American Home Assurance issued insurance covering environmental pollution at multiple sites, and contended throughout its dispute with its insured that the insured had suffered multiple occurrences at multiple sites, in order to maximize the number of deductibles that would apply. After settling with its insured, American Home filed reinsurance claims based upon the theory that there had been only one occurrence per year at each site, in order to minimize the deductibles on its own reinsurance. Although it prevailed against its reinsurers on that theory at the trial court level, an appellate panel has held that such inconsistent conduct, which it termed “manifest manipulation,” resulted in the follow-the-fortunes provision of the reinsurance agreements not applying, apparently resulting in the complete loss of reinsurance coverage since the losses, as allocated consistently with the position taken with the insureds, were all within the deductibles of the reinsurance agreements. Allstate Insurance Co. v. American Home Assurance Co., No. 602594/03 (NY Sup. Ct. App. Div. June 12, 2007).
Arbitration / Court Decisions
North Carolina Court of Appeals Grants Appeal of Interlocutory Order Granting Provisional Relief Pending Arbitration
This case arose out of a reinsurance contract between Scottish Re Life Corporation (“Scottish Re”) and Annuity and Life Reassurance Ltd. (ALR). The contract required ALR to maintain significant assets in a trust for Scottish Re’s benefit. In 2005, Transamerica Occidental Life Insurance Company (“Transamerica”) assumed all of ALR’s obligations to Scottish Re by executing a novation agreement. Scottish Re agreed to release its interest in the trust to Transamerica as part of the novation agreement, not realizing at that time that Transamerica was not licensed or accredited by the State of New York. That fact affected Scottish Re’s financial status and ability to do business in New York. Scottish Re filed a motion to compel arbitration and for provisional and/or injunctive relief. The trial court issued an order directing arbitration and for provisional remedies, requiring Transamerica to either repudiate its claim of rescission or return the assets it had received as part of the novation agreement to a qualifying trust for Scottish Re’s benefit.
Earlier this month, the North Carolina Court of Appeals allowed an appeal from the trial court’s interlocutory order. While interlocutory orders are not generally immediately appealable in state court, the Court of Appeals stated that “[g]iven the large amount of money at issue in this case, the fact that the trial court impinged appellant’s right to the use and control of those assets, and the unavoidable and lengthy delays, acknowledged by both parties, preceding actual arbitration of the matter, we hold that appellee must be granted its appeal to preserve a substantial right.” The Court of Appeals affirmed the granting of provisional remedies. Scottish Re Life Corp. v. Transamerica Occidental Life Ins. Co., No. 06 CVS 2724 (N.C. Ct. App. July 3, 3007).
Court Resolves Service Issue and Stays US Action Pending Prior-Filed Canadian Action
Canada Life Assurance and Converium Ruckversicherung were parties to a reinsurance agreement that experienced losses as a result of the September 11 attack on the World Trade Centers. A dispute led to an arbitration in Canada and a lawsuit in Canada to vacate the award. Due to a concern as to whether the Canadian Court had jurisdiction, Canada Life filed an action in United States District Court in New Jersey, purporting to make service on Converium’s US counsel in the arbitration. The district court found the service insufficient and quashed it, but declined to dismiss, ordering Canada Life to effectuate service in compliance with the Federal Rules of Civil Procedure rather than the Federal Arbitration Act, which the Court held did not apply to service of a motion to vacate upon a non-US corporation. Applying principles of international comity, the Court stayed the action pending the resolution of the prior-filed Canadian lawsuit. Canada Life Assur. Co. v. Converium Ruckversicherung AG, Case No. 06-3800 (USDC D.N.J. June 13, 2007).
English Court Rules on Request for Transfer of Assets in International Insolvency Case
The English Court of Appeal dismissed an appeal by the Australian liquidators of HIH Casualty and General Insurance Limited (“HIH”). The question before the court was whether it had jurisdiction to entertain a request under the Insolvency Act for directions to the liquidators in England to transfer assets collected by them to the liquidators in an Australian liquidation. The court considered whether such a transfer would interfere with the statutory scheme imposed on those assets by the Insolvency Act and whether or not the court should exercise its discretion in favor of such a transfer. The Court found that if the companies were in liquidation in England, the court would have jurisdiction to entertain a request under section 426 of the Insolvency Act for directions to the liquidators in England to transfer the assets collected by them to the liquidators in the principal liquidation, even though the result would interfere with the statutory scheme imposed on those assets by the Insolvency Act.
The Court held that if section 426 could authorize a transfer then the only question would be whether the court should exercise its discretion to do so. In exercising its discretion, the court had to consider the prejudice to the interests of some creditors of such a transfer. In this case, the Court of Appeal held that it would not direct a transfer of the English assets by the English provisional liquidators to the Australian liquidators because to do so would prejudice the interests of many of the creditors. Accordingly, the appeal was dismissed. HIH Casualty & General Insurance Ltd & Ors v. McMahon, [2006] EWCA Civ 732 (June 9, 2006).
Court Grants Reinsurer’s Motion To Compel Arbitration
Century Indemnity Company (“Century”) sued Clearwater Insurance Company (“Clearwater”) seeking payment under a facultative reinsurance certificate which contained an arbitration clause. Clearwater moved to stay the litigation and compel arbitration.
A New York district court granted Clearwater’s motion finding that the parties’ dispute, which involved differences of opinion with respect to the interpretation of the contract provisions, clearly fell within the purview of the arbitration clause. Additionally, the court concluded that Clearwater did not waive its right to arbitrate its dispute by waiting five months after the commencement of the litigation to demand arbitration. To the contrary, the court considered the five month period a “relatively short period of time.” Century Indemnity Company v. Clearwater Insurance Company, Case No. 06-0424 (S.D.N.Y. June 4, 2007).