A putative class action case has been filed in United States District Court in Miami against a number of Lloyd's syndicates, three Marsh entities, two Aon entities and two Willis entities, alleging wrongful conduct in the payment of undisclosed contingent commissions and undisclosed conflicts of interest in the placement of insurance. The Complaint alleges federal and state antitrust, federal RICO, fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, civil conspiracy, and unjust enrichment claims. The case was filed by a group of law firms, some of which have significant experience as class counsel in insurance sales practice cases. Although reinsurance is not specifically mentioned, and the coverages at issue are direct writings, this may be of interest since it challenges practices in placements with Lloyd's syndicates. Lincoln Adventures, LLC v. Those Certain Underwriters at Lloyd's, London, Case No. 07-60991 (USDC S.D. Fla. July 13, 2007).
Arbitration / Court Decisions
RIGHT TO ARBITRATION SURVIVES TERMINATION OF UNDERLYING AGREEMENT
In 1997, DDT Trucking of North America (“DDT NA”) entered into a distributorship agreement with DDT Holding’s predecessor. That agreement contained an arbitration agreement and stated that if DDT Holdings was sold, it should simultaneously terminate the distributorship agreement and compensate DDT NA. In 1999, the parties terminated the agreement. A dispute arose as to whether this nullified the agreement, such that DDT Holdings did not have to provide any compensation to DDT NA and as to whether this nullified the agreement to arbitrate. Relying on Section 7 of the Arbitration Act of 1996 as well as English precedent, Justice Cooke concluded that the right to compensation and arbitration does not end when the underlying contract is terminated. DDT Trucks of North America Ltd. and DDT Holdings Ltd., [2007] EWHC 1542 [Comm], Eng. Comm., QBD (June 29, 2007).
CREDITOR’S BREACH OF CONTRACT CLAIM BARRED BY FAILURE TO FILE CLAIM IN SEPARATE LIQUIDATION PROCEEDING
Plaintiff, Propak Loigistics, insured workers' compensation risks with Clarendon National Insurance Company, which reinsured the risks with Defendant, Foundation Insurance Company. Foundation entered into a risk sharing agreement directly with Propak, which was essentially an experience rating agreement. Foundation was placed in liquidation. Clarendon filed a timely claim in the liquidation estate, but Propak did not. The liquidation court entered an order distributing the remaining assets of Foundation to Clarendon. Because Propak failed to file notice of its claims under the Liquidation Order, the court held that it was barred from obtaining relief, noting that under South Carolina law, “the failure of a potential creditor to submit a claim in the liquidation estate, or have an ancillary estate opened in a reciprocal state, is conclusive as to that creditor’s rights.” Propak Logistics v. Foundation Ins. Co., No. 04-2178 (W.D.Ark., August 8, 2007).
COURT DISMISSES SECURITIES PUTATIVE CLASS ACTION AGAINST BERMUDA PARENT OF REINSURANCE COMPANY
A securities fraud putative class action was filed against XL Capital Ltd., the Bermuda-based parent of reinsurer XL Reinsurance America, Inc., alleging a massive understatement of necessary loss reserves for liabilities of XL Reinsurance. The court granted a motion to dismiss the Second Amended Complaint, finding that the allegations failed to state a claim under the Private Securities Litigation Reform Act of 1995. Malin v. XL Capital Ltd., Case No. 03-2001 (USDC D. Conn. July 26, 2007).
INSURER NOT PERMITTED TO CHALLENGE ENGLISH ARBITRATION AWARD IN U.S. COURT
A dispute arose between “C” and its insurer “D,” both U.S. corporations. The insurance policy was governed by New York state law, but provided for disputed to be settled in England under the provisions of the English Arbitration Act. The parties agreed to arbitrate in England, and the panel issued a partial award in favor of “C.” “D” threatened to apply to a U.S. court to set aside the award on the basis that it was based on a “manifest disregard of the law.” “C” obtained an interim anti-suit injunction restraining “D” from commencing proceedings in a U.S. court. At the final hearing, Justice Cooke held that because the parties chose England as the seat of arbitration, they must submit any challenge to the eventual award to an English court under English law, regardless of the governing law of the contract. C and D, [2007] EWHC 1541, [Comm], Eng. Comm., QBD (June 28, 2007).