This case involves an attempt to reduce to a UK judgment in favor of Lloyd’s to a US judgment. We reported on the court’s decision on a motion for judgment on the pleadings on April 25, 2007. The case came before the Court on cross motions for summary judgment. The court granted Plaintiff’s motion for summary judgment as to Count I, seeking recognition of an English judgment, pursuant to Florida’s Uniform Out-of-Country Foreign Money Judgment Recognition Act. The court also granted Defendant’s motion for summary judgment as to Count II, which relied on the Ohio Recognition Act.. Lloyd’s v. Sumerel, Case No. 06-329 (USDC M.D. Fla. July 20, 2007).
Arbitration / Court Decisions
ENGLISH COURT OF APPEALS RESOLVES DISPUTE ARISING FROM SALE OF SHARES IN LLOYD’S BROKER
Claimant, Square Mile Partnership (“Square Mile”), entered into an agreement with Robert Bruce Fitzmaurice Group (“RBF Group”) for the purchase of the shares of Robert Bruce Fitzmaurice (“RBF”), RBF Group’s direct subsidiary, a Lloyd’s broker. The agreement provided for the transfer of RBF’s “accumulated net worth” to Square Mile. The day before completion of the agreement, the transfer took place in favor of Fitzmaurice McCall (“Fitzmaurice”), RBF’s ultimate holding company. The amount of the payment was calculated on the basis of RBF’s distributable dividends.
After completion of the agreement, a dispute arose between Square Mile and Fitzmaurice concerning the exact meaning of the expression “accumulated net worth.” According to Square Mile, it referred only to RBF’s distributable profits, while according to Fitzmaurice it meant the whole of RBF’s net assets.
The court concluded that the expression “accumulated net worth” was intended to cover all the nets assets of RBF. As to Square Mile’s argument that the amount actually transferred from RBF Group to Fitzmaurice a day before completion of the agreement, the court explained that to the extent to which this argument relied on evidence of precontractual negotiations it could not be admitted. While English law does offer some exceptions to the general rule that precontractual negotiations are inadmissible as evidence for the interpretation of a written agreement, the Court concluded that the exceptions were not warranted in this case. The Square Mile Partnership Ltd v. Fitzmaurice McCall Ltd, [2006] EWCA Civ. 1689 (Dec. 18, 2006).
ARBITRATION AWARD CONFIRMATION DECISIONS
Six recent opinions, four from US Courts of Appeal, have considered confirmation or vacation of arbitration awards. Five of the opinions rejected claims that the arbitration awards were in manifest disregard of law. Five Star Parking v. Union Local 723, Case No. 06-2012 (3d Cir. July 24, 2007) (reversing the vacation of an arbitration award relating to a collective bargaining agreement, finding that the award interpreted a contract); Aldred v. Avis Rent-a-Car, Cased No. 06-14883 (11th Cir. July 24, 2007) (affirming confirmation of award relating to collective bargaining agreement interpreting a contract); HSM Construction Services, Inc. v. MDC Systems, Inc., Case No. 06-2584 (3d Cir. July 16, 2007) (affirming confirmation of an arbitration award, finding no manifest disregard of law and no evident partiality); Caja Nacional de Ahorro y Seguros in Liquidation v. Deutsche Ruckversicherung AG, Case No. 06-5826 (USDC S.D.N.Y. Aug. 1, 2007) (confirming award pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the federal Arbitration Act, finding no manifest disregard of law, that the Panel did not exceed its authority and that questions regarding the admissibility of evidence did not provide a basis for vacating the award); Buechner v. Mid-America Energy, Inc., Case No. 07-109 (USDC W.D.Ky. July 27, 2007). The sixth opinion vacated an award dealing with attorneys' fees on the basis that it was partially in manifest disregard of law and partially in violation of an enabling statute. Porzig v. Dresdner, Kleinwort, Benson, North America LLC, Case No. 06-1212 (2d Cir. Aug. 7, 2007).
INSURED’S “FOLLOW-THE-FORTUNES” ARGUMENT FALLS SHORT
This breach of contract case arose out of a dispute between insurer-plaintiff National Union Fire Insurance Company of Pittsburg (“NU”) and its reinsurer-defendant, Clearwater Insurance Company (“Clearwater”). NU alleged that Clearwater breached its reinsurance agreement by failing to fully indemnify it for losses incurred from the settlement of an underlying dispute. While Clearwater paid for roughly ¼ of the $1.9 million dollars sought by NU, Clearwater claimed it was not responsible for the remaining amount since some portion of the settlement payment was to settle consequential damages claims not covered by the reinsurance certificates. In response, NU asserted the “follow-the-fortunes” doctrine and moved for summary judgment. Clearwater moved to compel additional discovery.
The Court denied NU’s motion for summary judgment, reasoning that “a genuine issue of material fact exists as to whether the settlement did indeed involve payment in some substantial amount of the consequential damages claims. . ..” The Court appear to accept that if it could be proven that a portion of the payment was for losses not covered by the reinsurance agreement, that the follow-the-fortunes doctrine would not apply to those amounts. The Court granted in part and denied in part Clearwater’s request for additional discovery. National Union Fire Ins. Co. v. Clearwater Ins. Co., Case No. 04-CV-5032 (S.D.N.Y., July 19, 2007).
UK COURT OF APPEALS AFFIRMS DECISION IN FAVOR OF BROKER
In a November 7, 2006 post to this blog, we reported on a decision of the UK Commercial Court rejecting claims against a reinsurance broker. The UK Court of Appeals has affirmed the Commercial Court’s decision, based in part upon there being inadequate evidence that the losses complained of were caused by the alleged misconduct of the broker. To reach the loss causation issue, however, the Court affirmed the holding below that the broker had a continuing duty of disclosure to the cedent after the reinsurance had been issued, which is an important point. This opinion contains an interesting discussion of the role of brokers in the insurance and reinsurance markets, especially where the same broker places “back-to-back” insurance and reinsurance coverage. The Court's approach to this kind of situation is illustrated by its statement that “[t]he role of an insurance broker is notoriously anomalous for its inherent scope for engendering conflict of interest in the otherwise relatively tidy legal world of agency.” Opinion, paragraph 60. HIH Casualty & General Insurance Limited v. JLT Risk Solutions Limited, [2007] EWCA Civ. 710 (July 12, 2007).