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New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

Years-Long Asbestos Reinsurance Battle Continues for Utica and Century, Including Whether Century Must Follow the Fortunes of Utica’s Allocation of Losses

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In 2013, Utica Mutual Insurance Company (the cedent) filed a complaint alleging that Century Indemnity Company (the reinsurer) (1) breached two reinsurance certificates executed between the parties covering the years 1973 and 1975 in connection with asbestos liability exposure; (2) owed the unpaid balance of prior billings under the two certificates; (3) violated the duty of utmost good faith and fair dealing; and (4) is obligated to pay certain future billings. Century answered, refusing to acknowledge the existence of a valid 1975 reinsurance certificate, and asserted various affirmative defenses. After two years of discovery, Century amended its answer to assert bad-faith counterclaims against Utica alleging that Utica had been maintaining two sets of record-keeping systems to track asbestos settlements made on behalf of the underlying insured, allegedly part of a larger effort by Utica to conceal the fact it had been over-billing reinsurers, including Century, for these claims.

Utica sought partial summary judgment on various aspects of the litigation, including that (1) Utica’s allocation decisions related to the coverage and handling of the asbestos claims against the underlying insured were reasonable and made in good faith, such that the “follow the fortunes” doctrine applied; (2) the 1975 reinsurance certificate is valid and binding on Century; and (3) Century had no right to claw back any sums previously paid to Utica. Century responded with its own dispositive motions. The court denied the parties’ motions with respect to most issues, including whether Utica’s loss allocation decisions were reasonable and made in good faith. Utica Mut. Ins. Co. v. Century Indem. Co., Case No. 6:13-cv-00995 (USDC N.D.N.Y. Sept. 26, 2018).

This post written by Gail Jankowski.

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English Court Holds that Discovery Given by U.S. Citizen Pursuant to a 28 U.S.C. § 1782 Order can be Used in London Arbitrations

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This English court case involved arguments by Dreymoor Fertilisers Overseas Pte. Ltd. (“Dreymoor”), a Singapore trading company, to prevent EuroChem Trading GmbH, a Swiss company, and JSC MCC EuroChem, Russia’s largest fertilizer company (collectively, EuroChem”), from using information obtained through a U.S. court order under 28 U.S.C. §1782 (the “1782 Order”), which allows a federal court to order a person residing in its district to provide testimony or documents “for use in a proceeding in a foreign or international tribunal.”

EuroChem had obtained the 1782 Order in Tennessee federal court in order to obtain information to be used in litigation against Dreymoor proceeding in the British Virgin Islands and in Cyprus. EuroChem also intended to use the information obtained pursuant to the 1782 Order in two arbitrations proceeding in London. In all of the cases, EuroChem alleges that Dreymoor paid bribes to secure various fertilizer supply and sales contracts. Dreymoor sought an injunction in an English court, restraining EuroChem from enforcing the 1782 Order with respect to the London arbitrations, which was originally granted.

However, recently, on an application to continue the injunction, an English court found that EuroChem has a legitimate interest in obtaining the evidence in question for use in the London arbitrations. Thus, the court held “[w]hether enforcement of the 1782 Order would constitute unconscionable conduct requires an overall evaluation,” and “[i]n my judgment, looking at the circumstances of this case as a whole and with particular regard to the factors which I have identified, many of which point strongly against the grant of an injunction, it would not.” Thus, the English court refused to continue the injunction.

Dreymoor Fertilisers Overseas PTE Ltd. v. EuroChem Trading GMBH, [2018] EWHC 2267 (Comm. Aug. 24, 2018).

This post written by Jeanne Kohler.

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Ninth Circuit Finds Foreign Bank Did Not Waive Personal Jurisdiction by Litigating Other Defenses and Counterclaims in a Related Matter

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The Ninth Circuit recently reversed a California District Court’s finding of personal jurisdiction against a foreign bank, and found it did not waive appeal on that issue by asserting defenses. The Ninth Circuit stated that “[o]ur cases are clear that once the issue of personal jurisdiction has been adjudicated on the merits against a party, that party may fully participate and defend the litigation up to and including filing its own counterclaim.” It distinguished cases relied upon by the Central District of California as inapposite, as they involved circumstances where: (1) the defense was listed in the answer but never affirmatively litigated; and (2) where the defendant did not avail himself of the opportunity to conduct discovery on the jurisdictional issue and renew its motion to dismiss if the evidence supported a lack of personal jurisdiction. Here, the Bank timely asserted personal jurisdiction as a defense and litigated the issue to a decision from the district court: “[n]othing more was required to preserve the issue, and subsequent litigation of defenses and counterclaims did not waive the Bank’s properly preserved defense of personal jurisdiction.”

The Court further found that the Bank did not have sufficient contacts with the United States to establish personal jurisdiction over the contract claims asserted by Plaintiffs. The Bank “entered into a contract with a Cayman Islands corporation to provide pre-paid cards in the UAE. There is no indication that the Bank conducted any unilateral activities in California… [and] certainly no evidence that any minimal contacts with California, through email and phone calls to California or through an investigation conducted in California by one of the Bank’s agents, form the basis for [Plaintiff’s] contract-focused claims, which raise from the Bank’s and [Plaintiff’s] conduct in the UAE.”

The Court also reversed the judgment compelling arbitration the contract claims and remanded for dismissal due to the lack of personal jurisdiction over the Bank.

InfoSpan, Inc. v. Emirates NBD Bank PJSC, 16-55090 (USCA 9th Cir. Sept. 7, 2018)

This post written by Nora A. Valenza-Frost.

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Minnesota Federal Mutual Court Adopts “Look Through” Basis for Federal Question Jurisdiction in FAA Section 9 Disputes

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The District of Minnesota issued several opinions this summer in a dispute between two insurance companies, Federated Mutual Insurance Co. (“Federated Mutual”) and Federated National Holding Co. (“Federated National”), regarding the similarities between the two companies’ names. Federated Mutual owned the trademark rights to several iterations of the word “Federated” related to insurance. The parties resolved their trademark dispute in 2013 with a co-existence agreement under which Federated National agreed to stop using the term “Federated” in its name within 7 years and minimize industry confusion. By 2016 Federated Mutual initiated arbitration against Federated National because of the latter’s failure to abide by the agreement. An arbitrator concluded that Federated National had indeed breached the agreement but denied a trademark infringement claim asserted by Federated Mutual. Federated Mutual moved to confirm the arbitral award and Federated National responded by moving to confirm the award related to the denial of the trademark infringement claim and to vacate the award otherwise. On June 22, 2018, the court issued a decision on Federated National’s motion to dismiss the petition and Federated Mutual’s petition to confirm.

First, the district court resolved a circuit split on the appropriate approach when courts assess subject matter jurisdiction in the context of FAA Section 9 petitions. Rejecting the approach that courts should consider the face of the petition alone, the court concluded it should “look through” the petition to the underlying arbitration to determine whether a federal question exists. Here, the court “looked through” the petition and because the underlying arbitration involved a federal trademark claim, federal question jurisdiction existed.

Second, the court held that even if federal question jurisdiction did not exist, the court had diversity jurisdiction over the dispute. Even though Federal Mutual primarily sought injunctive relief, the court decided the value of the “object of the litigation”—resolving the confusion surrounding the names in the insurance industry—satisfied the $75,000 jurisdictional minimum.

Third, the court determined it could not exercise general jurisdiction over Federated National but it could exercise specific jurisdiction based on the particular contacts with Minnesota regarding the co-existence agreement. While Federated National did not exercise sufficient control or domination over its subsidiaries with Minnesota contacts to warrant general jurisdiction, the court found specific jurisdiction because the co-existence agreement was governed by Minnesota law and contemplated performance that affected Federated Mutual’s business in the state.

Fourth, the court found proper venue in Minnesota where Federated National was subject to personal jurisdiction there, and therefore deemed to reside in the state. Likewise, the court rejected Federated National’s request to transfer the case to Illinois where it had filed a case to vacate the award.

Fifth, the court confirmed the arbitral award. It noted the limited circumstances under which a court can vacate an award pursuant to the FAA and that Federated National did not assert any of the applicable bases—instead, the court dismissed the argument as Federated National merely disagreeing with the arbitrator’s analysis.

After the court issued its June 22, 2018 opinion, Federated National appealed and moved to stay the court’s decision pending appeal.  In a September 11, 2018 opinion, the District of Minnesota denied that motion. Federated National moved on the grounds that there were substantial questions of law regarding the “look through” basis for Federated Mutual question jurisdiction, doubt that the injunctive relief satisfies the amount in controversy requirement, and whether Federated National had sufficient Minnesota contacts. The court denied the motion largely because Federated National failed to make a strong showing that it was likely to succeed on the merits. All of Federated National’s arguments regarding “substantial questions of law” presented merely the possibility of success on the merits that fail to satisfy the high burden to warrant a stay pending appeal. Additionally, Federated National did not establish any irreparable injury absent a stay, a stay would further injure Federated Mutual by delaying resolution, and the public interest did not support a stay.

This post written by Thaddeus Ewald .

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Second Circuit partially vacates summary judgment ruling in asbestos risk reinsurance case

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The Second Circuit has partially vacated summary judgment rulings in a case involving the reinsurance of asbestos-related risks. The case involves Utica Mutual Insurance Company and it reinsurer Clearwater Insurance Company, regarding Clearwater’s reinsurance obligations arising from claims of Utica’s insured, Goulds Pumps, Inc. Utica had issued various primary and umbrella liability insurance policies to Goulds from the 1950s to the 1990s.  In the 1990s, Goulds faced many thousands of asbestos-related person injury claims, for which it turned to Utica for coverage.  Clearwater had reinsured the 1978 and 1979 umbrella policies under two reinsurance certificates (the “Clearwater Certificates”) and the 1979-1981 umbrella policies under three reinsurance contacts as part of a pool of reinsurers managed by Towers, Perrin, Forster & Crosby, Inc. (the “TPF&C Memoranda”). When Utica sought coverage from Clearwater, Clearwater objected on three grounds: (1) Utica had no liability for the asbestos-related claims under the umbrella policies reinsured by Clearwater; (2) Clearwater’s liability under the Clearwater Certificates was capped at $5 million and $2 million for 1978 and 1979, inclusive of expenses; and (3) Clearwater was not obligated to pay amounts Utica had voluntarily paid Goulds through settlements.

The Second Circuit found that Clearwater’s first objection turned on language in the Utica umbrella policies stating that Utica would cover expenses “not covered by” the primary policies. Clearwater argued this meant that the umbrella policies did not cover asbestos-related claims because such claims were covered by the primary polices, but Utica said it meant the umbrella policies had to cover amounts that Utica did not pay under the primary policies because it interpreted those policies to have aggregate limits of liability that were exceeded. The trial court, which had granted Clearwater summary judgment on other grounds, had not decided what “not covered” meant in this context, and the Second Circuit remanded the matter so the trial court could rule on this issue.

The Second Circuit rejected Clearwater’s second objection, because the Clearwater Certificates contained “follow the form” clauses, the umbrella policies specifically stated that Utica would “reimburse the insured for all reasonable expenses . . . in addition to the applicable limit of liability of this policy,” and the Clearwater Certificates contained nothing inconsistent with an obligation to cover expenses in addition to the limits of liability contained in those Certificates.

Finally, the Second Circuit agreed with Clearwater’s third objection, finding that Clearwater was not obligated to reimburse Utica for its voluntary settlements with Goulds because the Clearwater Certificates did not contain an express follow-the-settlements clause and no such obligation was implied under New York Law. Further, it found that the TPF&C Memoranda only required Clearwater to reimburse Utica for settlements that were authorized by TPF&C, which authorization had never been requested or given.  Utica objected that this condition was excused because it was impossible, as TPF&C had stopped managing the reinsurance pools decades ago, but the court found that, regardless of impossibility, such prior approval was still a condition precedent to Clearwater’s obligation to reimburse Utica for the settlements.

Utica Mutual Insurance Company v. Clearwater Insurance Company, Nos. 16-2535 (L), 16-2824 (XAP) (2d Cir. Sep. 25, 2018).

This post written by Jason Brost.
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