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New reinsurance-related and arbitration developments from Carlton Fields

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Arbitration / Court Decisions

District Court Denies Motion To Exclude Reinsurance Expert Testimony In Trademark Infringement Case

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In this trademark infringement case, a federal judge denied the defendants’ motion to exclude the proposed testimony of the plaintiffs’ two expert witnesses – a linguist and an insurance executive. The plaintiff, Alfa Corporation, is a financial services company based in Alabama that operates throughout the United States. The defendants, Alfa Bank and Alfa Capital Markets are components of a Russia-based financial services group. Plaintiffs alleged that the defendants’ use of the name Alfa Bank would harm its business and was likely to cause confusion, mistake, or deception of the trade and public.

The insurance expert’s testimony concerned the operation of the insurance and reinsurance industry. Defendants argued that: (1) the expert, Mr. Sweitzer, was not qualified to offer an opinion with regard to two of topics covered in his report; (2) that his opinions are not sufficiently supported; (3) that he did not adequately apply his opinions to the facts of the case; and (4) that his opinions on reinsurance were not relevant to the issues presented in the case. The court disagreed and denied defendants’ motion to exclude the testimony. Alfa Corp. v. OAO Alfa Bank and Alfa Capital Markets, Case No. 04-8968 (S.D.N.Y., Feb. 21, 2007).

Captive Insurer’s Claims Against Reinsured Survive Motion To Dismiss

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Mount Mansfield, a captive insurance company for workers’ compensation claims, filed a Complaint against its reinsured, American International Group (AIG) and several of its affiliates alleging that AIG and its affiliates improperly handled workers’ compensation claims, inflated the value assigned to Mount Mansfield’s reserve requirements, and unnecessarily forced Mount Mansfield into rehabilitation, resulting in damage to the corporation.

The circuit court dismissed the Complaint, finding that the claims were barred by the doctrine of res judicata based upon a prior lawsuit. The prior proceeding involved a dispute between Mount Mansfield’s sole shareholder, MMIG, and AIG. The Illinois Court of Appeals reversed the circuit court’s ruling, concluding that Mount Mansfield was not a party to the prior action nor in privity with the parties that brought that action. Under Illinois law, privity is said to exist between parties who adequately represent the same legal interests.

In reaching its decision, the court explained that “a shareholder of a corporation has no personal or individual right to pursue an action against third parties for damages resulting indirectly to the shareholder because of an injury to the corporation.” Because MMIG was unable to establish its right to bring an action on Mount Mansfield’s behalf, MMIG could not adequately represent the legal interest of Mount Mansfield in those proceedings. Mount Mansfield Ins. Group v. American International Group, Inc., No. 05-L-6662 (Ill. Ct. App., Third Division, March 30, 2007).

Third Circuit Holds Arbitrator, Not Court, Decides Whether To Consolidate Arbitration Proceedings

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In an appeal of a District Court decision discussed in an August 30, 2006 posting in this blog, the Third Circuit recently affirmed a district court’s ruling that an arbitrator, not a court, should decide whether coverage disputes under essentially identical insurance contracts should be arbitrated separately on a contract-by-contract basis or collectively in a consolidated arbitration.

The underlying dispute related to the payment of asbestos claims under reinsurance coverage that Westchester Fire Insurance Company purchased from certain Lloyd’s of London reinsurers. The parties disagreed as to how to characterize the coverage at issue.

The Third Circuit’s decision relied heavily on two recent Supreme Court decisions, namely, Howsam v. Dean Witter Reynolds, Inc. and Green Tree Financial Corp. v. Bazzle. In light of this authority, the parties’ agreement to arbitrate their disputes, contractual silence as to the consolidation issue, and the longstanding federal policy favoring arbitration, the Court could see no reason why this procedural issue should not be resolved in arbitration. Certain Underwriters at Lloyd’s v. Westchester Fire Insurance Company, No. 06-1457 (3d. Cir., June 12, 2007).

Court Rejects Implication of Follow the Settlements Provision into Facultative Reinsurance Certificate

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American Re-Insurance provided a facultative reinsurance certificate to Specialty National Insurance (now known as American Motorists Insurance Co.), which had reinsured the Montana Municipal Insurance Authority, a municipal insurance pool that provides insurance to its member entities, including the city of Great Falls, Montana. A dispute arose under the facultative reinsurance when a claim was paid and American Re disagreed as to the interpretation of some of the coverage underlying its reinsurance. Although the facultative certificate did not contain a typical “follow the settlements” provision, American Motorists contended that language in the certificate had the same effect. Interpreting the facultative certificate, the district court disagreed, finding that there was no follow the settlements provision in the certificate. The court therefore granted summary judgment to American Re with respect to a declaratory judgment claim that sought a declaration that American Re was obligated to indemnify American Motorists under the certificate pursuant to the follow the settlements doctrine. American Motorists ins. Co. v. American Re-Insurance Co., Case No. 05-5202 (USDC N.D. Cal. May 29, 2007).

WTC Insurance Settlement Already Results in Reinsurance Arbitration

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On June 6, we reported on a settlement reached with a number of insurers with respect to the destruction of New York’s World Trade Center towers. SCOR, which provided reinsurance to one of the settling insurers, Allianz Global Risks, has issued a press release stating that the settlement agreement “does not respect the terms and conditions of the Certificate of Reinsurance between SCOR and Allianz,” and stating that SCOR has requested that the issue of whether the settlement is within the coverage of its reinsurance be referred to arbitration.