Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

TRIO OF CASES BETWEEN INSURERS AND REINSURERS REDUCED TO TWO

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Within weeks of each other, three suits were filed involving overlapping parties and similar claims regarding arbitration of disputes arising from reinsurance agreements between Transatlantic and Continental and between Transatlantic and AIG. In one of the three suits, National Indemnity Company (“NICO”) sought a preliminary injunction in the District of Nebraska enjoining Transatlantic from compelling NICO to arbitration in the other two actions in Illinois and New York. Considering the issue of where NICO’s claims should be resolved, the Nebraska court determined that while it could enjoin Transatlantic from compelling NICO to arbitration, it did not have the authority under the Federal Arbitration Act to compel arbitration under agreements that chose Illinois and New York as the venue for arbitration. The court would not therefore be able to grant complete relief to the parties. Comprehensive resolution could only be achieved by severing NICO’s claims and transferring those relating to the Transatlantic-Continental agreement to the Northern District of Illinois and those relating to the Transatlantic-AIG agreements to the Southern District of New York. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-CV-74 (USDC D. Neb. Mar. 31, 2014).

This post written by Abigail Kortz.

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SIXTH CIRCUIT REFUSES TO PERMIT JUDICIAL REVIEW PRIOR TO CONCLUSION OF REINSURANCE ARBITRATION PROCEEDING

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The Sixth Circuit recently reversed a district court’s decision to stay arbitration proceedings in a dispute concerning allegations of overbilling on a reinsurance program. The arbitration clause from the treaty established a tripartite method of arbitration – one arbitrator selected by each side and one neutral umpire. During the course of the arbitration (and before rendition of a final award), one of the parties contended that its selected arbitrator had been disenfranchised by the other two arbitrators and that inappropriate ex parte communications had occurred. A lawsuit was filed in Michigan state court, seeking to vacate an interim award on the grounds that the two arbitrators had exceeded their authority under the treaty and that the umpire had displayed evident partiality. The case was removed to federal court, where the district court recast the challenge as a breach of contract dispute regarding the rules under which the arbitration was to proceed, and it granted an injunction to stay the arbitration. On appeal, the Sixth Circuit reversed, concluding that the district court erred by prematurely interjecting itself into the private dispute, noting that parties to an arbitration generally may not challenge the fairness of the proceedings or the partiality of the arbitrators until the conclusion of the arbitration and the rendition of a final award. The Sixth Circuit made a point to disagree with the district court’s application of 9 U.S.C. § 2, noting that “[n]othing in the text or history of the FAA suggests that § 2 was intended to displace § 10’s limitation on judicial review of non-final awards.” Savers Property & Casualty Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, PA, Nos. 13-2288/2289 (6th Cir. Apr. 9, 2014).

This post written by Catherine Acree.

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ARBITRATION CLAUSE IN AGREEMENT BETWEEN INSURED AND REINSURER HELD INVALID UNDER NEBRASKA LAW

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A federal district court has held an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer invalid and unenforceable under governing state law. The RPA complemented a standing Quota Share Reinsurance Agreement between reinsurer Applied Underwriters Captive Risk Assurance (AUCRA) and the insured’s insurers whereby AUCRA was ceded a portion of the insured’s premiums paid under a Workers Compensation Profit Sharing Plan. When the insured failed to pay its premiums, it received notice that its workers’ compensation policies and the RPA were being terminated for nonpayment. After attempts to resolve the dispute with AUCRA failed, the insured filed a lawsuit seeking declaratory and other relief, including reformation of the RPA. AUCRA moved to compel arbitration pursuant to the RPA’s arbitration clause.

The court analyzed the arbitration clause under Nebraska law, which the parties agreed controlled, and found the clause fell within the purview of a Nebraska statute prohibiting arbitration clauses in insurance contracts. The court rejected AUCRA’s arguments that (a) the statute did not apply to the RPA because the statute is aimed only at traditional insurance contracts between an insurance company and its insured, and (b) even if applicable, the RPA fell within the reinsurance exception contained within that statute. The court noted that the reinsurance exception applied to “contract[s] between insurance companies including a reinsurance contract” and the insured was not an insurance company. The court also rejected AUCRA’s argument that the insured had waived or was otherwise estopped from contesting the validity of the arbitration clause by virtue of its pre-suit settlement attempts. The court thereby denied AUCRA’s motion to compel arbitration and granted the insured’s motion to stop arbitration. On a final issue, the court denied AUCRA’s motion to transfer venue to Nebraska per the RPA’s forum selection clause, finding the interests of justice weighed in favor of retaining the case in Tennessee. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Jan. 23, 2014).

This post written by Renee Schimkat.

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NINTH CIRCUIT ADOPTS REBUTTABLE PRESUMPTION THAT ORDER WHICH DOES NOT EXPLICITLY DISMISS ARBITRABLE CLAIMS STAYS THE ACTION AS TO THOSE CLAIMS

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Under the Federal Arbitration Act, only “a final decision with respect to an arbitration” is appealable. 9 U.S.C. §16(a)(3). The issue facing the Ninth Circuit was whether an order compelling arbitration which neither explicitly dismissed nor explicitly stayed the action was such “a final decision.” The Court concluded it was not a final decision and therefore was not appealable.  In MediVas, the district court’s order on appeal (“Order”) ruled that many of the plaintiff’s claims were subject to the arbitration clause, and ordered arbitration for those claims. As to the remaining claims, the district court remanded them to state court. Neither the Order nor any other order in that case explicitly dismissed nor explicitly stayed the arbitrable claims, and no judgment was entered in the action.

In its analysis, the Court reasoned that a final decision is one which “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Thus, an order compelling arbitration may be appealed if it dismisses all the underlying claims, but may not be appealed if the court stays the action pending arbitration. Consistent with its earlier rulings and with the procedural history of the case before it, the Ninth Circuit held the Order implicitly stayed the arbitrable claims pending the outcome of the arbitration. Because those claims were not dismissed, the Order was therefore interlocutory and not appealable.

Significantly, although the Medivas Court declined to follow the Second Circuit’s requirement of an official dismissal of all claims before reviewing an order compelling arbitration, the Court adopted a rebuttable presumption that an order compelling arbitration which did not explicitly dismiss the underlying claims stays the action as to those claims pending the completion of the arbitration. The Court did so in order to simplify the analysis in future cases where the order compelling arbitration is not clear. Along those lines, the MediVas Court also urged the district courts make their orders as clear as possible as to whether they intend to dismiss or stay a case, and noted that the appeal before it could have been avoided had the parties requested a clarification of the Order.  MediVas, LLC, et. al. v. Marubeni Corporation, Case No. 12-55375 D.C. No. 3:10-cv-01001-W-RBB (9th Cir. Jan. 27, 2014).

This post written by Leonor Lagomasino.

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REINSURANCE ARBITRATION DISPUTE TRANSFERRED TO VENUES IN WHICH ARBITRATIONS WERE PENDING

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National Indemnity Company (NICO) sought an injunction in a Nebraska federal district court to prevent Transatlantic Reinsurance Company and its subsidiary (collectively, Transatlantic Re) from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. Transatlantic Re had commenced arbitrations in Illinois and New York (and initiated actions in those jurisdictions to compel NICO’s participation), pursuant to applicable forum selection clauses contained in Transatlantic Re’s reinsurance agreements with cedents. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York. The court analyzed venue provisions in the Federal Arbitration Act and different judicial approaches thereto, and concluded that Nebraska was limited in its jurisdiction over the claim. Illinois and New York were authorized under the FAA to compel arbitration if necessary, whereas Nebraska possessed jurisdiction only to enjoin NICO’s participation. Transfer, the court concluded, would promote judicial economy. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-cv-00074 (USDC D. Neb. Mar. 31, 2014).

This post written by Michael Wolgin.

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