Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Week's Best Posts

Week's Best Posts

FOURTH CIRCUIT STATES POST-STOLT NIELSEN VIEW ON MANIFEST DISREGARD

by

The U.S. Court of Appeals for the Fourth Circuit recently stated that manifest disregard remains a viable doctrine in an opinion refusing to vacate a $1.1 million arbitration award against Wachovia for frivolous litigation under state law. Wachovia argued that the panel committed manifest disregard of the law by failing to provide Wachovia adequate notice and hearing under the state statute. The court disagreed, holding the panel was not bound by the statutory procedure in awarding fees, and, in any event, Wachovia was partly responsible for any insufficient process based on its conduct in the arbitration. In so holding, the court provided its interpretation of the Supreme Court’s footnote on manifest disregard in Stolt-Nielsen: “We read this footnote to mean that manifest disregard continues to exist either ‘as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.’ Therefore, we decline to adopt the position of the Fifth and Eleventh Circuits that manifest disregard no longer exists.” Wachovia Securities, LLC v. Brand, No. 10-2111 (4th Cir. Feb. 16, 2012).

This post written by Michael Wolgin.

See our disclaimer.

COURT VACATES JURY VERDICT RENDERED IN FAVOR OF INSURER AGAINST REINSURANCE BROKER

by

Alabama Municipal Insurance Corporation (“AMIC”) purchased reinsurance though broker Alliant Insurance Services (“Alliant”) that was underwritten by various reinsurers including Lloyd’s of London (“Lloyds”). According to AMIC, its contract with Alliant required Alliant to timely transmit claims to Lloyds and other reinsurers. AMIC alleged that Alliant breached the contract by failing to timely transmit claims to Lloyds for an 18-month period in 2000-2001. AMIC, however, had agreed with Alliant in an unwritten “gentlemen’s agreement” that it would not submit notices of loss for this period; AMIC thus did not submit notices of loss for 2000-2001 to Alliant until 2005, after the parties’ relationship had soured. Lloyds denied AMIC’s claims for the 2000-2001 period, not because they were untimely, but because of unreported growth of total insured values during the period.

A jury concluded that AMIC and Alliant had entered into a contract whereby Alliant agreed to serve as AMIC’s Managing General Agent (“MGA”) and that Alliant had breached its contract. The district court vacated the jury’s verdict on Alliant’s post trial motion on several bases. First, the court found that Alliant never agreed to serve as AMIC’s MGA and, furthermore, that there was no definite contractual term requiring Alliant to timely submit claims to Lloyds. The court also cited AMIC’s failure to perform under the contract by not timely submitting notices of loss to Alliant, and AMIC’s failure to prove damages because Lloyds denied the claims for reasons entirely unrelated to timeliness. It further held that AMIC was estopped from arguing that Alliant untimely submitted claims because Alliant was acting in reliance on representations AMIC made in the “gentlemen’s agreement” regarding not submitting claims for the 2000-2001 time period. Alabama Municipal Ins. Corp. v. Alliant Ins. Servs., Case No. 2:09-928 (USDC M.D. Ala. Jan. 10, 2012).

This post written by Ben Seessel.

See our disclaimer.

THIRD CIRCUIT HOLDS THAT DISTRICT COURT ERRED IN REFUSING TO APPOINT SUBSTITUTE ARBITRATOR UNDER FAA SECTION 5

by

Plaintiff Khan filed a putative class action lawsuit against Dell alleging, among other claims, violations of a state consumer protection statute and common law fraud. The arbitration clause at issue provided that disputes: “SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF). . . .” At the time Dell filed its motion to compel arbitration, however, NAF had been barred from conducting consumer arbitrations pursuant to the terms of a consent decree with the Minnesota Attorney General that NAF had entered into after being investigated for allegedly engaging in deceptive practices disadvantaging consumers.

The district court held that NAF’s designation was “integral” to the arbitration provision such that it could not be enforced without using NAF and denied Dell’s motion to compel arbitration. The Third Circuit reversed. It determined that the arbitration clause was ambiguous because “EXCLUSIVELY” could refer either to “BINDING ARBITRATION,” to “NAF,” or to both and that the provision thus did not indicate the parties’ “unambiguous intent not to arbitrate their disputes if NAF is unavailable.” The Third Circuit held that the district court, accordingly, should have appointed a substitute arbitrator under FAA Section 5 and remanded the case for further proceedings consistent with its opinion. Khan v. Dell Inc., No. 10-3655 (3rd Cir. Jan. 20, 2012).

This post written by Ben Seessel.

See our disclaimer.

WHITE MOUNTAIN RE VOLUNTARILY DISMISSES ASBESTOS REINSURANCE ACTION AGAINST TRAVELERS CASUALTY

by

We last posted on a reinsurance dispute between White Mountains Re and Travelers Casualty on May 18, 2011. Since then, White Mountain Re agreed to voluntarily dismiss its claims with prejudice. The dispute arose out of several reinsurance agreements between the parties, notably regarding a series of blanket excess of loss reinsurance contracts entered into in the 1980s covering asbestos installations. White Mountains Re alleged claims for declaratory relief and breach of contract in New York state court. Travelers successfully removed the claims to federal court prior to the voluntary dismissal. White Mountains Reinsurance Co. of America v. Travelers Casualty and Surety Co., Case No. 11-390 (USDC S.D.N.Y. Jan. 3, 2012).

This post written by John Black.

See our disclaimer.

COURT AFFIRMS DENIAL OF “CONTINGENT” ASBESTOS CLAIMS AGAINST LIQUIDATION ESTATE OF EXCESS INSURER

by

A court affirmed the denial of W.R. Grace & Co.’s asbestos insurance claims against the liquidation estate of Grace’s insolvent excess-of-loss insurer, on the ground that Grace failed to submit timely “absolute” claims under New Jersey’s version of the Uniform Insurers Liquidation Act. Grace, which has been undergoing bankruptcy restructuring, had established a plan with a creditor’s committee to create a trust to pay asbestos claims. The plan, however, was not approved by the bankruptcy court prior to the deadline to submit excess of loss claims to the liquidation estate of Grace’s excess insurer. When Grace submitted a proof of claim to the estate, the liquidator denied the claim, relying on provisions of the Uniform Insurers Liquidation Act that permit payment of only “absolute” claims, as opposed to “contingent” claims.

Grace ultimately appealed to the state court, which affirmed. The court agreed the claims were “contingent” as “the value of the claims at issue had not been fixed by actual payment, settlement, final judgment or a claims resolution procedure approved by the federal bankruptcy court,” notwithstanding estimates provided by Grace’s expert witness. Because the estimates did not “stand on their own,” the claims could not be considered “absolute” under state precedent. The court also rejected Grace’s argument that even if the claims were contingent, they should be paid to prevent a “windfall.” The court distinguished state law, and held that, under the McCarran-Ferguson Act, federal bankruptcy law “plays no part” where the state Uniform Insurers Liquidation Act provided “a comprehensive mechanism” for the liquidation and payment of claims. Commissioner of Insurance of the State of New Jersey v. Integrity Insurance Co./W.R. Grace & Co., Case No. A-2505-10T4 (N.J. Super. Ct. App. Div. Jan. 11, 2012).

This post written by Michael Wolgin.

See our disclaimer.