A District Court has enforced a Connecticut statute requiring that prior to filing any pleading in any court action, non-admitted insurers post collateral in an amount “sufficient to secure the payment of any final judgment.” Conn. Gen. Stat. section 38a-27. The Court held that this statute applied to reinsurers, but instead of striking an answer that had been filed, gave the defendant 15 days to post the required security, failing which its Answer would be stricken. Security Ins. Co. of Hartford v. Universal Reinsurance Co., Case No. 06-158 (D. Ct. Jan. 25, 2007).
Arbitration / Court Decisions
Fifth Circuit articulates evident partiality standard
In a software licensing dispute, a sole arbitrator entered an award, only to have the award vacated by a District Court on the basis that the arbitrator had failed to disclose an instance in which he had served as one of many co-counsel in a lawsuit with one of the counsel in the arbitration. The District Court vacated the arbitration award, on the basis that the prior relationship “might have conveyed an impression of possible partiality to a reasonable person.” A panel of the Fifth Circuit affirmed, but in an en banc decision, the full Fifth Circuit reversed, finding that the nondisclosure of “a trivial or insubstantial prior relationship” did not merit vacating the award under the evident partiality standard. The relevant legal standard arises out of a plurality Supreme Court opinion, and the en banc opinion noted a split of the Circuits as to what legal standard for evident partiality comes from the Supreme Court's opinion, with the en banc opinion alinging with the way in which the majority of Circuit Courts had interpreted the opinion. Positive Software Solutions, Inc. v. New Century Mortgage Corp., Case No. 04-11432 (5th Cir. Jan. 18, 2007). There is a prior Reinsurance Focus posting about this case dated June 6, 2006, which includes the Fifth Circuit panel opinion.
District Court rules on reinsurance of auto lease residual value insurance policies
Swiss Re provided a type of reinsurance to Reliance Insurance Company for insurance of residual value insurance policies covering certain automobile risks. When Reliance became financially impaired, Swiss Re litigated liability and damage issues directly with the insured, Keybank USA. In a complicated 67 page opinion on cross motions for summary judgment, the District Court granted in part and denied in part the motions of both parties. This opinion considers multiple issues of contract interpretation, mitigation of damages and expert testimony. The Court recently entered an Order denying the motion of Keybank for reconsideration of the portion of the prior Order that granted partial summary judgment to Swiss Re with respect to auto leases that were part of Keybank's lease extension program. Reliance Insurance Co. v. Keybank U.S.A., Case no. 01-62 (USDC N.D. Ohio Dec. 20, 2006).
Court denies motion to dismiss in a case involving the interpretation of a commutation agreement
In a terse one sentence ruling, a District Court has denied a motion to dismiss a Complaint alleging a number of claims with respect to a Commutation Agreement of certain reinsurance agreements. The Defendant contended that the Commutation Agreement unambiguously released it from all liabilities, while the Plaintiff countered that the Defendant's reliance on extrinsic evidence in its motion demonstrated that the agreements were not unambiguous, requiring the denial of the motion to dismiss. ACE Tempest Reinsurance, Ltd. v. Converium Reinsurance (North America), Inc., Case No. 06-1059 (USDC S.D.N.Y. Nov. 30, 2006).
Court affirms stay of state court action pending resolution of federal court action
A New York state appellate court has affirmed a stay of an action involving Lloyd's in deference to a pending federal court action concerning coverage and indemnity for asbestos-related claims. In a perfunctory opinion, the court noted that the plaintiffs in the underlying action had “remained inactive for 20 years ….” While the state court action had been filed three years before the action was filed in federal court, the appellate court based its decision on “the familiarity of the federal court with the issues, the substantial identy of the parties, and the interdependence of the issues involving primary and excess insurers ….” Certain Underwriters at Lloyd's London v. Pneumo Abex Corp., Index 602493/02 (App. Div. Jan. 9, 2007).