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Arbitration / Court Decisions

COURT RESOLVES DISAGREEMENT OVER PROTECTIVE ORDER PROVISIONS IN INSURANCE DISPUTE

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The National Council on Compensation Insurance, as attorney-in-fact for participating companies of the National Workers Compensation Reinsurance Pool, filed a complaint against AIG alleging that AIG engaged in a fraudulent scheme to avoid paying their proportional share of the insurance costs in the residual market for workers compensation insurance. The parties, unable to agree on several terms of a protective order to govern the exchange of confidential information, turned to the district court to resolve their differences on numerous provisions.

The Court made the following key determinations: First, the ‘inadvertent production’ provision would require the receiving party to ‘return, sequester, or destroy’ the information that the producing party claimed had been inadvertently produced. The Court explained that the 2006 Amendments to Rule 26 added the option of sequestration. Second, the Court acknowledged the need for a two-tier definition of confidentiality (“confidential” and “highly confidential – outside counsel’s eyes only”) but limited “highly confidential” documents to those that “(a) must have current applicability to defendant’s business operations, and (b) more likely than not would cause competitive harm to the business operations of the disclosing party.” Lastly, the court rejected defendants’ request to include a provision in the protective order that would require the Court to award damages for any breach of the protective order. National Council on Compensation Ins., Inc. v. American International Group, Case No. 07 C 2898 (USDC N.D.Ill. Dec. 11, 2007).

This post written by Lynn Hawkins.

CASE UPDATE: UK COURT REJECTS LATEST CHALLENGE TO ENFORCEMENT OF $88 MILLION GAZPROM ARBITRATION AWARD

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On June 14, 2007 and November 27, 2007, we reported on a $88 million arbitration award rendered in Russia involving energy giant Gazprom, and efforts to enforce the award in the United States and the United Kingdon pursuant to the New York Convention, the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the UK’s Arbitration Act of 1996. In a last attempt to avoid the arbitration award, it was contended to the UK Commercial Court that the award should not be enforced because it was contrary to public policy due to fraud in the underlying arbitration proceeding and the underlying reinsurance transactions, which appeared not to transfer any risk. The Commercial Court has rejected the presentation, concluding that the award had been confirmed through the Russian courts and that the alleged irregularities were insufficient to warrant a refusal to enforce the award. Gater Assets Limited v. Nak Naftogaz Ukrainiy [2008] EWHC 237 (Comm. Feb. 15, 2008).

This post written by Rollie Goss.

COURT DECLINES TO DISMISS COMPLAINT REGARDING LETTER OF CREDIT POSTED AS SECURITY FOR REINSURANCE

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Letters of credit were posted as security for a loss fund in an off-short based rent-a-captive reinsurance program. When the reinsurance program ended, and the remaining claims were finalized, it was agreed that the obligors on the letters of credit had satisfied their obligations under the program and that the letters of credit should be returned. The party holding the letters of credit contended, however, that they were legally entitled to retain the letters of credit for use in unrelated rent-a-captive programs. The obligors sued, seeking damages for the failure to release the letters of credit, alleging breach of fiduciary duty and violation of Connecticut’s Unfair Trade Practices Act. The district court denied a motion to dismiss, relying upon the fact that the letters of credit were the property of the obligors, but that the holder was exercising complete control over the instruments. WEB Management LLC v. Arrowood Indemnity Co., Case No. 07-424 (USDC D. Conn. Mar. 5, 2008).

This post written by Rollie Goss.

CALIFORNIA APPELLATE COURT AFFIRMS DECISION TO DISQUALIFY ARBITRATOR in dispute involving lloyd’s syndicates

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A California appellate court has affirmed a trial court’s decision to disqualify an arbitrator and vacate an arbitration award based on the arbitrator’s failure to disclose his ties to the plaintiffs’ insurer. Plaintiff, Advantage Medical Services (“AMS”) was insured by two Lloyd’s of London syndicates. The arbitrator and his law firm represented several protection and indemnity clubs that obtained reinsurance through various Lloyd’s of London syndicates.

The court held that disclosure of the arbitrator’s ties to AMS’s insurer “could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” As such, the court affirmed the trial court’s decision to vacate the arbitrator’s interim award in favor of the plaintiffs. Additionally, the appellate court held that “the statutory right to petition a trial court to vacate an arbitration award based on an arbitrator’s failure to make required disclosure cannot be waived by the [AAA] rule stating its determinations regarding disqualification are conclusive.” Advantage Medical Services v. Hoffman, No. 05CC7459 (Cal. Ct. App. March 3, 2008).

This post written by Lynn Hawkins.

CALIFORNIA APPELLATE COURT AFFIRMS DECISION TO DISQUALIFY ARBITRATOR in dispute involving lloyd's syndicates

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A California appellate court has affirmed a trial court’s decision to disqualify an arbitrator and vacate an arbitration award based on the arbitrator’s failure to disclose his ties to the plaintiffs’ insurer. Plaintiff, Advantage Medical Services (“AMS”) was insured by two Lloyd’s of London syndicates. The arbitrator and his law firm represented several protection and indemnity clubs that obtained reinsurance through various Lloyd’s of London syndicates.

The court held that disclosure of the arbitrator’s ties to AMS’s insurer “could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be impartial.” As such, the court affirmed the trial court’s decision to vacate the arbitrator’s interim award in favor of the plaintiffs. Additionally, the appellate court held that “the statutory right to petition a trial court to vacate an arbitration award based on an arbitrator’s failure to make required disclosure cannot be waived by the [AAA] rule stating its determinations regarding disqualification are conclusive.” Advantage Medical Services v. Hoffman, No. 05CC7459 (Cal. Ct. App. March 3, 2008).

This post written by Lynn Hawkins.