Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

REINSURER PREVAILS ON IMPROPER PLACEMENT OF RISKS

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In two prior posts (February 28 and October 1, 2007), we reported on discovery disputes in a case in which a reinsurer contended that it was not liable on trucking risks due to the improper placement of the risks by a broker. The reinsurer has now prevailed on summary judgment, having established that trucking risks could not be ceded to its reinsurance without specific permission or special acceptance, and that the broker did not seek such permission or acceptance. Scottsdale Ins. Co. v. American Re-Insurance Co., Case No. 06-16 (USDC D. Neb. May 6, 2008).

This post written by Rollie Goss.

ELEVENTH CIRCUIT HOLDS MEDIATION IS NOT ARBITRATION

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The Eleventh Circuit has held that for the purposes of the Federal Arbitration Act (“FAA”), mediation is not arbitration. Specifically, the court held that a party cannot use § 3 of the FAA to enforce a contract clause requiring an aggrieved party, prior to filing a lawsuit, to institute mediation or non-binding arbitration. The court noted that while the FAA does not define “arbitration”, classic arbitration is characterized by submitting a dispute to a third party for a binding decision. Furthermore, the court said, the “FAA clearly presumes that arbitration will result in an ‘award’ declaring the rights and duties of the parties.” Thus, a dispute resolution procedure that does not result in an award is not arbitration “within the scope of the FAA.”

While some in the ADR circuit may believe this decision represents a clear understanding of the differences between arbitration and mediation, others may feel the court unnecessarily denigrated the mediation process by implying that it is little more than a speed bump on the way to the courthouse. Advanced Bodycare Solutions, LLC v. Thione International, Inc., No. 07-12309 (11th Cir. Apr. 21, 2008).

This post written by Lynn Hawkins.

FOLLOW THE SETTLEMENT DOCTRINE DOES NOT APPLY TO CLAIM BY PRIMARY INSURER TO EXCESS INSURER’S REINSURER

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This lawsuit addresses the responsibility of several insurers to cover the settlement of a medical malpractice claim. Texas Farmers Insurance provided primary coverage, Ordway Indemnity provided excess coverage and Lexington Insurance provided reinsurance to Ordway. Texas Farmers contended that it had paid amounts in excess of its coverage, and sought reimbursement from Lexington, as Ordway's reinsurer. Texas Farmers contended that the follow the settlements doctrine applied, and required reimbursement by Lexington. The court disagreed, finding that the doctrine did not apply since Lexington was not Texas Farmer's reinsurer, and found in any event that the entire settlement amount fell within the limits of Texas Farmer's coverage. Since the primary coverage was not exhausted, the excess cover was not triggered, and Lexington had no payment obligation. Texas Farmers Insur. Co. v. Lexington Insur. Co., Case No. 06-8220 (USDC C.D. Cal. Apr. 21, 2008).

This post written by Rollie Goss.

FOLLOW THE SETTLEMENT DOCTRINE DOES NOT APPLY TO CLAIM BY PRIMARY INSURER TO EXCESS INSURER'S REINSURER

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This lawsuit addresses the responsibility of several insurers to cover the settlement of a medical malpractice claim. Texas Farmers Insurance provided primary coverage, Ordway Indemnity provided excess coverage and Lexington Insurance provided reinsurance to Ordway. Texas Farmers contended that it had paid amounts in excess of its coverage, and sought reimbursement from Lexington, as Ordway's reinsurer. Texas Farmers contended that the follow the settlements doctrine applied, and required reimbursement by Lexington. The court disagreed, finding that the doctrine did not apply since Lexington was not Texas Farmer's reinsurer, and found in any event that the entire settlement amount fell within the limits of Texas Farmer's coverage. Since the primary coverage was not exhausted, the excess cover was not triggered, and Lexington had no payment obligation. Texas Farmers Insur. Co. v. Lexington Insur. Co., Case No. 06-8220 (USDC C.D. Cal. Apr. 21, 2008).

This post written by Rollie Goss.

COLLATERAL SOURCE RULE BARS EVIDENCE OF REINSURANCE AT TRIAL

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In a recent decision, the Fifth Circuit touched on the collateral source rule, which generally prohibits parties from introducing evidence of reinsurance. The plaintiff medical center and its insurer (Western Professional Insurance) alleged that the defendant medical center and other defendants supplied misleading letters recommending a physician the defendants had fired just two months earlier for on-duty use of narcotics. While in the plaintiff medical center’s employ and under the influence of narcotics, the physician sent a patient into a permanent vegetative state. A judgment was rendered against the medical center and in favor of the patient. The plaintiffs sued for misrepresentation and negligence and, in turn, a judgment was rendered against the defendants.

On appeal, the court reversed the judgment against the defendant medical center for insufficiency of evidence, but remanded the case for further proceedings. The court rejected the defendants’ argument that the district court erred in excluding evidence of Western’s reinsurance. The Fifth Circuit noted that, under governing Louisiana law, the collateral source rule provides that payments made to, or benefits conferred on, an injured party from sources other than the tortfeasor, notwithstanding that such payments or benefits cover all or part of the harm for which the tortfeasor is liable, are not credited against the tortfeasor’s liability. The defendants’ attempt to introduce evidence of reinsurance at trial was “nothing more than a classic argument against the collateral source rule.” Kadlec Medical Center v. Lakeview Anesthesia Associates, No. 06-30745 (5th Cir. May 8, 2008).

This post written by Brian Perryman.