This case addresses the important and divisive issue of whether the Federal Arbitration Act and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards deprive a United States District Court court of jurisdiction to order injunctions and grant provisional remedies while an international arbitration is pending in London. Relying on precedent from the Second Circuit, a Connecticut District Court denied a motion to dismiss, holding that it has jurisdiction to entertain a motion for a prejudgment remedy by a party to an arbitration currently pending in London. However, it denied a motion requiring the immediate disclosure of assets. Bahrain Telecommunications v. DiscoveryTel, Inc., Case No. 3:05cv1957 (D. Ct. March 9, 2007)
Arbitration / Court Decisions
COURT UPHOLDS ARBITRATOR’S DECISION REGARDING CLASS CERTIFICATION
Sutter, a New Jersey pediatrician, filed a class action complaint against Oxford and several other health insurers for failure to pay medical claims timely and correctly under New Jersey law. Shortly after the case was filed, a New Jersey court granted Oxford’s motion to compel arbitration. Arbitration proceeded under the rules of the American Arbitration Association, which included a specific rule governing class actions. In 2005, the sole arbitrator issued a partial final class determination award, where he defined the class of claimants and certified the class. Oxford promptly filed a motion in district court to vacate the award. The District Court upheld the award, rejecting defendant’s argument that the arbitrator exceeded his authority and manifestly disregarded the law. The Third Circuit recently affirmed the judgment, finding that the arbitrator had not acted in manifest disregard of law, because he had considered all of the requirements set forth in the AAA's class action rule. Sutter v. Oxford Health Plans, Case No. 05-5223 (3rd Cir. February 28, 2007)
McCarran-Ferguson Forces Court To Deny Motion To Compel Arbitration
An Oklahoma District Court was forced to deny the defendant’s motion to compel arbitration, despite the parties’ reinsurance contracts that contained clear and unambiguous arbitration clauses. Pursuant to the McCarran-Fergusson Act, the court was required to apply a state statute prohibiting the enforcement of arbitration clauses in any contract “which reference[s] insurance.” The court also concluded that Oklahoma common law could not save the arbitration agreements. Citing to an Oklahoma Supreme Court case, the court stated that “arbitration provisions falling outside of the UAA [Uniform Arbitration Act] are governed by common law and, generally, ‘agreements to submit future controversies to arbitration are contrary to public policy.’” Cannon v. Lane, 867 P.2d 1235 (Okla. 1994). Although the court acknowledged several subsequent cases stating that the public policy of Oklahoma favors arbitration, the court distinguished those cases because they all fell within the purview of the UAA. Since Cannon has not been overruled, the District Court was bound by it and forced to deny the motion to compel arbitration. The court also rejected defendant’s argument that the Oklahoma statute violates the Contracts Clause of the Federal Constitution. Mid-Continent Casualty Co. v. General Reinsurance Corporation, Case No. 06-CV-0475 (N.D.Okla. Feb. 15, 2007).
Court confirms arbitration award with no choice of law
A District Court has confirmed an arbitration award finding no coverage under an insurance policy due to the presence of an absolute pollution exclusion. The policy did not have a choice of law provision, and the arbitration grew out of a declaratory judgment action filed by the insurer in US District Court in Indiana. Indiana law does not enforce the absolute pollution exclusion. Since the arbitration agreement provided for arbitration under the rules of the American Arbitration Association, which did not require that any substantive law apply, the arbitration panel declined to apply Indiana law, and arrived at what it viewed to be a fair and just decision. The District Court found no error in this decision. Reliance Ins. Co. v. Raybestos Products Co., Case No. 97-0027 (USDC S.D. Ind. Jan. 27, 2007). Additional background information may be found in the memoranda filed by Reliance and Raybestos as to whether the award should be confirmed or vacated.
Reinsurer’s Calculation Of “Incurred Loss” Could Lead To Finding Of Bad Faith
BJC, a network of hospitals is the sole shareholder of ATG, a captive insurance company that provides insurance for BJC. A dispute arose between ATG and its reinsurer, Columbia Casualty pertaining to the “incurred loss condition” clause in their reinsurance agreement. The incurred loss condition provided that continued coverage would be conditioned upon an incurred loss ratio of less than 75%. A few days before the end of the second policy year, Columbia terminated the agreement, claiming that BJC had exceeded the incurred loss ratio on an aggregate basis and on an individual claim.
Much of the case revolved around the actuarial work Columbia presented to BJC to justify Columbia’s determination that the incurred loss ratio had exceeded 75%. While the Eighth Circuit agreed that Columbia had broad discretion to determine the incurred loss, it held BJC presented sufficient evidence from which a reasonable jury could conclude that Columbia acted in bad faith.
The Court also agreed with the district court’s decision to strike the prayer for punitive damages because ATG’s complaint failed to allege fraud with the particularity required by Federal Rule of Civil Procedure 9(b).
Finally, the Court affirmed the district court’s finding that BCA was precluded from recovering compensatory damages resulting from Columbia’s decision to terminate the Contract because BJC failed to properly quantify its costs.
BJC v. Columbia Casualty, Case No. 06-1326 (8th Cir., February 23, 2007).