Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

FIFTH CIRCUIT RULES JUDICIAL ESTOPPEL BARS CHEVRON’S CHALLENGE TO ECUADOR’S REQUEST FOR DISCOVERY

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Chevron Corporation and the Republic of Ecuador have been engaged in contentious litigation for nearly two decades in various courts over alleged environmental contamination of oil fields in Ecuador. An Ecuadorian court finally issued a multi-billion dollar judgment against Chevron, prompting Chevron to file for arbitration under the rules of the U.S.-Ecuador Bilateral Investment Treaty (“BIT”). For use in the BIT arbitration, Ecuador applied for ancillary discovery from an individual, John Connor, and his company, GSI Environmental, in the Southern District of Texas pursuant to 28 U.S.C.A. § 1782. Section 1782 authorizes district courts to assist discovery efforts of litigants before foreign and international tribunals, and includes private international arbitration.

The Fifth Circuit has previously held, in Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880 (5th Cir. 1999), that an international arbitration tribunal is not a “foreign or international tribunal” under § 1782. The district court, compelled by this precedent, denied the discovery request. Ecuador appealed, arguing that Chevron was judicially estopped to contend that the BIT arbitration was not an “international tribunal.” The Fifth Circuit agreed after finding that Chevron had deliberately taken inconsistent positions on the availability of § 1782 discovery” and that “if Chevron is permitted to shield itself under Biedermann against Ecuador’s current discovery request, it will have gained an unfair advantage over its adversary.” The Court thus concluded that Chevron was judicially estopped from asserting its legally contrary position and stated, “we need not and do not opine on whether the BIT arbitration is in an ‘international tribunal.’” Republic of Ecuador v. Connor, Nos. 12-20122, 12-20123, 2013 WL 539011 (5th Cir. Feb. 13, 2013).

This post written by Brian Perryman.

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APPEALS COURT HOLDS REINSURER’S UNLAWFUL AGREEMENTS AND CONSPIRACIES ARE NOT CLAIM HANDLING ACTIVITIES

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Wellpoint, Inc. sued a number of defendants, chief among them reinsurers Continental Casualty Company and Twin City Fire Insurance Company, for denying coverage for Wellpoint’s defense and settlement of a number of medical reimbursement-related lawsuits against it. Wellpoint’s predecessor, Anthem, was the subject of a class action lawsuit in 1999 that alleged that Anthem’s subsidiary failed to timely and adequately reimburse for medical services. Beginning in 2001, Anthem became the subject to a series of over ten additional state and federal lawsuits alleging improper denial of reimbursement and other wrongful acts, including alleged violations of the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Anthem sought coverage from its insurers for defense and settlement of the CUTPA and RICO claims, and the reinsurers counterclaimed seeking declaration that these claims were not covered by the reinsurance agreement. The trial court granted the reinsurers’ motion for summary judgment on the issue.

The reinsurance agreement at issue covered claims against the insured for a wrongful act “only if such Wrongful Act . . . occurs solely in the rendering of or failure to render Professional Services.” (emphasis added) The reinsurance agreement states that “Professional Services” are “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjusting.” In a divided panel vote, the appeals court affirmed the lower court’s summary judgment ruling for the reinsurers finding professional services only included those rendered in the conduct of Wellpoint’s handling or adjusting of claims submitted on the policies that it had issued. Coverage was available only if the alleged wrongful acts that gave rise to the underlying litigation happened “solely” in the conduct of Wellpoint’s claims handling and adjusting. The court held the alleged acts did not, interpreting “solely” to mean “exclusively” or “entirely.” Thus, the alleged violations of CUTPA and RICO were not claims handling activities and could not be covered. Wellpoint, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Case No. 49A05-1202-PL92 (Ind. Ct. App. June 19, 2013).

This post written by Brian Perryman.

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FURTHER DEVELOPMENT IN STATE CREDIT FOR REINSURANCE REQUIREMENTS

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As the legislative seasons comes to a close in many states, several states have enacted modifications to their credit for reinsurance requirements to move towards the revised Credit for Reinsurance Model Act. The Missouri legislature adopted HB 133 and the Rhode Island legislature adopted HB 5608. The Georgia Department of Insurance adopted regulations (120-2-78) designed to help implement the Georgia legislature’s earlier adoption of revised credit for reinsurance requirements.

This post written by Rollie Goss.

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RES JUDICATA BARRED CLAIMS RESOLVED IN ARBITRATION DESPITE ARBITRATOR’S COMMENTS REGARDING LIMITATIONS ON AUTHORITY

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In a longstanding dispute arising out of an oil development venture, an intermediary seeking additional profits appealed to the Fifth Circuit after the lower court dismissed the intermediary’s RICO claims that had been previously resolved in arbitration. The arbitration award had rejected the intermediary’s claims based on alleged bribes that associated oil companies allegedly paid to foreign officials. Finding that res judicata barred the intermediary’s claims, the Fifth Circuit rejected the intermediary’s argument that the arbitrator had failed to exercise jurisdiction when he stated in the course of dismissing the claims that he lacked authority to determine criminality under RICO. The Fifth Circuit held that the arbitrator’s statement was not indicative of a refusal to consider the intermediary’s claims, that the arbitrator did in fact exercise jurisdiction, and that as a result, the lower court correctly found that res judicata barred the intermediary’s lawsuit. Grynberg v. BP, P.L.C., Case No. 12-20291 (5th Cir. June 7, 2013).

This post written by Michael Wolgin.

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