Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

PENNSYLVANIA COURT DENIES MOTION FOR SUMMARY JUDGMENT OVER FACULTATIVE REINSURANCE CERTIFICATES

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The Court of Common Pleas of Philadelphia County denied defendant OneBeacon Insurance Company’s (“OneBeacon”) motion for summary judgment against plaintiffs Century Indemnity Company (“Century”) and Pacific Employers Insurance Company (“Pacific”). Century and Pacific, which held reinsurance policies issued by OneBeacon, sued the reinsurer to recover expenses in addition to the stated policy limits and to recover an award of interest on the payments received. OneBeacon  sought summary judgment on two grounds: 1) that the limit stated in the parties’ reinsurance certificates placed a total cap on its liability, and 2) that plaintiffs were not entitled to an award of interest on payments. The court denied OneBeacon’s motion.  First, the court determined that certain conditions placed on premiums in the reinsurance certificates meant that the premium was subject to a condition that excluded expenses in calculating the total loss limit. “If anything,” the court noted, “the terms of the certificates may have created a presumption of expense-exclusiveness.”

Second, the court denied defendant’s motion for summary judgment on collateral estoppel grounds. OneBeacon cited two prior district court cases that considered the “limit-of-liability” issue, but the court held that this legal authority did not “hold the necessary weight of final judgments at this juncture in order to apply collateral estoppel against plaintiffs.”  Finally, because the court had already granted plaintiffs’ separate motion for summary judgment on payments of interest, it denied OneBeacon’s motion on that issue as well.  Century Indem. Co. v. OneBeacon Ins. Co., No. 02928 (Pa. Com. Pl. Mar. 27, 2015).

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

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COURT AFFIRMS ARBITRATION PANEL’S $14 MILLION AWARD IN FAVOR OF INSURED IN REINSURANCE DISPUTE OVER ASBESTOS CLAIMS

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A federal district court has confirmed a $14 million arbitration award entered in favor of Amerisure against its reinsurer Everest. As we earlier reported, the court had previously denied the motion to seal briefing associated with Amerisure’s motion to confirm the award. Now at issue was the confirmation, modification, or vacatur of the award, which directed Everest to indemnify Amerisure for its share of asbestos losses that fell within the parties’ reinsurance treaties. Everest moved to vacate the award on several grounds, including an arbitrator’s “evident partiality” in the proceedings and the panel’s allegedly erroneous procedural and evidentiary rulings. At the core of the reinsurance dispute was whether Amerisure could aggregate individual asbestos losses into a single occurrence in order to exceed the applicable retention and thereby qualify for indemnification under the reinsurance treaties. The panel held that Amerisure could aggregate the losses by relying, in part, on what it found to be the “commonly accepted” business of treating multiple asbestos losses as a single occurrence. The panel rejected the argument that Amerisure’s claim was precluded or undercut by the fact that the underlying claims were settled as individual losses and further discounted the expert opinion testimony offered by Everest as unpersuasive. The district court, in turn, affirmed the award, rejecting all arguments of partiality or erroneous rulings. While Everest had established the panel exceeded its powers in one respect, it did not find that warranted vacatur or modification of the award. Amerisure Mutual Insurance Co. v. Everest Reinsurance Co., Case No. 14-cv-13060 (USDC E.D. Mich. Mar. 18, 2015).

This post written by Renee Schimkat.

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COURT DENIES INSURER’S REQUEST TO ARBITRATE

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In a case involving a dispute arising from a fire at the Wisconsin County Courthouse, a Wisconsin federal court issued an order denying Lexington Insurance Company’s motion to participate in an arbitration between the two insurers primarily responsible for the losses. Lexington argued it was an excess insurer (or reinsurer – the parties disagreed) for the policy issued by the State of Wisconsin Local Government Property Insurance Fund insuring the county. In addition to coverage afforded by the Fund, the county was also insured by Cincinnati Insurance Company for losses to cover machinery and equipment that might not otherwise be covered by the Fund’s policy.

The Fund and the Cincinnati policies included a joint loss agreement (“JLA”) which provided that in the event of a dispute, the insurers would pay half of the disputed amount to their insured, the county, and arbitrate the dispute thereafter. The county took advantage of this provision. Lexington then sought to intervene in the ensuing arbitration, arguing that while its policy did not include a joint loss agreement, it was a follow-form policy which included that provision. The court agreed with Lexington, finding that although the Lexington policy was “a little strange,” it expressly stated it was a follow-form policy to the Fund’s policy and, further, it did not expressly exclude or supersede the joint loss agreement. The court, however, disagreed with Lexington’s view that it was entitled to participate in the arbitration between the Fund and Cincinnati. The joint loss agreement did not apply in this case because it did not apply to Lexington or allow for Lexington’s participation in the arbitration. State of Wisconsin Local Government Property Insurance Fund v. Lexington Insurance Co., Case No. 15-CV-142-JPS (USDC E.D. Wis. Apr. 17, 2015).

This post written by Brian Perryman.

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COURT PRECLUDES DISCOVERY OF REINSURANCE INFORMATION IN AIRPORT CONSTRUCTION INSURANCE COVERAGE DISPUTE

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In a construction loss coverage litigation brought by Indianapolis Airport Authority (IAA) against its builders risk insurer, Travelers Property Casualty Company, IAA unsuccessfully attempted to issue a subpoena to Travelers’s reinsurer. The subpoena sought various reinsurance agreements, premium and underwriting information, analysis, communications, and loss reports. Travelers moved for a protective order and to quash IAA’s subpoena on the grounds that the discovery of reinsurance information was overly broad, unduly burdensome and not discoverable. Travelers argued that the material requested contains “sensitive business information typically not relevant to coverage itself.” The court agreed that the discovery requested was overbroad in that “IAA requests reinsurance discovery from 2005 through July 10, 2013, despite the fact that the steel tower collapse at issue in this litigation occurred January 24, 2007.” The court further found that the communications requested were irrelevant because they did “not speak to Travelers’ intent and do not clarify any ambiguous terms of the policy.” The court quashed the subpoena and entered a protective order precluding IAA “from obtaining any discovery of reinsurance documentation.” Indianapolis Airport Authority v. Travelers Property Casualty Co. of America, Case No. 1:13-cv-01316 (USDC S.D. Ind. April 7, 2015).

This post written by Michael Wolgin.

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FIFTH CIRCUIT AFFIRMS VACATUR OF ARBITRATION AWARD WHERE ARBITRATOR FAILED TO FOLLOW PROVISIONS GOVERNING SELECTION OF ARBITRATOR AND FORUM

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Organizational Strategies Inc. (OSI) had entered into an agreement with Capstone Associated Services Ltd. for the latter to form three captive insurance companies for OSI. Included in the contract was an arbitration clause that required any disputes to be resolved under American Arbitration Association rules. PoolRe (a third-party insurer), and the three captive insurers separately entered into contracts that included different arbitration provisions requiring application of International Chamber of Commerce rules. Ultimately, all of the agreements were cancelled, and Capstone demanded arbitration for breach of contract against OSI under AAA rules. When PoolRe sought to compel a separate arbitration and was unable to appoint an Anguilla-based arbitrator through the mechanism envisioned under its contracts, PoolRe intervened in the OSI arbitration for the “limited purpose of having [the arbitrator] appoint an Anguilla-based arbitrator.” Instead of appointing an Anguilla arbitrator, however, the OSI arbitrator applied AAA rules and exercised jurisdiction over PoolRe’s claims, finding that PoolRe had waived its right to arbitration in Anguilla by intervening. An award later issued, finding that OSI had breached its contracts with Capstone, PoolRe, and a law firm involved with the captive insurance program. The arbitrator granted Capstone, PoolRe and the firm more than $450,000 in attorneys’ fees, expenses and costs.

OSI moved to vacate the entire award in Texas federal court on the grounds that the arbitrator exceeded his authority by including PoolRe in the arbitration; the arbitrator was not authorized under the contracts to appoint himself as the arbitrator of PoolRe’s claims nor to apply AAA rules instead of ICC rules. The court agreed and vacated the entire award, reasoning that PoolRe’s intervention had “tainted the entire process.” The Fifth Circuit affirmed, holding that because the arbitrator “acted contrary to the express arbitrator- and forum-selection clauses in the arbitration agreements to which PoolRe was a party” the district court’s holding that the arbitrator exceeded his authority would be affirmed. The Fifth Circuit further explained that a district court does not err “by failing to vacate in part, particularly where the arbitrator awarded a lump sum ‘to be divided among the parties as they see fit.’” PoolRe Insurance Corp. v. Organizational Strategies Inc., No. 14-20433 (5th Cir. April 7, 2015).

This post written by Michael Wolgin.

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