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Arbitration / Court Decisions

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.

TITLE REINSURER GRANTED SUMMARY JUDGMENT ON TORT AND CONTRACT CLAIMS BROUGHT BY REINSURED’S DEFRAUDED TITLE INSURANCE CLIENTS

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Claims brought by individuals who were defrauded by rogue real estate title insurance agents against the title insurer and its reinsurer, Attorneys Title Insurance Fund (“ATIF”). The plaintiffs alleged that the insurer and reinsurer had become aware that the title insurance agents were defrauding borrowers, but did not take appropriate action. The plaintiffs also asserted contract claims arising from the reinsurance treaty between ATIF and the title insurers.

The Court granted summary judgment to the defendants, finding that the plaintiffs failed to establish the necessary agency relationship between ATIF and the rogue agents, despite the fact that the agents’ placement of title insurance for the plaintiffs created an automatic reinsurance obligation on the part of ATIF to the reinsured title insurers. The Court rejected plaintiffs’ argument that the rogue agents were impliedly acting on behalf of both the title insurers and ATIF, pointedly noting that “there is no contract between the reinsurer and the insured.” The Court also granted summary judgment on the contract claims, holding alternatively that: (1) no valid insurance contract was actually created between the title insurer and the plaintiffs (as a result of the rogue agent’s fraud, and despite the plaintiffs’ claims of an oral contract); and (2) the Reinsurance Treaty specifically excluded liability for losses caused by the title insurers’ agents’ fraud. The plaintiffs have appealed the decision to the Tenth Circuit Court of Appeals. Albright v. Attorneys’ Title Insurance Fund, Case No. 2:03-CV-00517 (D. Utah 2008).

This post written by John Pitblado.