconsideration was denied.

When the panel convened, Green challenged the panel’s jurisdiction, raising the same contract interpretation issue again, which the panel rejected, entering an award against Green. Green moved to vacate the award, raising the same issue yet again to a court which already had rejected the argument twice. Not surprisingly, the Court denied Green’s motion to vacate and confirmed the award. Still not willing to give up, Green has filed a notice of appeal. Green v. Service Corp. Int’l., Case No. 06-833 (USDC S.D. Tex. August 25, 2008).

This post written by John Pitblado.

CLAIMS START UP FEE COMPENSABLE AS LOSS ADJUSTMENT EXPENSE UNDER REINSURANCE AGREEMENT

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In this contract construction case, the parties disagreed over whether a “claims start up fee” paid pursuant to an administrative services agreement should be included in calculating the losses incurred under a reinsurance contract. Both parties filed motions for partial summary judgment on the issue. The trial court granted American Southwest’s motion, and Employers appealed. In reversing the trial court and granting Employers’ motion for partial summary judgment, the appellate court held that the fee should be included in calculating Employers’ losses incurred. The decision turned on the characterization of the fee. The court ruled that the fee was a compensable loss adjustment expense. Employers Reinsurance Corp. v. Am. Sw. Ins. Managers, Inc., No. 05-06-01284 (Tex. App. Aug. 14, 2008).

This post written by Dan Crisp.