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

SOUTHERN DISTRICT OF OHIO CONFIRMS FINRA ARBITRATION AWARD

by

Following a FINRA arbitration award in favor of defendant Carlos Reisen, plaintiff J.J.B. Hilliard, W.L. Lyons, LLC (“Hilliard Lyons”) filed a complaint (treated by the court as a motion to vacate) before the US District Court for the Southern District of Ohio seeking to vacate the award. Reisen filed a cross motion to confirm the award and to enter judgment in his favor. The Court, applying the Sixth Circuit’s “manifest disregard of the law” test, confirmed the arbitration panel’s determination that Hilliard Lyons had made defamatory statements in its Form U5/Uniform Termination Notice. The Court concluded that it could not vacate the award on the basis that the panel had acted recklessly, as claimed by Hilliard Lyons. Likewise, the Court confirmed the award of attorneys fees and the post-award interest, finding that the panel did not act in manifest disregard of the law because there were statutory bases for the decisions. Hilliard Lyons has since filed a notice of appeal to the Sixth Circuit. Hilliard v. Reisen, Case No. 09-cv-535 (S.D. Ohio Mar. 2, 2010, Mar. 5, 2010).

This post written by John Black.

FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT IN FAVOR OF REINSURER ASSERTING NONCOMPLIANCE WITH PROMPT NOTICE PROVISION

by

A federal district court adopted in part, and vacated in part the report and recommendation of a magistrate judge on defendant TIG Insurance Company’s motion for partial summary judgment, which sought rulings that: (1) Illinois law governed a reinsurance coverage dispute and that, therefore, TIG could deny coverage without showing prejudice from untimely notice; (2) AIU Insurance Company breached the reinsurance contracts by providing late notice of its 2001 claim; and (3) TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982. AIU issued four umbrella insurance policies covering the period from October 1, 1978 to October 1, 1982. AIU subsequently reinsured its exposure under three of the umbrella insurance policies, covering the period from October 1, 1978 to October 1, 1981, with TIG’s predecessor company under nine reinsurance certificates. AIU later sought reimbursement for certain settlement payments pursuant to the reinsurance certificates by submitting a reinsurance claim to a TIG affiliate, which responded by citing the certificates’ prompt notice provision, and reserving its rights. On this denial, AIU brought an action alleging breach of contract and seeking declaratory relief based on TIG’s failure to pay amounts due.

The magistrate judge assigned found that Illinois law governed the dispute and that, under Illinois law, a reinsurer need not demonstrate prejudice to deny coverage to a reinsured which has failed to comply with a policy provision requiring prompt notice of claims. The magistrate judge further found that TIG did not provide reinsurance coverage for the period from October 1, 1981 through October 1, 1982 because AIU conceded that after filing its complaint it became aware that TIG had not, in fact, reinsured AIU for this period. The magistrate judge, however, further recommended that TIG’s motion be denied without prejudice to the extent it sought a ruling that AIU breached the reinsurance certificates by failing to provide prompt notice of a 2001 claim. On that point, questions clouded the issue of AIU’s knowledge of potential claims. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Feb. 11, 2010) (report and recommendation of magistrate judge).

The district judge declined to adopt the report and recommendation, except to the extent the parties did not dispute that coverage did not exist between October 1, 1981 and October 1, 1982. Because discovery was still being conducted on all the issues, summary judgment was premature. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-7052 (USDC S.D.N.Y. Mar. 9, 2010) (order of district judge).

This post written by Brian Perryman.

COLORADO RIVER ABSTENTION WHACK-A-MOLE

by

A federal court in Iowa heard a motion to dismiss or stay brought by The Samuels Group, Inc., a design/build company who undertook a construction project in Wisconsin. Samuels had entered into a contract with the property owner, Alta Vista Properties, LC, to build a facility on one of its properties. Samuels subcontracted to Hatch Grading & Contracting, Inc. During the course of construction, a tornado destroyed the partially finished project. Hatch asserted a mechanic’s lien against the property to recover payment for the work it had done, and brought an action in state court to enforce the lien. It initially brought in both Alta Vista and Samuels, but ultimately, after various machinations by the parties, agreed to withdraw the petition as against Samuels, as Samuels and Hatch agreed to arbitrate corollary disputes that impacted the mechanic lien issue, and the state court proceedings were stayed. Samuels and Hatch arbitrated, with an award in favor of Hatch. Hatch thereafter sought to bring Samuels back into the state court action to confirm the arbitration award. Samuels filed a petition in federal court to vacate the award on various grounds. Hatch argued that Colorado River abstention applied, and that the action should be dismissed or stayed pending resolution of the state court action. Samuels argued Colorado River did not apply, in part because the FAA created a federal law basis requiring the federal court to maintain jurisdiction, and in part because the parties were not identical in the state court proceeding. The court generally rejected these arguments, noting that the parties were not identical in Colorado River itself, and that Samuels effectively had been part of the state court proceedings at various points. The court nonetheless agreed to maintain jurisdiction, but granted Hatch’s motion to stay the federal action pending the outcome of the state court proceeding. The Samuels Group, Inc. v. Hatch Grading and Contracting, Inc., No. 09-2058 (USDC N.D. Iowa March 23, 2010).

This post written by John Pitblado.

FIRST CIRCUIT CLARIFIES STANDARD OF REVIEW, CONCLUDES THAT AGREEMENT MANDATES ARBITRATION

by

In this dispute between two parties to a joint venture agreement, one party filed a lawsuit and the other submitted an arbitraiton demand. Motions were filed to stay the lawsuit pending arbitration and to stay the arbitration. The motions were assigned to a magistrate judge. The magistrate judge concluded that arbitration was optional under the agreement and granted the plaintiff’s motion to stay the arbitration. The defendant contested this decision, but the district court stated that this decision was not “clearly erroneous or contrary to law.” In a case of first impression to the federal courts of appeal, the First Circuit held that the correct standard of review for a district judge’s review of a magistrate judge’s ruling on a motion to stay pending arbitration was whether the ruling was contrary to law. The First Circuit further stated that, for questions of law, no practical difference exists between review under the “contrary to law” and de novo standards. Next, in interpreting the arbitration provision at issue, the First Circuit concluded that a statement that the parties had the right to seek legal and equitable relief merely granted the authority to award such relief to the arbitrator, and did not make a provision that the parties “shall” arbitrate disputes permissive. The First Circuit thus reversed the decision and remanded to the district court for the entry of an order staying the litigation. PowerShare, Inc. v. Syntel, Inc., No. 09-1625 (1st Cir. Mar. 1, 2010).

This post written by Dan Crisp.

STATUTORY REQUIREMENT OF NOTICE TO INSURED OF NONRENEWAL IS NOT EXCUSED IF THE INSURED OBTAINS REPLACEMENT COVERAGE

by

In an unpublished disposition, a California appellate court reversed a summary judgment order as to a reinsured’s claims for breach of contract and insurance bad faith where the policy period was extended by statute (California Insurance Code section 678.1) because the underlying insured was not provided with the requisite notice of nonrenewal, but affirmed the summary judgment order as to the reinsured’s negligence claim. The defendants reinsured plaintiff Norcal Mutual Insurance Company for any liability Norcal might incur under a managed health care professional liability policy for the initial policy period of August 1999 through August 2000. Although the claim by Norcal’s insured that created Norcal’s liability fell outside the period of the 1999/2000 policy, Norcal contended the policy period was extended until June 2001 because its insured was not provided with notice of nonrenewal of the 1999/2000 policy, as required by section 678.1.

On appeal, the court held that notice of nonrenewal was not excused by a statutory provision that notice is not required where the insured “has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.” Norcal’s insured agreed in writing to obtain replacement coverage, but section 678.1 “taken as a whole” compelled the conclusion that a “replacement” policy “is not synonymous with renewal of existing coverage.” The court found that “replacement” coverage referred to in one subsection of the statute means insurance obtained from a different insurer, while renewal of coverage referred to elsewhere in the same statute means coverage obtained from the same insurer for a subsequent policy period. The court, however, rejected Norcal’s negligence claim because section 678.1 “clearly” places the duty to provide notice of nonrenewal on the insurer, not a reinsurer. Norcal Mutual Insurance Co. v. Certain Underwriters at Lloyd’s of London, No. B213122 (Cal. Ct. App. Feb. 22, 2010).

This post written by Brian Perryman.