Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

INJUNCTION ISSUED TO PREVENT WRITING OR AMENDING REINSURANCE RISKS PURSUANT TO BINDING AUTHORITY PENDING ARBITRATION

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The US District Court for the Eastern District of New York recently adopted the US Magistrate’s Report and Recommendation, granting United Insurance Company’s Motion in Aid of Arbitration for a Preliminary Injunction. The dispute arose out of a Binding Authority Agreement (“BAA”) authorizing World Wide Re (formerly World Wide Management Consultants) to underwrite and bind reinsurance risks on UIC’s behalf subject to the underwriting guidelines. The BAA allows both parties to terminate the agreement immediately upon notice for cause, in the event that either party breaches the agreement. The BAA also provides for mandatory arbitration of all disputes. On February 28, 2001, UIC sent a Notice of Termination to World Wide asserting that it breached the agreement when it disregarded UIC’s specific instructions not to bind the risk related to Arcelor Mittal’s reinsurance. By letter dated March 3, World Wide responded, stating that it would continue to write business until an arbitration decision was rendered granting the relief sought. World Wide has since continued to bind risks on behalf of UIC. UIC subsequently filed the instant motion for a preliminary injunction.

The Magistrate issued a Report and Recommendation (adopted by the District Court) granting the motion. The Magistrate concluded that World Wide’s continued actions to continue binding risk on behalf of UIC constituted irreparable harm, and that UIC had demonstrated a likelihood of success on the merits. Accordingly, World Wide was enjoined from writing reinsurance risks on behalf of UIC or modifying or canceling existing risks. United Insurance Co. Ltd. v. Word Wide Web Re, Case No. 11-01177 (E.D. N.Y. Apr. 27, 2011).

This post written by John Black.

COURT DISMISSES CASE AGAINST FOREIGN REINSURER FOR LACK OF PERSONAL JURISDICTION

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Pacific Employers Insurance Company entered into a quota share reinsurance agreement with AXA Belgium in the 1970s, when Pacific was a California domiciliary. The agreement was never formalized so it included no terms concerning exclusive jurisdiction, service of suit, choice of law or forum selection. Pacific moved its offices to Pennsylvania in the early 1990s. Pacific continued to bill AXA on occasion, and AXA paid claims and submitted billings to Pacific at its Pennsylvania office. The parties then became engaged in dispute over AXA’s continuing obligations. Pacific brought suit in Pennsylvania federal court. AXA challenged personal jurisdiction. Pacific produced evidence in support of its claim of jurisdiction, including billings AXA sent to it in Pennsylvania, and the fact that AXA representatives had conducted an audit of Pacific at its Pennsylvania offices. It also contended that AXA directed numerous written and telephone communications to Pacific in Pennsylvania. Finally, Pacific argued that AXA did other substantial business in Pennsylvania, in support of its “general jurisdiction” claim. The Court rejected all of Pacific’s claims, and granted AXA’s Rule 12(b)(2) motion to dismiss. Pacific Employers Ins. Co. v. AXA Belgium, S.A., No. 09-5211 (USDC E.D. Pa. April 27, 2011).

This post written by John Pitblado.

REINSURANCE BROKER CANNOT BE SUED FOR BREACH OF FIDUCIARY DUTY

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Insurance brokers are not subject to breach of fiduciary duty claims under California law, a court held. Workmen’s Auto Insurance Co. sued its reinsurance intermediary-broker, Guy Carpenter & Co., for negligence, breach of fiduciary duty, and breach of contract in connection with Carpenter’s placement of a finite quota share reinsurance agreement on Workmen’s behalf. The trial court granted Carpenter’s motion for summary adjudication with respect to Workmen’s allegation that Carpenter failed to secure the best terms for reinsurance, and sustained Carpenter’s demurrer on Workmen’s breach of fiduciary claim. A jury found for Carpenter on the negligence and breach of contract claims. Workmen’s appealed, but the court of appeal affirmed, holding that an insurance broker cannot be sued for breach of fiduciary duty. An insurance broker’s duties are defined by California insurance law, which ascribes to brokers a duty of care, not a fiduciary duty. The appellate court declined to address as untimely raised Workmen’s argument that the standard should be different for reinsurance brokers because the nature of the relationship with the client is more complex and comprehensive. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., No. B211660 (Cal. Ct. App. May 4, 2011).

This post written by Ben Seessel.

ARBITRATOR SHOULD DECIDE TIMELINESS EVEN WHERE CONTRACT SELECTS LAW THAT PERMITS IT TO BE DETERMINED IN COURT

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The Second Circuit Court of Appeals has recently reversed a court decision to apply New York law to bar the arbitration of a Brazilian construction dispute as untimely, holding that this issue should have been determined by the arbitrator. The Second Circuit held that the underlying contract ambiguously contained both a provision calling for “any” contract dispute to “be finally settled by arbitration” and a New York choice of law provision. New York law permits a party to litigate in court a statute of limitations defense. In resolving the ambiguity in favor of arbitration, the Second Circuit applied Supreme Court precedent, which holds that where a contract contains a broad arbitration provision and a general choice of law provision that does not itself specify that a timeliness defense should be withheld from arbitration, the choice of law provision “encompasses substantive principles” that courts would apply, but not “special rules limiting the authority of the arbitrators.” Bechtel Do Brasil Construcoes Ltda. v. UEG Araucaria LTDA, No. 10-0341 (2d Cir. March 22, 2011).

This post written by Michael Wolgin.

UNCONSCIONABILITY DOCTRINE PREEMPTED BY FAA

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In a Special Focus analysis, we profile the long-awaited Supreme Court decision in AT&T v. Concepcion, which holds that the Federal Arbitration Act prohibits states from conditioning the enforceability of an arbitration agreement on the availability of class wide arbitration procedures. AT&T v. Concepcion, No. 09-893 (US Apr. 27, 2011).

This post written by John Black.