The liquidator of Legion Insurance Company and Villanova Insurance Company sued three companies to recover premiums owed for insurance provided in a rent-a-captive workers compensation insurance program. A defendant sought to move to dismiss based upon a Bermuda forum selection clause contained in a shareholder agreement it had entered into with an affiliate of the controlling shareholder of the insurance companies. The shareholder agreement was part of the overall rent-a-captive insurance program, and the insurance policies at issue were also part of that program. The district court held that the forum selection provision did not apply to the dispute over policy premiums for two reasons: (1) the forum provision was not part of the insurance policies, and hence the insurance companies were not bound by it; and (2) the forum clause, by its terms, applied only to disputes concerning the shareholder agreement, and hence did not cover disputes concerning the insurance policies. Rohrbaugh v. U.S. Management, Inc., Case No. 05-3486 (USDC E.D.N.Y. July 2, 2007).
Arbitration / Court Decisions
Arbitration Awards, Part II
Three recent court opinions addressed the confirmation of arbitration awards on fairly traditional grounds:
- In a case involving reinsurance, the court found that an arbitration panel did not exceed its authority in entering the award it entered. The dispute was whether a West Virginia Court had already determined the scope of contractual obligations later ruled upon by the arbitration panel. HCC Aviation Insur. Group, Inc. v. Employers Reinsurance Corp., Case No. 05-11118 (USCA 5th Cir. June 28, 2007).
- In Pirooz v. MEMC Electronic Materials, Inc., Case No. 06-2002 (USCA 8th Cir. July 2, 2007), the Court of Appeals, in a per curiam opinion, affirmed a “well-reasoned” district court opinion that confirmed an arbitration award over objections that the arbitrator had exceeded his authority, entered an award that failed to draw its essence from the agreement and evidenced manifest disregard for the law.
- A US District Court, in The Upper Deck Company v. American International Specialty Lines Ins. Co., Case No. 05-1945 (USDC SD Cal. June 28, 2007), confirmed an arbitration award, rejecting contentions that the award “implausibly interpreted” a contract and evidenced manifest disregard for the law.
These three cases all involved arguments that essentially disputed the merits of the arbitration awards and the judgments made by the arbitrators, arguments which are rarely successful.
Arbitration Awards – Part I
There have been a large number of Court of Appeal and District Court opinions recently relating to arbitrations awards. This week, we present a two-part post to present these opinions. Today's post concerns evident partiality and venue, while tomorrow's will address the scope of arbitrators' authority and manifest disregard of law.
- In a potentially important opinion, the Second Circuit has issued a fairly detailed analysis of a situation in which an arbitrator came to be aware of a business relationship between his company and the parent company of one of the parties to the arbitration. Rather than investigate, he walled himself off with a “Chinese Wall” in an attempt to remain ignorant, and did not disclose his lack of investigation of the potential conflict. The District Court held that this constituted evident partiality, and vacated the arbitration award. The Court of Appeals affirmed. This case contains a good discussion of the legal principles relating to evident partiality. Applied Industrial Materians Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., Case No. 06-3297 (USCA 2d Cir. July 9, 2007).
- In Toroyan v. Barrett, Case No. 06-4422 (USDC SD N.Y. July 10, 2007), the court confirmed an arbitration award over objections of evident partiality and manifest disregard of law. The evident partiality claim was based on the fact that parties to the arbitration had contributed to maintaining an endowed chair in a different school of the University where the arbitrator was a professor. The court rejected the evident partiality claim for three reasons: (1) there was no indication that the arbitrator knew of the relationship; (2) the relationship was immaterial; and (3) the objector should have known about the issue and raised it prior to losing the arbitration.
- In The Ridge at Red Hawk, LLC v. Schneider, Case No. 06-4162 (USCA 10th Cir. July 9, 2007), the 10th Circuit affirmed a venue decision by an arbitration panel. This case is intersting in part because it involves parallel proceedings in a Texas state court and a Utah federal court, with Rooker-Feldman Doctrine implications. The courts concluded that a somewhat unique arbitration provision in the contract underlying the dispute allowed an appeal of the venue issue only if the determination was strictly legal in nature, and the arbitration award indicated that the venue determination was a combination of a legal and factual determination. Therefore, the courts dismissed the federal court challenge to the arbitration award.
- In ReliaStar Life Ins. Co. v. Certain Underwriters at Lloyd's London, Case No. 06-3845 (USDC D Minn. Feb. 1, 2007), the court confirmed an arbitration award by agreement of the parties. The Stipulation filed with the court includes a copy of the award.
Travelers granted judgment on the pleadings in finite reinsurance case
In October 2004, New York Attorney General Elliot Spitzer announced the filing of a civil Complaint against Marsh & McLennan Companies, alleging fraud and antitrust violations and implicating major insurance companies. The next day, an analyst reported that the St. Paul Travelers Companies (“Travelers”) could expect to be involved in the investigation and be subject to a subpoena. Travelers' stock price dropped $2.06 per share. About one month later, Travelers disclosed the receipt of a second subpoena, relating to finite reinsuracne issue. A class action securities fraud suit was filed against Travelers. The Complaint did not allege a drop in stock price following the disclosure of the finite reinsurance subpoena. Travelers moved for judgment on the pleadings with respect to claims relating to finite reinsurance issues, contending that the Complaint filed to adequately allege loss causation with respect to those issues. The court agreed, and granted the motion, but provided the Plaintiffs leave to file an amended Complaint. In re St.Paul Travelers Secutieis Litigation II, Case No. 04-4697 (USDC D Minn. June 1, 2007).
Holder of contruction bonds does not have direct right of action against reinsurer of insolvent bond surety
Frontier Insurance Company, as surety, issued a performance bond and a payment bond for the construction of a movie theater, and reinsured its obligations with National Indemnity Company. When Frontier was declared insolvent, the holder of the bonds sued National Indemnity. The US District Court dismissed the action, finding that there was no cut through provision in the reinsurance agreement, that the reinsurance agreement explicitly prohibited non-parties from obtaining rights under the reinsurance agreement and that New York law did not provide for a direct cause of action against a reinsurer in the circumstances presented. Jurupa Valley Spectrum, LLC v. National Indemnity Company, Case No. 06-4023 (USDC SD NY June 29, 2007).