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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

SPECIAL FOCUS: EXPANDED VIEW OF ARTHUR ANDERSEN V. CARLISLE

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Blogmaster Roland Goss is now a regular contributing editor to Harris Martin's Reinsurance publication, contributing articles on arbitration-related issues. We publish his first contribution to Reinsurance here, which is an expanded look at the Supreme Court's decision in Arthur Andersen v. Carlisle, which we previously posted on. The article describes the Circuit conflict that gave rise to this opinion as well as the Court's holding that a non-party to an arbitration agreement may appeal the denial of a motion to stay pending arbitration under the Federal Arbitration Act.

This post written by Rollie Goss.

SELF-INSURER GROUP NOT ENTITLED TO COVERAGE THROUGH STATE INSURANCE GUARANTY ASSOCIATION

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On February 9, 2009, we reported on a Louisiana appellate court holding that the Louisiana Safety Association of Timbermen Self-Insurers Fund (the “Fund”) was entitled to coverage because the Fund was not an insurer and the excess coverage obtained by the Fund from Reliance Indemnity Company, which became insolvent in 2001, was not reinsurance. In this case, the Supreme Court of Louisiana reversed the judgment of the appellate court. First, the court held that the Fund was an insurer based on the court’s interpretation of state statutes and the Fund’s formative documents, which undertook to indemnify members for the full amount of workers’ compensation claims, which members paid premiums and assessments to the Fund for that purpose. Second, in finding that the excess coverage was reinsurance, the court determined that the contractual relationship between the Fund and the insolvent insurer presented a classic instance of reinsurance. Louisiana Safety Assoc. of Timbermen Self-Insurers Fund v. Louisiana Ins. Guaranty Assoc., Case No. 2009-0023 (La. June 26, 2009).

This post written by Dan Crisp.

FEDERAL LEGISLATIVE UPDATE

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• On July 21, 2009, Florida Senators Bill Nelson and Mel Martinez introduced S. 1486, a bill to amend the Internal Revenue Code of 1986 to provide for the creation of disaster protection funds by property and casualty insurance companies for the payment of policyholders’ claims arising from future catastrophic events. The bill was referred to the Senate Committee on Finance.

• That same day, Florida Senators Bill Nelson and Mel Martinez introduced S. 1487, a bill that establishes a bipartisan commission on catastrophic disaster risk and insurance. The bill was referred to the House Committee on Banking, Housing, and Urban Affairs.

• On July 30, 2009, Representative Richard E. Neal of Massachusetts introduced H.R. 3424, a bill to amend the Internal Revenue Code of 1986 to disallow the deduction for excess non-taxed reinsurance premiums with respect to the United States risks paid to affiliates. The bill was referred to the House Committee on Ways and Means.

This post written by Karen Benson.

NINTH CIRCUIT ADDRESSES DOCTRINE OF FUNCTUS OFFICIO

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Last month, the Ninth Circuit Court of Appeals reviewed an arbitration panel’s awards against Leonard Bosack and Sandy Lerner, founders of Cisco Systems. The panel issued a series of preliminary and final awards. Bosack and Lerner challenged the panel’s awards in favor of their former financial manager David Soward on three primary bases: (1) the panel violated Rule 46 of the Commercial Arbitration Rules and the common law functus officio doctrine (forbidding an arbitrator from redetermining an issue which he has already decided); (2) the panel manifestly disregarded the law; and (3) the awards were “irrational.”

The Court ruled against Bosack and Lerner on all accounts. First, as a matter of first impression for the Ninth Circuit, the Court applied the Eighth Circuit’s rule that the functus officio doctrine applies only to “final” awards, and does not bar revisiting an issue addressed in a preliminary award, which the arbitrators did not intend to be their final word on the subject. Applying this standard, the Ninth Circuit held that only one of the five arbitration awards should be considered “final” for purposes of the doctrine, and the sole final award was not in violation of functus officio or Rule 46. Further, the Court concluded that in reaching the award, the panel neither acted irrationally or in manifest disregard of the law. The Court explained that Bosack and Lerner accepted the risk that goes along with arbitration, and could not avail themselves of expanded judicial review simply because the awards were unfavorable. Bosack v. Soward, Case No. 08-35248 (9th Cir. July 23, 2009).

This post written by John Black.