Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

New York Appellate Court: Claims Against Reinsurance Brokers Survive Dismissal

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New York’s Appellate Court affirmed a ruling denying the defendant reinsurance brokers’ motion to dismiss claims alleged by the plaintiff, the putative cedent. American Home procured, through the defendants, certain reinsurance contracts. After dispute arose between American Home and its reinsurers in connection with approximately $23 million in claims, the insurer and reinsurers arbitrated, and the reinsurers successfully rescinded the contracts, based on misrepresentations by the brokers in the procurement thereof (the arbitrators held that the insurer and its agents were held to the uberrima fides, or utmost good faith standard, so it did not matter if the misrepresentations were negligent or intentional). American Home then filed suit against the brokers alleging breach of fiduciary duty, negligence, common law indemnification, contribution and unjust enrichment. The brokers moved to dismiss claims based in part on the plaintiff’s involvement in the misrepresentations, but the court denied the motion, and the appellate court affirmed. American Home Assurance Co. v. Naush, Hogan & Murray, Inc., No. 602858/08 (N.Y. Sup. Ct. App. Div. March 23, 2010).

This post written by John Pitblado.

SPECIAL FOCUS: FEDERAL COURT OF APPEAL ANNOUNCES REVIEW STANDARD APPLICABLE TO RULINGS ON MOTIONS TO STAY LAWSUITS PENDING ARBITRATION

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In this Special Focus Article, Carlton Fields parnter Roland Goss discusses the implications of the First Circuit’s recent decision in Powershare Inc. v. Syntel Inc. In this case, the court addressed the appropriate standard of review to be used by a District Court judge in reviewing a Magistrate Judge’s disposition of a motion to stay litigation pending the completion of a parallel arbitration proceeding.

COURT ORDERS PRE-PLEADING SECURITY POSTED

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In a dispute regarding two quota share reinsurance agreements, Plaintiffs Arrowood Surplus Lines Insurance Company and Arrowood Indemnity Company sought an order requiring Gettysburg National Indemnity to post pre-pleading security pursuant to Connecticut statute. Under Connecticut law, before an “unauthorized insurer” can file a pleading in a case against it, it must either post a pre-pleading security, procure proper authorization to do business in Connecticut or seek an order from the court dispensing with pre-pleading security. The District Court for the District of Connecticut determined that Gettysburg National was required to post pre-pleading security in an amount determined by the contract under the reinsurance agreement between Arrowood and Gettysburg National. Thus, Gettysburg National was ordered to post pre-pleading security in the amount of $660,389. Arrowood Surplus Lines Ins. Co. v. Gettysburg Nat. Ins. Co., Case No. 09-000972 (D. Conn. Apr. 6, 2010).

This post written by John Black.

FIRST CIRCUIT TO DISTRICT COURT: CLARIFY YOUR POSITION ON HOW THE ARBITRATION SHOULD PROCEED

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In this dispute, the First Circuit previously reversed the confirmation of an arbitration award concluding that the award was in manifest disregard of law and remanded the case for the entry of an order vacating the award. Without addressing whether the arbitration panel should be reconstituted or not, the district court entered an order vacating the award and remanding the matter to FINRA. The Defendants argued against the remand to FINRA because the First Circuit did not specify such a remand. Treating the Defendants’ motion as a Rule 60(b) motion, the Plaintiffs argued that the motion did not demonstrate entitlement to relief pursuant to Rule 60(b)’s requirements. The district court denied the Defendants’ motion in a brief electronic order “[e]ssentially for the reasons stated in [the Plaintiffs’] Opposition.” The Defendants appealed both the district court’s remand order and electronic order denying the Rule 60(b) motion.

Before addressing the Appellants’ arguments, the First Circuit addressed the Appellees’ request to recall the earlier mandate in light of Hall Street Assocs. v. Mattel, 552 U.S. 576 (2008). Denying this request, the First Circuit noted that it had not yet determined whether Hall Street could be reconciled with the circuit’s manifest disregard case law and found that the court was not faced with such circumstances to warrant a recall of the mandate. In response to the Appellants’ argument that the remand order contravened the mandate, the First Circuit disagreed, stating that the district court was not limited to perform only those actions specifically listed in the mandate and finding that the mandate did not explicitly or implicitly prohibit the district court from remanding the matter to FINRA. The First Circuit then noted that the Appellants’ Rule 60(b) argument was mostly a reformulation of their argument against the remand order and affirmed the district court’s remand order. However, the First Circuit did address an issue with the brief electronic order by remanding the matter to the district court so that the court, after considering the parties’ arguments, could specify whether: (1) the original panel should be reconstituted; (2) a new panel should be constituted; or (3) FINRA should rule on this issue in the first instance, in accordance with FINRA’s practices and procedures. Kashner Davidson Sec. Corp. v. Mscisz, No. 09-1356 (1st Cir. Apr. 1, 2010).
This post written by Dan Crisp.

A HORSE RACE TO JUDGMENT

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Continental Casualty Corporation sued its reinsurer, AXA Global Risks (UK) Ltd., in Missouri federal court seeking, among other things, a temporary restraining order and preliminary injunction to prevent AXA from proceeding with a similar action AXA filed against Continental in a British court. The parties dispute AXA’s obligation to reinsure a portion of a $23,072,979 judgment against Continental in a coverage action between Continental and its insured, a construction company, under a certain reinsurance slip between Continental and AXA. In response, AXA moved to dismiss or stay the Missouri action in favor of the British lawsuit, which was filed approximately six weeks earlier than Continental’s suit. The Court rejected both parties’ arguments, refusing to enjoin prosecution of the British action, and refusing to stay or dismiss the case on its own docket. The court stated, citing Third Circuit precedent, that “when related cases are before two different sovereigns, the appropriate procedure is to permit both jurisdictions to proceed, with any decision of one becoming res judicata on the other.” Continental Cas. Corp. v. AXA Global Risks (UK) Ltd., Case No 09-00335 (USDC W.D. Mo. April 2, 2010).

This post written by John Pitblado.