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Arbitration / Court Decisions

CASE UPDATE: ARBITRATION CONSOLIDATION ISSUE LEFT IN HANDS OF FOUR SEPARATE ARBITRATION PANELS

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Recently, a Pennsylvania district court was asked to determine which of four arbitration panels should decide whether individual arbitration proceedings should be consolidated. As reported on in a prior posting (dated Oct. 26, 2006), the court previously held that Argonaut’s petition challenging Century’s attempt to force consolidated arbitration of multiple disputes was properly filed in Century’s home district. With the venue issue resolved, Argonaut filed a petition to compel Century to arbitrate multiple insurance claims in separate arbitration proceedings, and to dismiss the consolidated arbitration proceeding sought by Century. The parties agreed that the issue of whether arbitration proceedings should be individual or consolidated was a procedural question to be decided by the arbitration panel itself. The narrow question before the Court was which of the four arbitration panels was the appropriate body to determine the issue of consolidation.

Both parties advocated for a “first in time” rule, that is, that the first panel that was completely formed should decide the threshold question of consolidation. The parties disagreed, however, as to which of the panels was the first to be formed. The court recognized that the principles of efficiency strongly favored a single arbitration panel’s determination of whether consolidation of the claims was appropriate. However, persuaded by “the combination of statutory directives and case law together with the parties’ contractual agreement” the court concluded that all four arbitration panels should proceed to decide the issues before them. The court left open the options of either the parties or the four arbitration panels reaching an agreement on how the claims should be handled other than independently. Argonaut Ins. Co. v. Century Indemnity Co., Case No. 05-5355 (USDC E.D. Pa. Sept. 5, 2007).

DISTRICT COURT CONFIRMS THAT REINSURANCE CLAIMS NOT SUBJECT TO TEXAS PROMPT PAYMENT STATUTE

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After holding that the follow the fortunes doctrine required a reinsurer to pay claims for business interruption and property damage at a theme park due to Hurricane Floyd in 1999 (see August 16, 2006 post to this blog), a Magistrate Judge entered a Report and Recommendation holding that the reinsurance claim was not subject to the Texas prompt payment statute, Texas Insurance Code article 21.55. Houston Casualty filed objections to the Report and Recommendation, and the district court rejected the objections, adopting the Magistrate’s Report and Recommendation in a two sentence Order. Houston Cas. Co. v. Lexington Ins. Co., Case No. 05-1804 (USDC S.D. Tex. June 25, 2007).

CASE UPDATE: SCOTTSDALE INSURANCE v. AMERICAN RE DISCOVERY DISPUTE

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This case, arising from a dispute over insurance coverage following a deadly collision when a tractor trailer struck several other vehicles, was first reported on in a February 28, 2007 posting. Recently, defendant American Re (now known as Munich Re) filed a motion to compel Scottsdale to produce documents. Specifically, American Re sought two categories of documents – documents relating to premium bordereaux and documents relating to underwriting guidelines. With respect to the first request, Scottsdale did not argue the merits of each request, but simply asserted that the requests were irrelevant, overbroad, and burdensome. The court found Scottsdale’s arguments insufficient to bar production, but did limit the timeframe to documents created on or after January 1, 1997.

The court denied American Re’s request with respect to the second category of documents, concluding that American Re did not meet its burden of showing how the requested information was relevant to its claims or defenses. Scottsdale Ins. v. American Re-Insurance Co., Case No. 8:06cv16 (USDC D. Neb. Sept. 10, 2007).

CONNECTICUT COURT HOLDS BROKERAGE BELONGS TO PLACING BROKER

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A Connecticut court has ruled in favor of reinsurance brokers Carvill America in their dispute with XL Specialty Insurance Company. In 1999, Carvill was appointed reinsurance broker for XL Specialty Insurance Company. This appointment was subsequently terminated. In 2004, XL sued Carvill alleging misconduct and Carvill counter-claimed alleging it was entitled to brokerage on all of the reinsurance contracts it had placed prior to XL terminating its role. The court determined that XL tortiously interfered with Carvill’s business relationships with the reinsurers when it instructed its new broker (Benfield) to withhold the amount of Carvill’s brokerage from premium payments to the reinsurers. The court concluded that termination of a reinsurance broker’s position as broker of record for an insurer does not terminate the reinsurers’ contractual obligation to pay the placing broker the brokerage as required by the slips. XL Specialty Ins. Co. v. Carvill America, Inc., No. X04cv044000148S, 2007 WL 1748157 (May 31, 2007), denying XL’s motion to amend, 2007 WL 2200560 (Super. Ct. Conn. July 9, 2007) (not available on court’s web site).

APPELLATE COURT AFFIRMS SUMMARY JUDGMENT BARRING SUIT ON CLAIM ALREADY ARBITRATED

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Lewis arbitrated a claim for retaliatory discharge against his employer, Circuit City, and after losing the arbitration on the merits sued Circuit City on the same claim. The same attorney represented Lewis in both proceedings. Circuit City filed a motion to dismiss, which the District Court converted into a motion for summary judgment. The District Court granted the motion, finding that Lewis had not alleged any of the bases for vacating an arbitration award under the Federal Arbitration Act, and that his lawsuit improperly sought to relitigate a claim after a final judgment, contrary to the doctrine of claim preclusion. The Tenth Circuit affirmed, denying sanctions in a case that may have merited sanctions. Lewis v. Circuit City Stores, Inc., No. 05-3383 (10th Cir. Aug. 31, 2007).