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).
Arbitration / Court Decisions
APPELLATE COURT AFFIRMS SUMMARY JUDGMENT BARRING SUIT ON CLAIM ALREADY ARBITRATED
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).
CASE UPDATE: INSURERS ENTITLED TO HEARING ON AMOUNT OF PRE-PLEADING SECURITY
In a prior posting (dated 7/24/2006) this blog reported on a Connecticut Supreme Court decision reversing the dismissal of an appeal by the Court of Appeals, holding that the denial of pre-pleading security was an appealable final judgment, and remanding the case to the Court of Appeals for consideration of the merits of the appeal. The trial court had determined that the relevant statutory text required service to be made on the insurance commissioner or the secretary of the state and precluded service made on the unauthorized insurers’ contractually designated agents for service of process. On remand, the court of appeals disagreed with the trial court’s judgment in favor of the defendant insurers. However, the court was persuaded that on remand, for constitutional reasons, the defendant insurers are entitled to a hearing regarding the amount of pre-pleading security that they must provide. Hartford Accident and Indemnity Co. v. Ace American Reinsurance Co., AC 25661 (Ct. Ct. App. Aug. 14, 2007).
ARBITRATION PANEL CAN PROCEED TO AN AWARD AFTER ONE MEMBER RESIGNS
In Zeiler v. Deitsch, No. 06-1893 (2d Cir. Aug. 23,2007), the Court held that an arbitration panel composed of three rabbis could proceed to make an award after one member had resigned from the panel, because the arbitration agreement permitted that result. The Court also affirmed the confirmation of various accounting awards. This opinion is somewhat unique in that the arbitration was governed by Jewish law. The Court also stated, however, that the result would have been the same had the Federal Artbitration Act controlled.
COURT ALLOWS CASE AGAINST DIRECTORS OF MISSISSIPPI WINDSTORM UNDERWRITERS ASSOCIATION TO PROCEED
It has been estimated that as a result of Hurrican Katrina, the Mississippi Windstorm Underwriters Association will pay its insurance company members approximately $700 million in claims. The Association has only $175 million in reinsurance. A number of members have sued various members of the Association and individuals, who allegedly were members of the Board of Directors of the Association, contending that they breached fiduciary duties and committed other wrongdoing in failing to procure additional reinsurance for the Association. The Association purchased reinsurance to cover a 250 year event; the Plaintiffs contend that it should have purchased reinsurance to cover a 500 year event. A US District Court has denied a motion to dismiss and denied cross motions for summary judgment. The Motion to Dismiss had contended that the dispute was subject to the exclusive jurisdiction of the Mississippi Insurance Commissioner. This theory was rejected, in part because the Court found that any administrative remedy that the Insurance Department could provde would not be adequate. The Motion for Summary Judgment was denied because of factual disputes as to whether Board members were member companies or individuals, and if individuals, whether the individuals served in an individual capacity or as representatives of member companies.