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Arbitration / Court Decisions

Seventh Circuit Finds Illinois’ ‘Insurance Producers Limitations Act’ Does Not Apply to Reinsurance Intermediaries

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This case arose out of reinsurance agreements between BCS and a third party, Insurance Specialists. The agreements were negotiated by BCS’ former reinsurance intermediary, Guy Carpenter & Company Inc. (“Guy Carpenter”). BCS alleged that Guy Carpenter failed to obtain adequate reinsurance for BCS and that Guy Carpenter’s actions resulted in an arbitration award against BCS in favor of its London reinsurers, exceeding $4.8 million dollars.

The district court granted summary judgment for Guy Carpenter, finding that five of the six claims asserted by BCS fell within the purview of the Illinois Insurance Producers Limitations Act (IPLA) and were barred by IPLA’s two-year statute of limitations. The district court also granted summary judgment for Guy Carpenter on the sixth claim, for implied indemnity, because BCS was unable to show it was derivatively liable in the arbitration for Guy Carpenter’s actions.

In a de novo review, the Seventh Circuit reversed the district court’s finding that five of BCS’ claims were governed by IPLA. Relying on briefing from the Illinois Attorney General, the Court concluded that “IPLA does not apply to reinsurance intermediaries and therefore does not govern the disputed agreements between BCS and Guy Carpenter.” The Seventh Circuit affirmed the district court’s finding that BCS failed to state a claim for implied indemnity because BCS failed to demonstrate that its liability resulted solely from the actions of Guy Carpenter. BCS Ins. Co. v. Guy Carpenter & Co. Inc., No. 06-1050 (7th Cir. June 18, 2007).

Party To Arbitration Waived Right to Contest Consolidation

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Plaintiff, Kentucky oil-and-gas developer Martin Ray Twist, sought an order compelling the defendant Investors to arbitrate separately their state law claims of securities violations, fraud, and other wrongs. Plaintiff’s motion was filed in federal court only weeks after a party-appointed arbitrator issued an order denying this identical request. The United States District Court for the Southern District of Indiana denied Plaintiff’s motion reasoning that “…Twist freely elected to let the arbitrator tackle the question.” The Court concluded that “[h]aving allowed the arbitrator to decide the issue, Twist cannot ask the court to overturn the ruling.” Martin Ray Twist v. Arbusto, Case No. 05-0187 (USDC S.D. Ind. June 8, 2007).

Reinsurance Company’s Claims Not Barred by FAA’s 90-Day Deadline

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Pursuant to the terms of a settlement agreement arising out of a personal injury claim, Plaintiff, R&Q Reinsurance Company (“R&Q”), was obligated to make periodic payments to defendant Gwendolyn Sands Brown (“Brown”). Despite the fact that the settlement agreement prohibited Brown from transferring her rights to a third party, Brown entered into an agreement to transfer her interest in the payments to co-defendant, Rapid Settlements (“Rapid”). When Brown sought to cancel the Transfer Agreement, Rapid filed a demand for arbitration and ultimately succeeded. Upon receiving notice of the arbitration award, R&Q filed this action seeking declaratory and injunctive relief. Rapid sought to dismiss the complaint based upon R&Q’s alleged failure to comply with the timing provisions of the Federal Arbitration Act.

The U.S. District Court for the Southern District of Florida disagreed with Rapid and denied its motion to dismiss. The court explained that the FAA did not apply because R&Q was not a party to the arbitration proceedings and did not directly attack the quality of the arbitration proceedings. The court concluded that the declaratory judgment action was properly before the court. R&Q Reinsurance Co. v. Rapid Settlements, Ltd. and Gwendolyn Sands Brown, Case No. 06-14329 (USDC S.D. Fla., May 14, 2007).

Benfield sues Aon over unpaid commissions for reinsurance placements

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Benfield, a reinsurance broker/intermediary, has sued Aon Re, seeking over $2.4 million in damages for unpaid commissions for the placement of five reinsurance treaties for St. Paul Companies. The Complaint alleges that St. Paul moved its brokerage business from Benfield to Aon during the term of the reinsurance placed by Benfield, and that after the move, Benfield did not receive any further commission payments, even though Aon collected premiums under the treates that Benfield had placed. The Complaint alleges that regardless of how premiums are paid, the commission is earned upon the placement of the treaties. Benfield v. Aon Re, Case No. 07-2218 (USDC D. Minn. May 8, 2007).

Court Sanctions Zurich and law firms in September 11 coverage case

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In a 35 page opinion, a district court judge has entered an Order imposing $1.25 million in sanctions, jointly and severally, upon Zurich American Insurance Company and two law firms, Wiley Rein and Coughlin Duffy, for concealing a 62 page insurance policy that was relevant to insurance coverage for the World Trace Center Towers in the September 11th insurance coverage cases. Although the policy was created after the insurance binders at issue, the court found that “it shows Zurich's knowledge and intent, and how Zurich's customary forms gave meaning to the terms of the policy binder.” A portion of the sanctions, in the amount of $750,000, were imposed pursuant to Fed. R. Civ. Pro. 11, while the remaining $500,000 was imposed as a discovery sanction pursuant to Rule 37, awarding $250,000 in attorneys' fees to each of two Plaintiffs in the actions “to defray the costs they unreasonably incurred in the wasted discovery proceedings.” The result was a total sanctions award of $1.25 million. In re September 11th Liability Insurance Coverage Cases, Case No. 03-332 (USDC SD NY June 18, 2007).