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Arbitration / Court Decisions

RHODE ISLAND JOINS MAJORITY OF JURISDICTIONS REFUSING TO RECOGNIZE GENERAL DUTY OF DUE CARE FROM INDEPENDENT INSURANCE ADJUSTER TO INSURED

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This case arose from an insured’s allegation that its insurer both failed to defend it from claims of breach and to indemnify it for a settlement within the policy’s aggregate limit. The insured also sued the insurer’s claims administrator, presenting the novel issue of whether an independent claims administrator can be liable to an insured for bad faith claims handling, tortious interference with contractual relations, or negligence.

Applying Rhode Island law, the District Court of Rhode Island concluded that the insured could maintain a common law claim for bad faith, but could not maintain a statutory cause of action for bad faith because the statutory language limited claims to “the insurer issuing the policy.” (Emphasis added). The court also permitted the insured to proceed with a claim for tortious interference with contractual relations. The court, however, concluded that the insured could not maintain a negligence claim because “…binding [the administrator] to a duty of reasonable care viz-a-viz the insured would be illogical…without, at a bare minimum, holding…the actual insurer to the same.” In so holding, Rhode Island joined the majority of jurisdictions that have refused to recognize a general duty of due care from an independent insurance adjuster or insurance adjusting company to the insured. Robertson Stephens, Inc. and Bank of America Corp. v. Chubb Corp., Case No. 05-00360 (D.R.I. Feb. 14, 2007) .

Courts rule on arbitration awards

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Three recent decisions addressed whether arbitration awards should be confirmed or vacated:

  • In Hudson v. ConAgra Poultry Co., No. 06-2596 (USCA 8th Cir. Apr. 4, 2007), the Court affirmed a District Court judgment, which compelled arbitration of tort claims and denied a motion to vacate an arbitration award, finding that the claims of the party were barred by res judicata. The arbitrability of the tort claim was based upon the language of the agreement containing the arbitration clause, and both state and federal law, while the Court rejected the contention that the arbitration award amounted to manifest disregard of law.

  • In Riddle v. Wachovia Securities, No. 06-1177 (USCA 8th Cir. Mar. 30, 2007), a very short opinion, the Court affirmed a District Court decision holding that a party had failed to carry its burden to support vacature of an arbitration award on the ground that the arbitration panel was guilty of misconduct in failing to postpone the final hearing. While the opinion does not disclose the reason for the Panel's action, it appears from the District Court filings that the request was based upon the last minute attempted withdrawal of counsel for Riddle, which Wachovia contended had occurred in two prior arbitrations as a delaying tactic. While denying Riddle's motion to vacate the award, the District Court dismissed the action, denying Wachovia's motion to modify the Order to confirm the award, because Wachovia had not moved for confirmation of the award within the time provided in the Federal Arbitration Act.

  • In State Farm Ins. Co. v. Penn. Mfgr's Assn. Inc. Co., Index 8923/05 (NY Supreme Court, App. Div. Mar. 27, 2007), the Court vacated an arbitration award as being against public policy, because the claim for contribution was barred by a prior settlement and releases, and General Obligations Law section 15-108.

COURT GRANTS REINSURANCE INTERMEDIARY LEAVE TO AMEND PLEADING AND ISSUES RULING ON DISCOVERY DISPUTES

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In 2004, General Fire & Casualty, an Idaho insurance company, filed a Complaint against Guy Carpenter, a reinsurance intermediary. After the deadline set forth in the Court’s scheduling order, Guy Carpenter filed a motion with the court for leave to amend his complaint (for the fourth time) to add a statute of limitations affirmative defense. Plaintiffs opposed, arguing that the statute of limitations was inapplicable to the action, and therefore amending the pleadings would be futile. The Court disagreed, concluding that the defendant established good cause for modifying the scheduling order under FRCP 16(b) and therefore should be given leave to amend the pleadings under FRCP 15(a).

The Court also addressed Plaintiffs’ Motion to Compel responses to discovery requests. The requests are too numerous and detailed to explain here. The Court granted a majority of Defendant’s requests relating to: (1) contingent commission/steering claims; (2) “finite” contracts and risk transfer issues; and (3) broker duties and training. General Fire & Casualty Co. v. Guy Carpenter, Case No. CV 05-251-S-LMB (D. Idaho, March 2, 2007).

Courts decide issues relating to arbitrability of claims and appointment of arbitrators

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Three opinions were issued recently of interest regarding arbitration procedures:

  • In Ancon Ins. Co. (U.K.) Limited v. GE Reinsurance Corp., Case No. 06-2106 (USDC D. Kansas Mar. 30, 2007), one party was five days late in appointing an arbitrator due to a mistake by its run-off manager in reporting when an arbitration demand had been received. The party demanding arbitration sought to enforce a provision in the arbitration agreement, which would have allowed it to appoint an arbitrator on behalf of the defaulting party. The Court refused to enforce the provision, allowing the defaulting party to appoint an arbitrator on grounds of fairness and lack of prejudice.

  • In International Ins. Agency Services v. Revios Reinsurance U.S., Case No. 04-1190 (USDC N.D. Ill. Mar. 27, 2007), the Court granted the motion of a reinsurer to compel arbitration against an employee benefits firm that developed, marketed, administered and underwrote group life insurance programs on a fronted basis. The reinsurance agreement contained an arbitration provision, but the employee benefits firm was not a party to the agreement. The Court held that the firm was estopped to refuse to arbitrate, since it was asserting claims against the reinsurer based entirely upon alleged damage to its reputation arising out of the reinsurer's attempted repudiation of the reinsurance agreement.

  • In Invitrogen Corp. v. Employers Ins. Co. of Wausau, Case No. 06-232 (USDC D. Az. Mar. 9, 2007), the Court granted an injunction prohibiting Wausau from pursuing arbitration against Invitrogen under a reinsurance contract, because it found, as a matter of law, that the claims were barred by a settlement agreement reached in a prior proceeding.

CALIFORNIA COURT FINDS NO ATTORNEY-CLIENT RELATIONSHIP EXISTS BETWEEN REINSURER AND COUNSEL FOR REINSURED

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The issue presented in this case relates to the nature and extent of the duty, if any, owed to the reinsurer by counsel retained by the ceding insurer to protect the interests of the insured under the underlying policy.

In this action for professional negligence, Zenith Insurance Company (“Zenith”) entered into a contract of reinsurance with Royal Insurance Company (“Royal”). Under the contract, Zenith agreed to reinsure 100% of Royal’s exposure under certain liability policies. After claims were asserted against Royal’s insured, Royal retained the law firm of Cozen O’Connor to provide legal services with respect to the defense of such claims. Ultimately, Zenith filed this action for professional negligence against Cozen alleging that an attorney-client relationship existed based on either: (1) an implied in fact contract; or (2) the theory that Zenith was an intended beneficiary of Cozen’s legal services.

The California Court of Appeals disagreed with Zenith for two reasons. First, under the “intended beneficiary” theory, both Cozen and Royal must have intended Zenith to be the beneficiary of legal services Cozen was to render. The Court held that the fact that Cozen’s representation could incidentally benefit Zenith did “not sufficiently satisfy this predicate.” Moreover, the fact that Zenith agreed to reimburse Royal for all legal fees did not change the conclusions. Second, there was no express agreement between Zenith and Cozen, and Zenith did not allege the predicate facts necessary to establish an implied contract between it and Cozen. Zenith Ins. Co. v. Cozen O’Connor, Case No. B184684 (Cal. Ct. App., March 21, 2007).