Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

TWO RECENT CASES ADDRESS REVERSE-PREEMPTION UNDER THE MCCARRAN-FERGUSON ACT

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On March 15, 2007, we reported on an Oklahoma district court’s denial of a motion to compel arbitration, finding that an Oklahoma statute prohibiting enforcement of arbitration clauses in insurance contracts controlled pursuant to the McCarran-Ferguson Act. Soon thereafter, the Oklahoma legislature amended the statute excepting reinsurance contracts from the prohibition. On appeal, despite the legislature not specifying whether the amendment would apply retroactively, the Tenth Circuit found that the statute itself was retroactive by its express terms and as interpreted by the Oklahoma Supreme Court, and, after acknowledging that arbitration agreements are contrary to Oklahoma public policy, the Tenth Circuit then found that specific legislative approval rendered the agreements valid and enforceable. Mid-Continent Cas. Co. v. Gen. Reins. Corp., No. 07-5050 (10th Cir. May 22, 2009).

Theodore L. Kessner (“Kessner”), appointed as the Special Deputy Liquidator of an insolvent insurer, filed an action in Nebraska state court seeking to recover on a reinsurance policy issued by One Beacon Insurance Company, which removed the action to federal court based on diversity jurisdiction. Kessner then moved to remand, arguing that the McCarran-Ferguson Act reverse-preempted the federal removal statute. In the Report and Recommendation, the Magistrate Judge concluded that the matters at issue related to the business of insurance and that a proceeding in the district court would likely invalidate, impair or supersede the Nebraska insurer liquidation statutes utilized in the state liquidation proceeding, requiring remand. A short, two paragraph opinion by the District Judge adopted the Magistrate Judge’s Report and Recommendation, with a colorful conclusion that “intervention by a federal court could screw up the comprehensive scheme Nebraska has set up to deal with matters like this one. Federal law has a bias against such meddling.” Kessner v. One Beacon Ins. Co., Case No. 09-3003 (USDC D. Neb. Apr. 20, 2009).

This post written by Dan Crisp.

EIGHTH CIRCUIT AFFIRMS BANKRUPTCY APPELLATE PANEL'S INTERPRETATION OF REINSURANCE AGREEMENT

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As previously reported (3/17/08 post), this case involves the interpretation of the terms of a reinsurance contract and the duties of the parties under that contract. In the most recent development, the Eighth Circuit affirmed the Bankruptcy Appellate Panel’s judgment affirming in part, and reversing in part, a prior decision of the bankruptcy court regarding the reinsurance contract at issue. The Eighth Circuit determined that appellant/debtor Acceptance Insurance Company (“AIC”) was a part to the reinsurance contract, however, the language in the reinsurance provision of the contract was ambiguous and susceptible to two alternate interpretations. Accordingly, extrinsic evidence was both appropriate and necessary to interpret the language of the provision and to ascertain the intent of the parties. Citing evidence before the bankruptcy trial court, the Court affirmed the bankruptcy panel's decision that the parties intended the reinsurance provision to provide reinsurance coverage. The Eighth Circuit also found that appellee Granite Re was entitled to the full $15 million premium payment, and AIC was not discharged of its duty to pay the premium by the frustration of fundamental purpose defense. In Re Acceptance Ins. Co. Inc., No. 08-1933 (8th Cir. May 18, 2009).

This post written by John Black.

EIGHTH CIRCUIT AFFIRMS BANKRUPTCY APPELLATE PANEL’S INTERPRETATION OF REINSURANCE AGREEMENT

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As previously reported (3/17/08 post), this case involves the interpretation of the terms of a reinsurance contract and the duties of the parties under that contract. In the most recent development, the Eighth Circuit affirmed the Bankruptcy Appellate Panel’s judgment affirming in part, and reversing in part, a prior decision of the bankruptcy court regarding the reinsurance contract at issue. The Eighth Circuit determined that appellant/debtor Acceptance Insurance Company (“AIC”) was a part to the reinsurance contract, however, the language in the reinsurance provision of the contract was ambiguous and susceptible to two alternate interpretations. Accordingly, extrinsic evidence was both appropriate and necessary to interpret the language of the provision and to ascertain the intent of the parties. Citing evidence before the bankruptcy trial court, the Court affirmed the bankruptcy panel's decision that the parties intended the reinsurance provision to provide reinsurance coverage. The Eighth Circuit also found that appellee Granite Re was entitled to the full $15 million premium payment, and AIC was not discharged of its duty to pay the premium by the frustration of fundamental purpose defense. In Re Acceptance Ins. Co. Inc., No. 08-1933 (8th Cir. May 18, 2009).

This post written by John Black.

U.S. SUPREME COURT FINDS FAA PROVISIONS APPLICABLE TO NON-SIGNATORIES TO ARBITRATION AGREEMENT

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The U.S. Supreme Court recently addressed whether Sections 3 and 16 of the Federal Arbitration Act (“FAA”) apply to non-signatories affected by an arbitration agreement. Section 3 of the Federal Arbitration Act (“FAA”) allows parties who have agreed to arbitrate to move for a stay of trial proceedings until they have had a chance to attempt arbitration. Section 16 of the FAA allows an immediate appeal of judgments denying a stay under such circumstances.

In a 6-3 decision, with Justice Scalia writing for the majority, the Court held that a federal court of appeals has jurisdiction over an appeal from a motion to stay proceedings under Section 16(a)(1)(A) of the FAA regardless of whether the petitioner is in fact eligible for a stay. The Court also found that Section 3 of the FAA does not categorically prevent a non-signatory to an arbitration agreement from pursuing a stay in proceedings. Rather, a person may pursue and obtain a stay under Section 3 if the relevant state law would make a contract to arbitrate a particular dispute enforceable by a non-signatory. The Court remanded the case to the Sixth Circuit to determine whether state law allows the non-signatories to enforce their agreement under state contract law and thus are allowed to pursue a stay in proceedings.

The dissent (authored by Justice Souter and joined by Chief Justice Roberts and Justice Stevens) argued that Congressional policy limits the ability of parties to obtain interlocutory appeals and that an appeal from a denial of a motion to stay proceedings should not be available to those parties who have not signed the relevant arbitration agreement. Arthur Andersen v. Carlisle, No. 08-146 (Sup. Ct. May 4, 2009).

This post written by Lynn Hawkins.