Week's Best Posts

NEW YORK APPELLATE COURT AFFIRMS DENIAL OF COMPETING SUMMARY JUDGMENT MOTIONS IN REINSURANCE DISPUTE

December 15, 2015 by Carlton Fields

In a short, unanimous opinion, the New York Appellate Division, First Department, affirmed a trial court’s ruling that genuine issues of fact precluded it from granting summary judgment to a reinsurer or the plaintiff-cedents in a long-running dispute between them. The case involves Everest Reinsurance Company’s obligation to reimburse various cedents for a settlement entered into under certain facultatively reinsured policies. Everest Re asserted various defenses, including whether the loss is covered by the certificate at issue and whether the settlement entered into was reasonable and made in good faith. The cedents argued that Everest Re is bound to honor the billings under the follow the settlements doctrine. The Appellate Division held that the record before it presented “numerous issues of fact” regarding the settlement entered into by the cedents, and, specifically, the issue of good faith, “none of which are susceptible to resolution on summary judgment.” National Union of Fire Insurance Co. of Pittsburgh v. Everest Reinsurance Co., Index No. 602485/06 (N.Y. App Div., 1st Dep’t, Nov. 5, 2015).

This post written by Rob DiUbaldo.

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SPECIAL FOCUS: COVERED AGREEMENT PROCESS UNDERWAY

December 14, 2015 by Carlton Fields

The U.S. Treasury Department and the U.S. Trade Representative have given notice to Congress of the initiation of discussions with the European Union to enter into a Covered Agreement essentially addressing two major issues: (1) the equivalence of the U.S. insurance and reinsurance regulatory regime in the context of the EU’s Solvency II initiative; and (2) credit for reinsurance collateral requirements. Covered Agreements were introduced by the Dodd-Frank Act as a vehicle for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states. Rollie Goss describes the Covered Agreement process and this initial utilization of that process in a Special Focus article.

This post written by Rollie Goss.
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COURT APPROVES REPLACEMENT ARBITRATOR IN REINSURANCE DISPUTE DESPITE TECHNICAL VIOLATION OF ARBITRATION AGREEMENT

December 8, 2015 by Carlton Fields

In a short handwritten ruling, a court recently denied Odyssey Reinsurance Company’s challenge to a replacement arbitrator appointed by its opponents, Certain Underwriters at Lloyds London Syndicate 53 and Reliastar Reinsurance Group. The parties had selected their arbitrators and were beginning the process of selecting an umpire, when Lloyd’s and Reliastar informed Odyssey that they had replaced their appointed arbitrator. Odyssey objected to the replacement arbitrator on the ground that the individual did not satisfy the requirements of the underlying arbitration agreements, which provided: “The arbitrators and umpire shall be officials of Insurance and or Reinsurance companies authorized to transact business in one or more states of the United States of America and writing the kind of business about which the difference has arisen.” Odyssey Re contended that, while the replacement arbitrator was an officer of a broker that had corporate affiliates that wrote the type of insurance business at issue in the arbitration, the arbitrator was not an officer of an actual insurance or reinsurance company. The court rejected Odyssey’s objection, ruling simply that the arbitrator “meets the qualifications” of the arbitration agreement. Odyssey Re v. Certain Underwriters at Lloyds London Syndicate 53 et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Barry Weissman.

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COURT VACATES ARBITRATION DECISION THAT ALLOWED CLASS MEMBERS TO OPT-OUT OF INJUNCTIVE RELIEF CLASS, FINDING ARBITRATOR EXCEEDED HER AUTHORITY AND MANIFESTLY DISREGARDED LAW

December 7, 2015 by Carlton Fields

Reviewing a previously conferred arbitration award, a district court in New York granted defendant Sterling Jewelers’ motion to vacate the decision to the extent that it would have allowed class members the opportunity to opt-out. In 2008, plaintiff Laryssa Jock and others sued defendant for sex discrimination. After significant motion practice and discovery that extended multiple years, an arbitrator certified a class for declaratory and injunctive relief claims. The arbitrator subsequently allowed class members the opportunity to opt-out.

On review, defendant first alleged that the arbitrator exceeded its authority to certify a class by binding over 40,000 absent class members, and not just those class members whom had affirmatively opted-in to the class or whom were represented by counsel in the arbitration. The court did not find this argument persuasive noting that all class members agreed to arbitration in prior employment agreements thereby granting an arbitrator the power over absent class members. The court did find, however, that the arbitrator exceeded her authority and manifestly disregarded the law by permitting class members to opt-out of injunctive and declaratory relief based on Rule 23(b)(2). The court found that under Rule 23, “the relief sought must perforce affect the entire class at once.” Instead, the arbitrator failed to consider the U.S. Supreme Court’s Wal-Mart v. Dukes decision, whereby “opt-out classes may not be certified for the purposes of seeking classwide injunctive relief.” For these reasons the court vacated the class determination award’s opt-out provision for injunctive and declaratory relief but upheld the rest of the award. Jock v. Sterling Jewelers, Inc., Case No: 08 Civ. 2875 (JSR) (USDC S.D.N.Y. Nov. 16, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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DISTRICT COURT RECOGNIZES THE VIABILITY OF MANIFEST DISREGARD OF LAW DOCTRINE IN THE SECOND CIRCUIT

December 1, 2015 by John Pitblado

The Eastern District of New York recently denied plaintiff’s request to vacate an arbitration award in a contractual dispute between Incredible Foods Group, LLC, (“IFG”) and Unifoods, S.A. de C.V., (“UF”) over a shared Sub-License Agreement (the “Agreement”). Pursuant to the Agreement, plaintiff and sub-licensee IFG were licensed to “manufacture, market, distribute and sell” a fruit beverage in various states throughout the United States. IFG identified an American manufacturer to manufacture the beverage, and sub-licensor UF approved the selection. Shortly after manufacturing commenced, the bottles containing the beverage bulged and leaked, affecting sales.

Once it was determined that the presence of yeast at the manufacturing site was interacting with the beverage recipe to cause the bottles to bulge, IFG commenced arbitration, alleging breach of contract over lost profits. The Arbitrator denied IFG’s claims in full because he found that IFG had failed to establish that any act or omission by UF breached the Agreement. IFG requested in district court that the award be vacated, arguing that the Arbitrator’s determination fails “to draw its essence from the agreement.” The district court noted that beyond the four grounds pursuant to 9 U.S.C. § 10(a) on which a court may vacate an arbitration award, the Second Circuit has “recognized a judicially-created ground, namely that an arbitral decision may be vacated when an arbitrator has exhibited a manifest disregard of law.” Nevertheless, the district court held that the arbitration award should stand because IFG had failed to demonstrate any of the five grounds for vacatur were implicated on these facts.

Incredible Foods Group, LLC v. Unifoods, S.A. de C.V., No. 14-cv-5207 (USDC E.D.N.Y. Sept. 29, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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