Week's Best Posts

FOURTH CIRCUIT AFFIRMS CONFIRMATION OF ARBITRATION AWARD OVER OBJECTIONS THAT THE AWARD WAS PROCURED BY “UNDUE MEANS”

July 13, 2010 by Carlton Fields

The appeal arises from a contract dispute concerning the construction of a wastewater treatment plant for the City of Greensboro. The parties – Greensboro, the contractor (MCI Constructors), and the contractor’s surety on a performance bond (National Union Fire Insurance Company) – agreed to submit the matter to arbitration. Greensboro was award nearly $15 million in the arbitration. The district court granted Greensboro’s motion to confirm that award. On appeal, MCI and National Union argued that the district court should have vacated the award because the liability award was procured by “undue means” in violation of § 10(a)(1) of the Federal Arbitration Act; that the arbitration panel exceeded the scope of its powers to issue the award; and that the district court should have remanded the award because the award failed to specify whether it includes the contract balance.

The Fourth Circuit affirmed. First, the court stated that an award is procured by “undue means” if there is proof of fraud or corruption, but the most that happened during the arbitration in question was Greensboro’s counsel’s “legally objectionable” tactics. Next, the court determined whether the arbitration panel exceeded the scope of its powers under the contract by not requiring the City to submit the dispute on the contract price to the engineering firm that designed the project. The court found that since the submission of this issue to the engineering firm was not a contract requirement, the panel did not exceed its authority by not requiring such a submission. The court further rejected the contention that because the panel did not specify the basis for its award, the award was ambiguous. It is “well settled” that arbitrators are not required to disclose the basis upon which their awards are made and “courts will not look behind a lump-sum award.” Finally, the court rejected the objection that the panel failed to issue a reasoned written statement of decision; a written statement was not requested by the parties, as contemplated under the applicable arbitration rules (AAA Complex Commercial Arbitration Rules). MCI Constructors v. City of Greensboro, No. 09-1600 (4th Cir. July 1, 2010).

This post written by Brian Perryman.

DISTRICT COURT DENIES ERC’S § 1292(B) REQUEST FOR CERTIFICATION FOR INTERLOCUTORY APPEAL

July 12, 2010 by Carlton Fields

In the latest development in the ongoing dispute between Employers Reinsurance and its reinsured Mass Mutual, ERC asks the US District Court for the Western District of Missouri to amend its prior rulings to certify the “follow the settlements” and statutes of limitations issues for immediate interlocutory appeal under 28 U.S.C. § 1292(b). Noting the heavy burden required to certify a question for interlocutory appeal, the District Court incorporated its prior ruling on the “follow the settlements” issue and denied ERC’s request for certification as to that issue, since it had denied certification of that issue previously. The court also refused to certify the statute of limitations issue for interlocutory appeal finding that the issue was not a purely legal question as required by § 1292(b). Employers Reinsurance Corp. v. Massachusetts Mut. Life Ins. Co., Case No. 06-0188 (USDC W.D. Mo. June 16, 2010).

This post written by John Black.

SPECIAL FOCUS: ALLOCATION OF SETTLEMENT AMOUNT AMONG INSURANCE AND REINSURANCE POLICIES

July 6, 2010 by Carlton Fields

In a recent opinion, the United States Court of Appeal for the Third Circuit addressed the applicability of the follow-the-fortunes doctrine to the post-settlement allocation of a settlement amount to a multi-layer insurance program, upon a challenge to the allocation by a reinsurer. Rollie Goss offers an expanded analysis of this case. Travelers Cas. and Surety Co. v. Ins. Co. of North America, Nos. 06-4100 and 08-1032 (3d Cir. June 9, 2010).

This post written by Rollie Goss.

U.S. SUPREME COURT: ARBITRATOR HAS THE AUTHORITY TO DETERMINE WHETHER AN ARBITRATION PROVISION IS VOID DUE TO UNCONSCIONABILITY

July 5, 2010 by Carlton Fields

In Rent-A-Center v. Jackson, No. 09-497 (Sup. Ct. June 21, 2010), the U.S. Supreme Court considered whether a provision that delegated to an arbitrator the authority to decide whether any portion of an arbitration agreement was void or voidable is enforceable under section 2 of the Federal Arbitration Act (“FAA”), in a situation in which it was contended that the agreement was unconscionable under Nevada law The Court recognized that it had previously held that parties can agree to arbitrate “gateway” questions of “arbitrability,” such as whether an agreement covers a particular controversy. The Court further recognized that there were two types of challenges to the validity of an agreement under section 2 of the FAA: (1) challenges to an agreement to arbitrate itself; and (2) challenges to the contract containing the arbitration agreement as a whole, “either on a ground that directly affects the entire agreement (e.g., the agreement was fraudulently induced), or on the ground that the illegality of one of the contract’s provisions renders the whole contract invalid.” Only the first type of challenge is relevant to a court’s determination whether the arbitration agreement is enforceable. Since an arbitration provision is severable from the remainder of the contract, a challenge must be specifically directed to the arbitration provision in order for the court to intervene. Since the challenge here was to the contract as a whole, rather than specifically directed to the arbitration provision at issue, the arbitration provision was enforceable, and the arbitrator had the authority to determine the issue of unconscionability.

This post written by Michael Wolgin.

SECOND REINSURER APPROVED FOR FLORIDA REDUCED COLLATERAL REGULATION

June 29, 2010 by Carlton Fields

The Florida Office of Insurance Regulation (“OIR”) has approved XL Re Ltd. as the second non-Florida reinsurer to operate in Florida without having to post 100 percent collateral. The approval is pursuant to a Florida regulation, 69O-144.007, which allows credit for reinsurance without full collateral for transactions involving reinsurers not domiciled in Florida, provided that certain requirements are satisfied. The requirements include, among other requirements:

the reinsurer must obtain financial ratings from no less than two approved rating agencies;
the percentage of collateral required is determined based upon the lowest rating;
the reinsurer must consent to service of process and jurisdiction;
the reinsurer and its regulator must provide periodic financial and other information to the OIR; and
the reinsurer must hold surplus in excess of $100 million.

Hannover Re was the first reinsurer approved for reduced collateral transactions under this regulation.

This post written by Rollie Goss.