Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

PROPOSED ALTERNATIVE UMPIRE SELECTION REJECTED BY COURT

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Addressing the method of appointing a tie-breaking umpire-arbitrator in a series of reinsurance coverage arbitrations commenced by insurer Arrowood Indemnity Company, the Southern District of New York recently ordered that the parties’ already chosen arbitrators follow the steps provided in the “excess of loss” reinsurance agreements in selecting the third arbitrator. Although the relevant reinsurance treaties specified a method for such selection, Arrowood sought an alternative approach, which included the nomination by each party of up to eight candidates and a voir dire-like objection and selection process. However, the Court, acting under authority granted by Section 5 of the Federal Arbitration Act, denied that alternative, ordering that the present arbitrators select an umpire in accordance with the treaties’ requirements. Then, the Court would regard that selection as “presumptively appropriate,” albeit rebuttable, for appointment by the Court as umpire for the remaining arbitrations of the series. Employers Insurance Co. of Wausau v. Arrowood Indemnity Co., No. 12-cv-08005-LLS (USDC S.D.N.Y. Oct. 25, 2013).

This post written by Kyle Whitehead.

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BRITISH COURT REFUSES TO ENJOIN U.S. REINSURANCE LAWSUIT, OR STAY BRITISH SUIT, BETWEEN SAME PARTIES REGARDING SAME ISSUES.

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The claimant, the Insurance Company of the State of Pennsylvania, sued Equitas under certain reinsurance contracts that provided cover of $15 million, excess of $5 million in underlying insurance for ICP-issued policies covering the Dole Food Co. Dole faced more than $30 million in liabilities arising from alleged personal injuries caused by its use of certain pesticides in its fruit farming operations. Equitas claimed that ICP failed to timely notify Equitas of the claims, barring coverage under the reinsurance contracts. ICP brought suit first in New York, and Equitas filed its own later action in London, arguing that venue in the U.S. was improper, and seeking to enjoin the U.S. action. The English court declined to enjoin the U.S. action. However, it also denied ICP’s motion to stay the English proceeding, leaving the litigation proceeding on parallel tracks in New York and London. Insurance Co. of Pa. v. Equitas, [2013] EWHC 3713 (U.K. High Court of Justice, Comm. Div. Nov. 29, 2013)

This post written by John Pitblado.

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SIXTH CIRCUIT ANSWERS A QUESTION LEFT OPEN BY THE SUPREME COURT: CLASSWIDE ARBITRABILITY IS A GATEWAY QUESTION SUBJECT TO JUDICIAL DETERMINATION

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The threshold issue before the Sixth Circuit on an appeal from a dispute involving LexisNexis and one of its law firm customers was whether the question of classwide arbitrability is a gateway question to be determined by the court or a subsidiary question to be determined by an arbitrator, a question expressly left open by the Supreme Court in its most recent term. Following an analysis of recent Supreme Court jurisprudence, which seemed to lean toward deciding that classwide arbitrarily is a gateway question, the Sixth Circuit definitively stated that it is a gateway question reserved for judicial determination. The Court next analyzed the arbitration clause at issue in the dispute and held that it did not authorize class arbitration because it was silent on that issue and limited the scope of arbitration to the specific order between LexisNexis and the law firm, precluding the arbitration of other customers’ orders with LexisNexis. Reed Elsevier, Inc. v. Crockett, No. 12-3574 (6th Cir. Nov. 5, 2013).

This post written by Abigail Kortz.

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REINSURER OFF THE HOOK FOR LITIGATION DEFENSE COSTS

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Public Reimbursement Management of Florida (“PRM”) sued its reinsurer One Beacon Insurance Co. (“OneBeacon”) for reimbursement of defense costs PRM incurred while defending an insured involved in a construction contract dispute. The primary issue was whether the underlying construction contract dispute fell within PRM’s duty to defend and whether OneBeacon was obligated to reimburse PRM. The Florida district court granted OneBeacon’s motion to dismiss with prejudice, concluding that (1) PRM did not have a duty to defend because the construction dispute fell within an exclusion in the PRM insurance policy for intentional breaches of contract, and (2) the theory of equitable estoppel did not apply to create insurance coverage between OneBeacon and PRM because OneBeacon made it clear in its correspondence with PRM that it did not believe PRM had a duty to defend the construction contract dispute. Public Risk Management of Florida v. One Beacon Insurance Co., Case No. 13-1067 (M.D. Fla. Oct. 18, 2013).

This post written by Abigail Kortz.

See our disclaimer.

“Buyer’s Remorse,” or Did the Nature of the Reinsurance Commissions Really Violate Florida Law?

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A Florida circuit court recently denied defendants’ motions for summary judgment in a suit filed by a Costa Rican insurer against two reinsurance brokers – one from the United States and one from England – alleging breach of contract and a host of claims involving negligence, breach of fiduciary duty, and misrepresentation. The crux of the plaintiff’s complaint is that the brokers’ commission earnings were unreasonable, excessive, and undisclosed because a less-than-$200,000 flat commission bid for the brokerage business during an initial bidding stage (which was allegedly terminated) grew to nearly $2 million in a subsequent bidding stage wherein the bid quoted only a total price of over $12 million, without separate premium and brokerage commission line items. The defendants’ motions asserted that Florida law does not impose limits on broker compensation, particularly in arms-length transactions between sophisticated parties, and does not mandate voluntary disclosure of brokers’ earnings, lest a contract requires it. In addition, the insurer chose to award its business as it did because the defendants presented the best price, terms, and other conditions of the reinsurance. Since the Order does not provide any analysis or reasons for the ruling, although it may have given some indication during argument, the Order does not indicate whether the Court denied the motion due to the presence of disputed issues of material fact or because of a disagreement with the legal arguments made by the movants. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33653 CA 04 (Fla. Cir. Ct. Oct. 7, 2013).

This post written by Kyle Whitehead.

See our disclaimer.