Arbitration / Court Decisions

NEW YORK COURTS DECLINES TO ADDRESS REINSURANCE CLAIM DISPUTE

July 10, 2008 by Carlton Fields

On July 18, 2007, we reported on a ruling by the New York Supreme Court’s Appellate Division in a case in which it described the conduct of the insured, American Home Assurance, as “manifest manipulation,” based upon its taking inconsistent positions on the number of insured occurrences of environmental pollution in order to minimize its liability to its insured but maximize its reinsurance recovery. The result of the ruling was the complete loss of American Home’s reinsurance cover. Without opinion, the New York Court of Appeals has denied a motion for leave to appeal, apparently ending the case. Allstate Insurance Company v. American Home Assurance Co., Mo. No. 213 (NY June 3, 2008).

This post written by Rollie Goss.

JURY FINDS CLAIMS OF REINSURED BARRED BY STATUTE OF LIMITATION

July 9, 2008 by Carlton Fields

A jury in state court in San Francisco, California has found, by special verdict, that a reinsured waited too long to sue its reinsurer for failure to pay claims under two facultative reinsurance certificates. The jury rejected the contention that the running of the statute of limitation was tolled due to the ongoing investigation and negotiations between the parties. Background on the dispute is found in the Complaint. Transport Insurance Company v. TIG Insurance Company, No. CGC-06-448898 (Cal. Super. Ct. June 9, 2008).

This post written by Rollie Goss.

COURT COMPELS PRODUCTION OF ACCOUNTING AND RESERVE-RELATED DOCUMENTS TO HELP INTERPRET REINSURANCE CONTRACTS

July 8, 2008 by Carlton Fields

On November 19, 2007, we reported on the denial of a motion to dismiss an action seeking to bar the arbitration of disputes under 43 reinsurance contracts. A district judge has now compelled the production of documents in five categories, finding them relevant to both the claims alleged by Midwest Employers Casualty Company (“MECC”) and the defenses of Legion Insurance Company (“Legion”). The dispute is whether the reinsurance contracts provide for coverage on a “risk attaching” basis (Legion’s contention) or a “loss occurring” basis (MECC’s contention). The court compelled Legion to produce:

Contracts evidencing reinsurance purchased by Legion for program business on a “loss occurring” basis;

Documents evidencing the attachment basis of the reinsurance that Legion purchased from MECC;

Documents showing Legion’s booking of or accounting for reinsurance purchased from MECC;

Documents showing actuarial support for Legion’s last Schedule F statutory filing relating to its projection of MECC’s ultimate liability and any subsequent projection of MECC’s ultimate liability; and

Documents showing case reserves and reinsurance receivables by claim, program and/or year relating to Legion’s policies or accounts reinsured by MECC or that otherwise show reinsurance payments that Legion estimated or expected to receive from MECC.

Further detail regarding the dispute is set forth in the memoranda in support of and in opposition to the Motion to Compel. Midwest Employers Casualty Company v. Legion Insurance Company, Case No. 07-870 (USDC E.D. Mo. June 4, 2008).

This post written by Rollie Goss.

FIRST CIRCUIT PANEL VACATES ARBITRATION AWARD AS BEING IN MANIFEST DISREGARD OF LAW, WITHOUT MENTIONING HALL STREET ASSOCIATES

July 7, 2008 by Carlton Fields

In an appeal of an arbitration award rendered pursuant to the rules of the National Association of Securities Dealers (“NASD”), the First Circuit has reversed the confirmation of an arbitration award on the basis that the award was in manifest disregard of law. The arbitrators had dismissed certain claims, with prejudice. The Panel initially justified its decision as being based upon its consideration of the merits of the claims, but when the losing party reminded the Panel that the merits of the claims had not been briefed, nor had the Panel received any evidence pertaining to the claims, the Panel announced that the dismissal was a discovery sanction pursuant to NASD Code Rule 10305, based upon the failure to produce documents in accordance with an Order to do so. The First Circuit found that the NASD rules required the imposition of lesser sanctions in an attempt to achieve compliance “before the ultimate sanction of dismissal is imposed. The Panel ignored this unmistakable directive.” The Court clearly was troubled by the severity of the sanction.

This opinion does not mention the Supreme Court’s decision in Hall Street Associates v. Mattel, which another panel of the First Circuit has read as eliminating the doctrine of manifest disregard of law as a basis for vacating an arbitration award. See the June 30, 2008 post discussing Ramos-Santiago v. UPS, No. 07-1024 (1st Cir. April 24, 2008), which stated in dicta that “manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the [FAA]”. This is developing into an interesting area of the law of arbitration. Kashner Davidson Securities Corp. v. Mscisz, No. 07-1231 (1st Cir. June 27, 2008).

This post written by Rollie Goss.

COURT CHOOSES BETWEEN TWO ARBITRATION VENUES

July 2, 2008 by Carlton Fields

Plaintiff sued in state court, alleging that he and his company were “blacklisted” from doing business on the Commodities Futures Exchange due to e-mails circulated by the defendant, which is a large clearing firm on the New York Mercantile Exchange (“NYMEX”). After the case was removed, it was stayed pending arbitration before the NYMEX. Plaintiff then filed an arbitration demand before the National Futures Association, contending that arbitration before the NYMEX could not be impartial due to the defendant’s “considerable power and influence” within NYMEX. The district court found that potential bias did not rise to the standard of the fraud, duress or unconscionability required to disregard an arbitration agreement. The court directed plaintiff to withdraw the arbitration demand to the National Futures Association and proceed, if at all, before the NYMEX. Carboni v. Lake, Case No. 06-15488 (USDC S.D.N.Y. June 20, 2008).

This post written by Rollie Goss.