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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT DENIES TERMINATED EMPLOYEE’S MOTION TO VACATE ARBITRATION AWARD FOR FAILURE TO SHOW BIAS, MISCONDUCT, OR MANIFEST DISREGARD

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A district court refused to vacate an arbitration award where Preis, a terminated employee, failed to produce sufficient evidence of bias or misconduct in the arbitration panel’s decision. Preis moved to vacate the award in favor of former employee Citigroup Global Markets Inc. on the grounds that (1) the panel was biased, and (2) the panel manifestly disregarded the law. Although Preis relied on New York’s civil practice laws and Citigroup relied on the Federal Arbitration Act, the court decided choice of law was irrelevant because no conflict existed between state and federal law on the grounds for vacating arbitration awards.

On the issue of bias, the court found that the examples cited by Preis were neutral, did not suggest prejudice, and “would not lead a reasonable person to conclude that the panel was biased.” The court was even more skeptical of Preis’s manifest disregard claim, finding that he failed to show the panel intentionally defied a well-defined, applicable law. His claims did not rise to the level of showing “some egregious impropriety on the part of the arbitrator,” and thus, did not warrant vacating the award. The court did, however, deny Citigroup’s request for attorneys’ fees and costs, finding it failed to show that Preis acted in bad faith in seeking to overturn the award. Preis v. Citigroup Global Markets Inc., Case No. 14-06327 (USDC S.D.N.Y. Apr. 8, 2015).

This post written by Brian Perryman.

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MASSACHUSETTS COURT OF APPEALS MAINTAINS “SEVERELY LIMITED” DE NOVO REVIEW OF REINSURANCE-RELATED ARBITRATION AWARD

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Collective defendants, Nationwide, appealed from a Massachusetts superior court judgment confirming an arbitration award in favor of collective plaintiffs, Liberty Mutual. The underlying dispute involved a 1972 reinsurance treaty wherein Nationwide, the reinsurer, indemnified Liberty Mutual, the cedant, for a portion of the losses paid on Liberty Mutual’s general liability and worker’s compensation policies. At issue was a provision in the treaty granting Nationwide a right of access to Liberty Mutual’s documents concerning the covered policies. The dispute arose when Liberty Mutual refused to produce documents it claimed were protected by attorney-client and work product privileges. At arbitration, the panel dismissed Nationwide’s argument that it was entitled to any and all documents relating to the covered policies, reasoning that the right of access provision excluded privileged documents. Liberty Mutual thereafter submitted an application to the superior court to confirm the award and Nationwide submitted a cross-application to vacate the access to records portion of the judgment.

Despite a de novo review, the court’s discretion was limited as it was bound by the arbitrators’ findings and legal conclusions, even if they appeared erroneous, inconsistent, or unsupported by the record. Through this lens, the court of appeals upheld the arbitrators’ decision, dismissing Nationwide’s argument that the arbitrators exceeded their powers in interpreting the access to records provision in the reinsurance treaty. The appellate court reasoned that where the parties do not dispute the scope of the arbitrators’ powers and where the claimed error is in the interpretation of the terms of the parties’ underlying contract and not in the agreement to arbitrate in the first place, it must apply a severely limited review of arbitration awards. Liberty Mutual v. Nationwide, No. 14-1129 (Mass. App. Ct. June 5, 2015).

This post written by Brian Perryman.

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DRAFT AGREEMENT TO ARBITRATE WAS NOT ENFORCEABLE, NOTWITHSTANDING PAYMENT OF CONTRACTUAL DEPOSIT

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The Eighth Circuit affirmed a district court’s finding that LoRoad, LLC (“LoRoad”) failed to accept an agreement with Global Expedition Vehicles, L.L.C. (“Global”) that would allow LoRoad to enforce the arbitration contained within.

LoRoad negotiated with Global to build a custom expedition vehicle. The terms of the “Assembly Agreement” called for a nonrefundable $120,000 deposit. During the exchange of agreement drafts, LoRoad sent Global $120,000 along with a modified—allegedly signed—agreement shortly thereafter. As the relationship soured, Global stopped work on the expedition vehicle. LoRoad alleged that it did not have a final set of documents, as prior draft exchanges were simply contract negotiations. LoRoad sought to compel arbitration to handle the dispute per the agreement, asserting that the arbitration provision was enforceable because the parties exhibited the requisite intent to form a binding contract. In addition, LoRoad alleged that the arbitration provision was enforceable because that particular provision remained the same throughout multiple agreement draft iterations. The court focused on LoRoad’s intent. LoRoad’s only conduct to indicate an agreement was its payment of $120,000. However, it also argued that this sum was only a “good faith deposit” and not a payment per the agreement. Further, LoRoad sent emails to Global indicating that the agreement was “not yet executed.” Without an executed agreement or a free-standing agreement to arbitrate, arbitration could not be compelled. LoRoad, LLC v. Expedition Vehicles, LLC, Case No. 14-2636 (8th Cir. June 1, 2015)

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

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FEDERAL COURT DISMISSES PUTATIVE CLASS ACTION ACCUSING LIFE INSURER OF FAILING TO DISCLOSE “SHADOW INSURANCE”

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Plaintiffs alleged that AXA Equitable Life Insurance Company violated New York insurance law prohibiting misrepresentations by insurers of their financial condition, because AXA had not disclosed “shadow transactions” in its filings with the New York Department of Financial Services (“NYDFS”). NYDFS defines “shadow insurance” as the use of captive reinsurers in foreign jurisdictions with lower reserve requirements to do an “end-run around higher reserve requirements.” Plaintiffs contended that AXA was not as financially sound as it had represented because in failing to disclose “shadow transactions,” AXA received higher ratings from rating agencies and was able to post fewer reserves thus selling a product that had undisclosed risks and created an “increased risk to the insurance system as a whole. . . .”

The court denied class certification and granted AXA’s motion to dismiss for lack of Article III standing. Plaintiffs did not allege that their premiums were higher because of the alleged “shadow transactions” nor that they had relied upon AXA’s representations in filings with the NYDFS. Violation of rights created by state law (as opposed to federal law), standing alone, does not allege an “injury” sufficient to establish Article III standing. Plaintiffs needed to have established that at least one of them had suffered an “invasion of a legally protected interest which is . . . concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” The Court also explained that since plaintiffs never alleged that they would not have purchased the policies had the disclosures been made or that they had suffered any financial harm because of the misrepresentations, the alleged risk of harm was only in the future and was a very tenuous risk at that. Jonathan Ross v. AXA Equitable Life Insurance Co., Case No. 14-CV-2904 (USDC S.D.N.Y. July 21, 2015).

This post written by Barry Weissman.

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COURT DENIES AS MOOT INSURER’S MOTION TO REVIEW DISCOVERY

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A district court in Kansas denied as moot defendant Liberty Mutual Fire Insurance Company’s motion to review a magistrate’s order granting plaintiff Great Plains Ventures, Inc.’s motion to compel reinsurance, reserves, and claims-related materials. The magistrate judge ruled in January that Liberty Mutual failed to establish why documents Great Plains had requested in a coverage dispute were irrelevant or privileged. Thus, the magistrate judge granted Great Plains’ motion to compel. Soon thereafter, Liberty Mutual requested that the magistrate judge stay his order in anticipation of its objection to the discovery order and its motion to review the order to compel. While the motion to review was pending, the magistrate judge denied the motion to stay and ordered Liberty Mutual to produce the documents. Liberty Mutual complied, and because it did so, the court ruled that its request for review was moot. Great Plains Ventures, Inc. v. Liberty Mutual Fire Insurance Co., No. 6:14-cv-01136 (USDC D. Kan. May 1, 2015).

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

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