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).
Arbitration / Court Decisions
Court Sanctions Zurich and law firms in September 11 coverage case
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).
District Court Denies Motion To Exclude Reinsurance Expert Testimony In Trademark Infringement Case
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
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
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).