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Arbitration / Court Decisions

TWO-YEAR TIME LIMITATION FOR COMMENCING “LEGAL ACTION” BARS PLAINTIFF FROM ARBITRATION

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In this insurance contract case before the Rhode Island Supreme Court, the plaintiff, National Refrigeration, appealed from an entry of summary judgment in favor of the defendant after the plaintiff filed a petition to enforce an arbitration clause in the insurance contract. The lower court granted summary judgment on the grounds that the plaintiff initiated its petition for arbitration years after the two-year limitations provision expressly provided for in the contract between the two parties. On appeal, plaintiffs argued that the trial court erred in ruling that plaintiff’s petition for arbitration was time-barred and that defendant’s actions had not tolled the limitations period. The defendant argued that the contract’s two-year limitation for commencing legal action with respect to damages under the policy applied to petitions for arbitration and that, therefore, plaintiff’s petition was not timely. The Supreme Court affirmed the trial court’s judgment, concluding that a petition for arbitration “fits squarely within the definition of legal action.” The Supreme Court also held that the ongoing settlement negotiations between the parties did not estop the defendant from invoking the time limitation defense. Some other courts have held that the issue of whether arbitration is barred by a limitation agreement is an issue for the arbitrators to decide. See JPD, Inc. v. Chronimed Holdings, Inc., 2008 WL 3876343 (6th Cir. Aug. 22, 2008). Nat’l Refrigeration, Inc. v. Travelers Indemnity Co. of Am., No. 2007-252 (R.I. May 29, 2008).

This post written by Lynn Hawkins.

INSURER HAS NO STANDING TO SEEK A DECLARATORY JUDGMENT ON HYPOTHETICAL CLAIMS

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Tall Tree insured Hewlett Packard, and was reinsured by Munich Reinsurance for amounts Tall Tree was required to pay to Hewlett Packard. Hewlett Packard was involved in litigation under which liabilities arose. Rather than first indemnifying Hewlett Packard, Tall Tree sued Munich Reinsurance in federal district court, seeking a declaratory judgment that Tall Tree was obligated to pay Hewlett Packard and that, in turn, Munich Reinsurance was obligated to pay Tall Tree. The court would not entertain the case: Tall Tree lacked standing to assert its claims. As to the question of whether Tall Tree was obligated to pay Hewlett Packard, the court noted that there was no live controversy before it; Tall Tree “can simply pay HP.” There was also no live controversy on the question of whether Munich Reinsurance was obligated to pay Tall Tree. The “follow the fortunes” doctrine did not apply because Tall Tree had not yet paid Hewlett Packard; there was essentially no “fortune” yet to follow, and the request for declaratory relief hence was premature. The case was dismissed. The Tall Tree Insurance Co. v. Munich Reinsurance America, Inc., Case No. C-08-1060 (USDC N.D. Cal. July 29, 2008).

This post written by Brian Perryman.

COURT OF APPEALS AFFIRMS DISMISSAL OF INDICTMENT DUE TO PROSECUTORIAL MISCONDUCT

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In a July 23, 2007 post, we reported on a decision of a district court dismissing an indictment against former partners and employees of the accounting firm KPMG, finding that the government's conduct in placing conditions on the advancement of legal fees, capping the fees and ultimately ending the payment of fees deprived the defendants of their right to counsel, in violation of the Sixth Amendment to the United States Constitution. In a 68 page opinion, the Second Circuit has affirmed that ruling, finding that the government had failed to cure the Sixth Amendment violation, and that no other remedy would return the defendants to the status quo ante. United States v. Stein, No. 07-3042-cr (2d Cir. Aug. 28, 2008).

This post written by Rollie Goss.

CONNECTICUT SUPREME COURT DISMISSES APPEAL BY REINSURANCE BROKER ON PROCEDURAL GROUNDS

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Brown and Brown, Inc., an independent insurance and reinsurance broker, brought suit against Connecticut’s Attorney General in an attempt to resist the Attorney General’s subpoena seeking documents relating to an ongoing investigation into certain insurance practices under investigation for violation of the Connecticut Antitrust Act. Brown & Brown filed the action seeking to protect trade secrets and other confidential commercial and financial information. The trial court denied Brown & Brown’s motion for summary judgment, rejecting its claim that Connecticut General Statutes §35-42 allows a party to restrict disclosure of information to any person outside the Attorney General’s office.

Brown & Brown appealed the ruling, and the Attorney General’s office successfully sought transfer of the appeal to Connecticut’s Supreme Court. Finding that the trial court’s ruling denying summary judgment did not constitute a final judgment, the Court dismissed the appeal for lack of appellate jurisdiction, without addressing the merits of the parties’ arguments. Brown & Brown, Inc. v. Blumenthal, SC 17920, — A.2d — (Conn. 2008).

This post written by John Pitblado.

COURT ENFORCES PERSONAL GUARANTEE OF REINSURANCE CONTRACT AGAINST INSURED’S CHAIRMAN AND CEO

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Defendant, Centrix Financial, LLC (“Centrix”), sought default protection insurance (“DPI”) covering its “Portfolio Management Program” – a program it created to protect lenders of sub-prime auto loans which Centrix bundled – against the risk of deficiency loan balances and property damage connected with default repossessions. Having been informed by its prior DPI carrier of non-renewal, Centrix approached the plaintiffs, Everest National Insurance Company and Everest Reinsurance Company (“Everest”) to underwrite the risk. When Everest expressed reservation about reinsurance, Centrix’s Chairman and CEO, co-defendant Robert Sutton, offered, as part of a letter of intent memorialized between the parties in an integrated contract, to personally guarantee a reinsurance contract issued by Founders Insurance Company, Ltd. (“Founders”), a Bermuda-based company owned by Sutton.

Everest and Founders ultimately proceeded to arbitration as a result of losses, and the arbitration panel ordered Founders to post security in the amount of $70,000,000. Founders failed to comply with the order, and Everest thereafter looked to Sutton to satisfy his obligation to post the security. Sutton resisted, claiming the guarantee obligation was unenforceable as it was fraudulently induced and made under economic duress. Everest sued in federal court and moved for summary judgment. The court rejected Sutton’s defenses, finding that the economic duress he faced in the course of negotiating the various agreements with Everest was not of Everest’s making, and that Sutton’s fraudulent inducement claims, even if true, were barred under the parol evidence rule as the claims were contradicted by the terms of the integrated contract entered into by the parties. The court granted summary judgment in favor of Everest. Everest National Ins. Co. v. Sutton, Case No. 07-722 (USDC D.N.J., Aug. 13, 2008).

This post written by John Pitblado.