Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

REINSURANCE CLAIMS REJECTED; COURT REFUSES TO SEAL CONFIRMATION

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Argonaut Insurance reinsured Global Reinsurance under excess of loss, quota share and facultative reinsurance agreements. A dispute arose as to whether certain commutation payments made by Global and ceded to the reinsurance agreements came within the scope of the reinsurance agreements, and arbitration was demanded. Background is found in the Petition to Confirm the arbitration award (which is redacted). An arbitration panel decided in favor of Argonaut, finding that the commutation payments were not “claims, losses or settlements within the terms, limits and conditions of the Retrocessional Contracts at issue ….” Copies of the reinsurance contracts and the arbitration award are found in a declaration filed in support of confirmation of the award. The award was confirmed with the agreement of all parties. The court denied a request to keep filings in the confirmation proceeding under seal, finding that there had not been a sufficient showing to overcome the presumption that filings in US District Courts are public. Global Reinsur. Corp. v. Argonaut Insur. Co., Case No. 07-8350 (USDC S.D.N.Y. 2008).

This post written by Rollie Goss.

UNDERLYING INSURED LACKS STANDING TO SUE REINSURER

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An underlying insured lacks standing to maintain an action against a reinsurer under a contract to which it is not a party, according to a Louisiana district court. Plaintiff, LaSalle Parish School Board, was the insured on a policy of insurance issued by Property Casualty Alliance of Louisiana (“PCAL”). PCAL in turn entered into a contract of reinsurance with Allianz Global Risks. LaSalle Parish School Board filed a complaint against Allianz (and Eagle Adjustment Services) after Allianz failed to pay LaSalle more than $800,000 for tornado damage to LaSalle High School. The complaint alleged claims for breach of contract, detrimental reliance, and negligent misrepresentation. Allianz and Eagle moved to dismiss all claims.

The court granted Allianz's motion to dismiss the breach of contract claim, finding that “LaSalle has no standing to sue Allianz under the reinsurance contract, absent an intent to stipulate an advantage for LaSalle.” The Court also concluded that none of the state statutory exceptions allowing an insured to proceed directly against a reinsurer of its own insurer applied. The court denied the defendants’ motion to dismiss the detrimental reliance and negligent misrepresentation claims due to Allianz’s direct involvement in working with the insurance adjuster who dealt directly with the school system in adjusting the claim. LaSalle Parish School Board v. Allianz Global Risks U.S. Ins. Co., Case No. 1:07-cv-00399 (USDC W.D. La. April 24, 2008).

This post written by Lynn Hawkins.

FEDERAL DISTRICT COURT ISSUES ORDER COMPELLING ARBITRATION AGAINST A NON-SIGNATORY TO AN ARBITRATION AGREEMENT

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The plaintiff, Birmingham, along with a group of investors, entered into a funding agreement with defendant’s subsidiary, ALVE, which served as a holding company for intellectual property of the defendant, Abbott. The funding agreement related to the development of a stent product and contemplated successor stent product, and contained a broad arbitration provision. Pursuant to the funding agreement, ALVE and Abbott were to use commercially reasonable efforts to obtain regulatory approval of these products. Concurrent with the funding agreement, Abbott entered into a “keep well” agreement with ALVE obligating Abbott to guarantee ALVE’s performance under the funding agreement. The keep well agreement identifies Birmingham and the investors as its intended beneficiaries, and incorporated by reference provisions of the funding agreement. The keep well agreement did not contain an arbitration provision. Subsequently, Abbott decided not to pursue development of the stent product. Birmingham believed that the termination of the development was improper, and that the stent had significant commercial potential. It filed a lawsuit alleging that Abbott abandoned the stent because it wished to focus on a different stent, thereby breaching the keep well agreement. Abbott moved to compel arbitration pursuant to the funding agreement’s arbitration provision.

The court granted the motion to compel arbitration, citing the strong federal policy favoring arbitration and the estoppel doctrine, under which a non-signatory may compel arbitration where: (1) there is a close relationship between the parties and controversies and (2) the signatory’s claims against the non-signatory are intimately founded in and intertwined with the underlying agreement containing the arbitration provision. The court initially found that there was a close relationship between Abbott and ALVE and the controversy at issue because of those parties’ parent-subsidiary relationship. The second prong was also satisfied because the dispute between Birmingham and Abbott in the lawsuit was directly related to the terms of the funding agreement. Birmingham Associates Ltd. v. Abbott Laboratories, Case No. 07 Civ. 11332 (USDC S.D.N.Y. Apr. 14, 2008).

This post written by Brian Perryman.

SPECIAL FOCUS: THE MANIFEST DISREGARD OF LAW DOCTRINE: WHAT DOES THE FUTURE HOLD?

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With this post we are expanding the content of Reinsurance Focus to include an occasional article of greater length containing a more detailed analysis of a reinsurance or arbitration-related topic of interest. These posts will be placed in the Special Focus category of our blog, and will consist of a short executive summary of the article linked to the article. We hope that this somewhat more detailed exploration of selected topics adds to our readers’ enjoyment of our blog. Our current intention is to have one such Special Focus post about every other month. Following is the executive summary of our first such article.

The manifest disregard of law doctrine has been referred to as a “judicially created” basis for vacating arbitration awards, which arguably is not expressly provided for in the Federal Arbitration Act (“FAA”). In the recent Hall Street Associates opinion (see the March 28, 2008 post), the United States Supreme Court stated that the grounds for vacating arbitration awards set forth in the FAA are the exclusive grounds for vacating an arbitration award, which may imply that what some courts have described as judicially created bases for vacation, such as the manifest disregard of law doctrine, are not viable. In the accompanying article, we briefly explore the current status of the manifest disregard of law doctrine and whether it has a future after Hall Street Associates. Read the article.

This post written by Rollie Goss.

COURT DISMISSES CASE AGAINST INSURERS ALLEGING UNDERREPORTING OF WORKERS’ COMPENSATION PREMIUMS

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The Workers’ Compensation Reinsurance Association and the Minnesota Workers’ Compensation insurance Association sued nine insurers, alleging violation of the federal RICO statute and unjust enrichment due to the intentional underreporting of the amount of workers’ compensation insurance they had written in order to minimize assessments and reinsurance premiums. Disagreeing with a Magistrate Judge, a District Judge granted a motion to dismiss, dismissing the RICO claims with prejudice and the unjust enrichment claims for lack of jurisdiction. The court found that allegations focusing on the participation of the defendants in their own business, rather than the business of an enterprise, failed to allege a RICO violation. The unjust enrichment claim failed due to the failure properly to allege diversity jurisdiction. The RICO claims were dismissed with prejudice, and the unjust enrichment claims were dismissed without prejudice. Workers’ Compensation Reinsurance Association v. American International Group, Inc., Case No. 07-3371 (USDC D. Minn. Mar. 28, 2008).

This post written by Rollie Goss.