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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

DISTRICT COURT CONFIRMS FOREIGN ARBITRATION AWARD DESPITE PENDING PETITION IN CHINA; DEFENDANT APPEALS

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The Southern District of New York recently confirmed an arbitration award made by the China Maritime Arbitration Commission, over objections that enforcement of the award was inappropriate because the award was being challenged before the proper authority in China. This is a particularly noteworthy opinion because of the court’s willingness to confirm the arbitration award despite the fact that the defendant had filed a petition with a foreign jurisdiction to set aside the award, which means that the arbitral award was not final.

The Court confirmed the award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act (“the Convention”). Under the Convention, a court “shall confirm the award” unless one of seven enumerated exceptions applies. Applying those, in connection with the Second Circuit’s non-exhaustive list of six “competing concerns”, the court concluded that confirmation of the award was appropriate. The District Court, however, refused to award attorneys’ fees finding that the defendant had not delayed payment in bad faith.

Defendants have appealed this decision to the Second Circuit. China National Chartering Group Corp. v. Pactrans Air & Sea, Inc., Case No. 06-13107 (S.D. N.Y. Nov. 13, 2009).

This post written by John Black.

NINTH CIRCUIT AFFIRMS CONFIRMATION OF AWARD MADE THROUGH AN “UNUSUAL” ARBITRATION PROCESS

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The Ninth Circuit affirmed the confirmation of an arbitration award over the respondents objections that the process employed by the arbitration panel was unfair and resulted in an implausible interpretation of the reinsurance contracts. The petitioner, U.S. Life, contended that by closing a meeting of the panel with panel-retained workers’ compensation experts, the panel refused to hear pertinent evidence regarding the appropriateness of the respondent, Superior National, claims handling. U.S. Life also contended that the panel exceeded its authority by requiring U.S. Life to pay interest in excess of the award, pay all tendered bills, and pay all future bills within thirty days. Although noting the ex parte meeting with the experts was “unusual,” the Ninth Circuit determined that the arbitration process provided the parties with a fundamentally fair arbitration, and also that the arbitration award rested on a plausible interpretation of the governing arbitration documents. It accordingly affirmed the district court’s order confirming the award.

Of interest in this case was the district court’s order on U.S. Life’s request to waive or reduce the supersedeas bond for the appeal. The liability for the judgment was $592.8 million dollars. Although the petitioner presented evidence of “considerable financial strength,” the court found that standard practice was to set a bond amount of 1.25 to 1.5 times the amount of the judgment. The district court therefore entered a bond amount of $600 million. United States Life Insurance Co. v. Superior National Insurance Co., No. 07-55938 (9th Cir. Jan. 3, 2010).

This post written by Brian Perryman.

COURT AFFIRMS DENIAL OF MOTION TO COMPEL CEDANT TO DISCLOSE ATTORNEY-CLIENT COMMUNICATIONS

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A New York appellate court summarily affirmed the denial of the reinsurers’ motion to compel the cedant to disclose attorney-client communications. The court referred to its prior decision, American Re-Insurance Co. v. United States Fid. & Guar. Co., which held that the reinsurers could seek testimony and the production of documents concerning attorney-client communications on the presentation of the reinsurance claim, but only to the extent that the discovery related to disclosures made by one person at a deposition. In the prior decision, the reinsurers argued for a broad subject matter waiver, however, the cedant did not intend to advance an “advice of counsel” defense, and the court thus determined that waiver did not need to be expanded. United States Fid. & Guar. Co. v. Excess Cas. Reins. Assoc., Case No. 2009-09076 (N.Y. App. Div. Dec. 8, 2009).

This post written by Dan Crisp.

TENTH CIRCUIT AFFIRMS ARBITRATION AWARD, ADDS POST-AWARD PREJUDGMENT INTEREST, PUNTS ON HALL STREET

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The Tenth Circuit recently affirmed an arbitration award, but vacated the lower court’s ruling regarding post-award prejudgment interest. In a lengthy opinion, the Court discussed, and ultimately rejected, each of the defendant’s arguments for vacating the award, including: (1) that the arbitrator lacked jurisdiction; (2) that the defendants were not judicially estopped from asserting that the arbitrator lacked jurisdiction; (3) that the arbitrator acted outside the scope of his authority; (4) that he manifestly disregarded the law and violated public policy; and (5) that the district court failed to apply the proper deferential standard of review.

The Defendant first argued that the arbitrator lacked jurisdiction over certain claims heard in the second phase of the bifurcated arbitration. Unlike the “first-phase” claims, which arose directly out a promissory note between the parties (which contained an arbitration provision), all “second-phase” claims occurred after the plaintiff had been released from liability under the note. As such, the defendants argued that there was no meeting of the minds to arbitrate the second-phase claims. The Court disagreed, concluding that note’s arbitration clause applied to all controversies arising out of and related to the note, including defendant’s tortious actions after the note expired.

Next, the Defendant argued that they did not waive their right to have the second-phase claims tried in court, despite having joined in a motion to stay. The Court disagreed, finding that “defendants waived any objection to arbitration and were estopped from asserting that the arbitrator lacked jurisdiction because they had stated, when they joined [the] motion for stay, that this action must be arbitrated.”

Interestingly, in addressing the defendant’s claim of manifest disregard, the Court (which has not previously addressed judicially-created grounds for vacatur after Hall Street) discussed the Supreme Court’s May 2008 decision in Hall Street v. Mattel, but avoided the ultimate question of whether judicially-created grounds for vacatur survive, by stating that manifest disregard was not shown in any event. This fact is significant, as it demonstrates that this Court is sensitive that Hall Street may have eliminated the judicially created bases for vacating awards. Hicks v. The Cadle Co., Case Nos. 08-1306, 1307, 1429, 1435 (10th Cir. Dec. 7, 2009).

This post written by John Black .

DISTRICT COURT DENIES LLOYDS’ RULE 59 MOTION IN DISPUTE WITH EMPLOYERS INSURANCE; SECOND APPEAL FOLLOWS

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In our 11/9/09 post, we reported on the dispute between Employers Ins. and Lloyds of London. In the most recent development, the Lloyds-parties filed a Rule 59 Motion for Reconsideration and Clarification of the District Court’s September 28th opinion and order requesting that the court declare that Wisconsin law applies to the parties’ contracts or in the alternative that irrespective of which law is applied the arbitrators are required to be impartial and disinterested. The District Court denied Lloyds’ Motion for Reconsideration finding that Lloyds had failed to demonstrate that the order and opinion was in error and that the motion at hand failed to specify relief contemplated by Rules 59 or 60. The Lloyds-parties subsequently filed a revised notice of appeal to the Seventh Circuit to include this Order, as well as ones covered by a prior Notice of Appeal. Employers Ins. Co. of Wausau v. Certain Underwriters at Lloyds of London, Case No. 09-210 (W.D. Wisc. Oct. 23; Oct. 29, 2009).

This post written by John Black.