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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

FOLLOWING VACATUR OF ARBITRATION AWARD IN REINSURANCE DISPUTE AS “COMPLETELY IRRATIONAL,” COURT CONFIRMS NEW AWARD

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On September 29, 2009 and November 22, 2010, respectively, we reported on a court’s vacatur of an arbitration award related to a “deficit carry forward” provision in a reinsurance agreement, and the Third Circuit’s subsequent affirmance of that order. The dispute surrounded the manner in which deficits in a reinsurer’s “experience account” under a reinsurance agreement for one year, applies to distribution of account funds under a separate reinsurance agreement for a subsequent year. The court previously vacated an arbitration award that awarded the reinsurer $6 million and failed to apply the “deficit carry forward” provision, which the court found to be unsupported by the contract and therefore “completely irrational” (notwithstanding a broad “Honorable Engagement Clause”). In a recent opinion and order, the court affirmed the award of a new arbitration panel, which interpreted the agreements and found that the “deficit carry forward” provision applied to permit the reinsurer to retain its portion of the account deficits prior to distribution to the reinsured of the funds of the account for the subsequent year. Because the panel “grounded its decision on the language” of the relevant reinsurance agreement, the court found that the panel’s decision properly “draws its essence” from the contract. Platinum Underwriters Bermuda, Ltd. v. Excalibur Reinsurance Corp., Case No. 2:12-mc-00070 (USDC E.D. Pa. July 15, 2013), and corresponding judgment entered July 18, 2013.

This post written by Michael Wolgin.

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COURT ADDRESSES PROCEDURAL ISSUES IN CONTENTIOUS REINSURANCE BATTLE OVER REINSURER’S CLAIMS PRACTICES

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Travelers brought a breach of contract action against reinsurer Excalibur, alleging breach of contract due to Excalibur’s alleged failure to pay $1,573,189.58 in claims under a reinsurance contract between the parties’ respective predecessors in interest. In the course of briefing a dispositive motion, Travelers introduced an affidavit on reply, which addressed arguments made by Excalibur in its opposition. Travelers also moved to amend its complaint to add a Connecticut Unfair Trade Practices Act claim. Excalibur objected to the proposed amendment, moved to strike the affidavit, and, in the alternative, moved for permission to file a counter-affidavit. The Court granted leave to amend, and denied Excalibur’s motion to strike the Travelers affidavit, but granted Excalibur’s motion for leave to file a counter-affidavit, finding both affidavits are properly admitted, and could bear on the parties’ claims as the litigation proceeded. Travelers Indemnity Co. v. Excalibur Reinsurance Corp., No. 3:11-cv-1209 (USDC D. Conn. Aug. 5, 2013)

This post written by John Pitblado.

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FEDERAL COURTS DECIDE ARBITRATOR APPOINTMENT AND DISQUALIFICATION ISSUES

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In Adam Tech., the Court of Appeals for the Fifth Circuit affirmed the denial of a motion to appoint an arbitrator. The court held that there had been no “lapse in the naming of an arbitrator” under FAA Section 5, deciding rather that it was Adam’ Tech.’s failure to comply with the International Center for Dispute Resolution’s rules that prompted the ICDR to appoint an arbitrator against Adam Tech.’s objection. The court also held that the challenge to the ICDR’s rules was a procedural question left for the arbitrators to decide under the Supreme Court’s Howsam decision and that Adam Tech.’s challenge to the appointment was premature because it was filed before a final award had been rendered. Adam Tech. Int’l, S.A. v. Sutherland Global Servs., Inc., No. 12-10760 (5th Cir. Sept. 5, 2013).

Joyce Green had entered into an agreement in 2012 with U.S. Cash Advance Court requiring disputes to be resolved through arbitration under the Code of Procedure of the National Arbitration Forum. The NAF, however, has not been accepting new consumer cases since 2009, following a settlement with the Minnesota Attorney General. The district court refused to appoint an arbitrator under FAA Section 5, holding that the selection of NAF was “integral” to the agreement. The Court of Appeals for the Seventh Circuit disagreed. The appellate court first pointed out that the agreement did not require appointment of a NAF arbitrator but only the use of the NAF Code of Procedure. It further held that the identity of the arbitrator was not so important as to vitiate the whole contract and ordered the district court to appoint an arbitrator to adjudicate the dispute under the NAF Code of Procedure. A dissenting judge sharply disagreed, opining that the majority was re-writing the terms of the parties’ contract. Green v. U.S. Cash Advance Ill., LLC, No. 13-1262 (7th Cir. July 30, 2013).

In PK Time Group, LLC, a federal district court denied a petition to remove a panel of arbitrators. Petitioner PK Time sought removal of the arbitrators after liability had been decided in favor of the opposing party, Cinette Robert, but before the issue of damages had been decided. PK Time argued that the arbitrators had demonstrated bias and had committed misconduct by speaking at a conference at which Cinette Robert’s expert also spoke, and that was sponsored by the company that employed the expert, and by making improper discovery rulings. The court dismissed the petition as an improper pre-award challenge that also failed to demonstrate arbitrator bias. PK Time Group, LLC v. Cinette Robert, Case No. 1:12-cv-08200 (USDC S.D.N.Y. July 13 2013).

This post written by Ben Seessel.

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REVISIONS TO CONNECTICUT’S CREDIT FOR REINSURANCE LAW

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Effective August 6, 2013, Connecticut has adopted requirements in line with the November 6, 2011 amendments to the NAIC Credit for Reinsurance Model Law and Regulation that governs how a reinsurer may become certified in Connecticut for purposes of insurers taking a credit for amounts ceded to such reinsurer. As part of its new program, the Connecticut Insurance Department has created a Credit for Reinsurance webpage which contains all of the necessary applications, instructions and regulations in one location. Companies seeking to become certified must contact the Financial Regulation Division before submitting an application. State of Connecticut Insurance Department, Requirements to Become a Connecticut Certified Reinsurer – Updated, Bulletin No. FS-25-1 (Aug. 12, 2013).

This post written by Abigail Kortz.

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REINSURED’S TRIAL COUNSEL INVOLVED IN UNDERLYING DISPUTE DISQUALIFIED FROM TRYING THE CASE

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In a dispute involving tortious interference and conspiracy claims brought by Ford Motor Company against a reinsurer of Ford’s stop-loss insurance policies, a federal court disqualified Ford’s lead trial attorney under the “witness-advocate” rule. The reinsurer argued that, notwithstanding Ford’s stipulation not to call trial counsel as a witness, trial counsel’s involvement in the emails and other underlying communications surrounding the reinsurer’s disputed conduct would result in trial counsel being “free to argue the meaning of his own correspondence and refute the trial and deposition testimony of those with whom he interacted.” The reinsurer further contended that trial counsel would “have the ability, through cross-examination and argument, to explain away his communications … just as if he were testifying as a witness,” and that the reinsurer would be forced to call trial counsel as a witness to support its defenses and to rebut Ford’s theory of the case and evidence. The court agreed with the reinsurer, finding that the testimony the reinsurer intended on seeking from trial counsel and the communications in which trial counsel was involved, were relevant and necessary to the reinsurer’s defenses, and were potentially prejudicial to Ford. The court further found that no exceptions to the witness-advocate rule applied, including the exception of substantial hardship to Ford. Ford Motor Co. v. National Indemnity Co., Case No. 3:12-cv-839 (USDC E.D. Va. Aug. 21, 2013).

This post written by Michael Wolgin.

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