Week's Best Posts

FIFTH CIRCUIT DISMISSES FOR LACK OF JURISDICTION APPEAL OF COURT’S ORDER SELECTING ARBITRATORS

May 15, 2017 by Michael Wolgin

Bordelon Marine, LLC sued Bibby Subsea ROV, LLC for damages and for writ of attachment arising out of a disagreement over the chartering of an offshore vessel. Pending arbitration, litigation was stayed, but a dispute arose regarding the selection of arbitrators. Bordelon filed a “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” contending that Bibby violated the arbitration clauses by appointing a certain arbitrator. After the court granted Bibby’s motion confirming the selection of arbitrators, Bordelon appealed to the Fifth Circuit.

The Fifth Circuit focused on whether it had subject matter jurisdiction to hear the appeal. Bordelon first argued that the Fifth Circuit had appellate jurisdiction because the lower court’s order amounted to a final decision. The Fifth Circuit rejected this argument, reasoning that the court’s order did not expressly stay the case, and furthermore, the court had subsequently reopened the case. Bordelon’s second argument turned on whether or not its “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” amounted to an appealable petition directing arbitration to proceed under § 4 of the FAA, or alternatively a non-appealable motion under § 5 to intervene in the selection of an arbitrator. The Fifth Circuit concluded that the order was the latter, and therefore, the court found that it did not have subject matter jurisdiction over the appeal. Bordelon Marine, LLC v. Bibby Subsea ROV, LLC, Case No. 16-30847 (5th Cir. Apr. 14, 2017).

This post written by Gail Jankowski.

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TEXAS COURT FINDS POLICY CONTAINED DELEGATION CLAUSE REQUIRING ARBITRATION UNDER ENGLISH LAW

May 9, 2017 by John Pitblado

A Texas federal court addressed a dispute as to whether the insurance policy at issue contained an arbitration agreement and whether it required arbitration of the particular claim. Looking at the “Law and Practice” provision of the policy, the Court found it contained an implicit delegation clause because it required arbitration under English law. “Incorporation of English law includes English arbitration law, which unambiguously provides that arbitrators have the power to decide threshold questions as a default unless the parties agree to the contrary. The parties did not do so here. By agreeing to arbitrate under English law, the parties clearly and unmistakably consented to delegate to the arbitrator the power to make threshold determinations about what claims are arbitrable.”

Furthermore, the policy’s choice of law and jurisdiction are governed by the “Law and Practice” clause, which stated arbitration in England is required “notwithstanding anything else to the contrary.” As a final point, the policy stated “in the event of a conflict between this clause and any other provision of this insurance, this clause shall prevail and the right of either party to commence proceedings before any other Court or Tribunal in any other jurisdiction shall be limited to the process of enforcement of any award hereunder.”

The temporary restraining order was dissolved, and the parties were ordered to arbitrate in England.

Gemini Ins. Co. v. Certain Underwriters at Lloyd’s London Subscribing to Policy No. B0973MA1305152 Issued Through the Office of Osprey Underwriting Agency Limited, No. 4:17-cv-01044 (USDC S.D. Tex., April 13, 2017)

This post written by Nora A. Valenza-Frost.

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MCCARRAN-FERGUSON ACT PROHIBITS PURSUIT OF RICO CLAIMS AGAINST INSURER

May 8, 2017 by John Pitblado

A Plaintiff annuity holder was prohibited from pursuing her federal racketeering claims against an insurance company and its affiliates, as doing so would impair state regulation of insurance business, contrary to the McCarran-Ferguson Act.

The question addressed by the Eighth Circuit Court on appeal of the dismissal of Plaintiff’s RICO claim, was whether the RICO charge would impair state insurance regulation. Applying the standard set forth in Humana Inc. v. Forsyth, 525 U.S. 299 (1999), the Court focused on the precise federal claims asserted. Here, it was Plaintiff’s claim the insurer “misrepresented the true financial conditions of the company in its public reports and marketing materials, artificially inflating its purported assets and surplus.” Ruling on those claims would require the Court to decide whether the purported sham transactions left the insurer in the “healthy financial position it reported” or whether Plaintiff was correct that “a proper accounting would have shown liabilities substantially exceeding” the insurer’s assets.

As questions about an insurer’s solvency are “squarely within the regulatory oversight by state insurance departments” a federal court could not rule in Plaintiff’s favor without holding “that state insurance regulators were wrong” – essentially “double-checking” the regulator’s work. Such a result runs contrary to the McCarran-Ferguson Act.

Ludwick v. Harbinger Group, Inc., No. 16-1561 (8th Cir. April 13, 2017)

This post written by Nora A. Valenza-Frost.

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DISCOVERY OPINIONS SHOW LIMITS OF PRIVILEGE AND BROAD STANDARD OF RELEVANCE

May 2, 2017 by Rob DiUbaldo

Three recent opinions issued by courts highlight the scope and limitations of a party’s right to discovery of reinsurance, reserve and allegedly privileged information in insurance coverage disputes.

The first case involved allegations that defendant Mt. Hawley Insurance Company (“Mt. Hawley”), an excess commercial liability insurer, denied plaintiff Contravest Inc.’s (“Contravest”) insurance claim in bad faith. The court made three significant rulings on discovery. First, applying South Carolina law, the court compelled production of allegedly privileged communications in Mt. Hawley’s claims file, because it asserted that it did not act in bad faith in analyzing coverage, thus putting the legal advice it received at issue in the court’s view. Second, the court found that Mt. Hawley’s communications with its reinsurer were relevant to the bad faith claim, and thus discoverable, as they might contain Mt. Hawley’s reasons for denying Contravest’s claim. The court also rejected as unsupported Mt. Hawley’s argument that these communications were privileged. Third, the court found that information regarding Mt. Hawley’s reserves was discoverable to the extent this “information reveals defendant’s assessment of the validity of” Contravest’s claims for coverage. Mr. Hawley argued that this information was protected by the work product doctrine, but the court found that Mt. Hawley failed to show that it was prepared in anticipation of litigation. Contravest Inc. et al. v. Mt. Hawley Insurance Company, No. 19:15-cv-00304-DCN (D.S.C. Mar. 31, 2017)

In the second case, plaintiff Baxter International, Inc. (“Baxter”) sued defendant AXA Versicherung (“AXA”), an insurer, seeking indemnification for losses arising from a product liability MDL. The discovery dispute centered on Baxter’s requests for production of communications between AXA and it co-insurers and reinsurers, including notices of the underlying litigation and communications in which AXA described the coverage available to Baxter under AXA’s policy. AXA argued that the notices from AXA were irrelevant, but the court found that they might contain admissions by AXA regarding the scope of coverage under its policy, and it compelled their production. AXA also argued that all of its communications regarding the coverage available to Baxter were protected attorney work product, but the court found that AXA had failed to show that the litigation with Baxter was the primary motivating factor for creating these documents and that they were not created in ordinary course of business. However, in part due to Baxter’s delay in requesting these documents, the court declined to compel their production, holding instead that Baxter could raise this issue in the future. Finally, and somewhat in contrast to the opinion in Contravest discussed above, the court found that AXA could redact the amount of its reserves and related information from which those reserves could be calculated from any of the documents it was compelled to produce, finding that this information was irrelevant. Baxter International, Inc. v. AXA Versicherung, Case No. 44-cv-9131 (N.D. Ill. March 30, 2017)

In the third case, the central issue was whether discovery would be permitted in order to show that the plaintiff Applied Underwriters, Inc. (“Applied”) should be compelled to arbitrate the matter, despite the fact that the court had previously denied a motion to dismiss and compel arbitration on the basis that Applied was not a party to the reinsurance agreement containing the arbitration clause that defendant Top’s Personnel, Inc. (“Top’s”) argued required the matter to be arbitrated. Applied had sued Top’s for breach of a promissory note. The reinsurance agreement was between Top’s Personnel and AUCRA, a subsidiary of Applied, and Applied argued that the reinsurance agreement was irrelevant to the litigation. However, Top’s argued that AUCRA was acting as Applied’s alter ego when the reinsurance agreement was executed, and the court found that Top’s was entitled to discovery regarding the relationship between Allied and AUCRA and the connection between the promissory note and the reinsurance agreement in order to determine if the agreement’s arbitration clause was implicated. The court refused Top’s motion to compel the deposition of Allied’s counsel, however, finding that Top’s had failed to show that it had no other means of obtaining the information. Applied Underwriter’s Inc. v. Top’s Personnel, Inc., No. 8:15CV90 (D. Neb. March 31, 2017)

This post written by Jason Brost.

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U.S. COURT CONFIRMS LONDON-BASED ARBITRAL AWARD AGAINST BELIZE, FINDING ALLEGEDLY PARTIAL ARBITRATOR DID NOT VIOLATE U.S. PUBLIC POLICY

May 1, 2017 by Rob DiUbaldo

The D.C. Circuit recently upheld a district court order confirming a London-based arbitral award against the Belize government over objections that enforcement of that award would violate U.S. public policy regarding the alleged evident partiality on one of the arbitrators. The former Prime Minister of Belize entered into a secret agreement offering Belize as a guarantor for a Belizean health services provider’s bank loan, on which it subsequently defaulted. The Belize government entered into a settlement agreement to pay the debt, but eventually refused to make payments after the agreement became public and protests erupted. When the bank began arbitration proceedings in London, Belize largely refused to participate and an arbitrator was appointed on its behalf. The panel ultimately issued an award finding Belize liable for breach of its settlement agreement and ordering payment to the bank. After unsuccessful attempts to enforce the award in Belize, the bank filed a petition in the U.S. federal court to confirm and enforce the award, which the district court granted.

On appeal, Belize renewed challenges to the appointed arbitrator’s alleged impartiality on the grounds that another member of the arbitrator’s English “chambers” had previously advised a partial owner of the bank in other matters and represented interests adverse to Belize. The D.C. Circuit gave short shrift to all of the challenges except one: that the enforcement of the arbitral award violated the New York Convention because the alleged partiality was contrary to U.S. policy.

First, the court rejected the argument that the alleged partiality violated Federal Arbitration Act standards for vacatur of arbitral awards. The claim failed because the alleged conduct did not constitute improper motives on behalf of the arbitrator as required under the FAA and because the New York Convention provided the exclusive grounds on which the court could enforce an international arbitration award.

Next, the court rejected the contention that the alleged partiality violated U.S. public policy sufficient to invoke the New York Convention’s public policy defense to enforcement. Belize’s argument turned on a comparison between English “chambers”—groups of independent practitioners operating together under a common name—and American law firms—partnerships in which confidential client information, assets, and liabilities are shared. The court found the alleged partiality did not violate the “most basic notions of morality and justice” necessary to invoke the public policy defense because, even replacing foreign ethical standards with U.S. conflicts of interest rules, the factual differences between English chambers and American firms remained. Barristers are self-employed and the chambers model is designed to protect their independence. Furthermore, the arbitrator’s membership in the relevant chambers did not threaten the neutrality of the arbitration process, as the chambers system was historically familiar to Belize and it had previously been involved in a proceeding in which members of the same chambers appeared on opposite sides of the same appeal without objection.

Belize Bank Ltd. v. Gov’t of Belize, No. 16-7083 (D.C. Cir. Mar. 31, 2017).

This post written by Thaddeus Ewald .

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