Week's Best Posts

SOUTHERN DISTRICT OF NEW YORK: “IF YOU WANT STRICT APPLICATION OF THE LAW, DON’T AGREE TO ARBITRATION CLAUSES.”

February 9, 2015 by Carlton Fields

A federal judge in the Southern District of New York recently denied a motion to vacate an arbitration award in a reinsurance dispute, scolding the movant for complaining that the arbitrators reached a compromise verdict. The movant, the ceding insurer, argued that two of the three members of the arbitration panel had engaged in “manifest disregard of the law” by failing to properly apply the “follow the fortunes” doctrine when they disallowed reimbursement for several claims. The movant challenged a portion of the award holding that the reinsurer was not required to reimburse the movant for certain claims due to negligent claims handling and/or late notice. In a somewhat gruff opinion (“Petitioner’s argument is manifestly wrong . . . .”), the court stated that the movant “asks this court to do what it cannot do – review the award for correctness.” The court noted that all the relevant legal issues were placed squarely before the panel, that considerable evidence and argument was presented on those issues during a five-day hearing, and the evidence on the disputed issues “could be read either way.” In denying the motion to vacate and confirming the award, the court noted that the arbitrators were not required to follow “judicial formalities” in making their decision, and therefore were not required to predict what a court would hold. Rather, all that was required of them was that the decision have “colorable justification.” Apparently frustrated by the movant’s “manifest disregard of the law” argument, the court lectured: “If parties want the luxury of judicial review and reasoned results that require strict application of the law, without the sort of compromises that often characterize arbitral awards, they should not agree to arbitration clauses. Having done so, they should not be heard to complain when the arbitrators do what arbitrators so often do – reach compromise verdicts that can easily be justified by taking a particular view of the evidence.”

Associated Industries Ins. Co., Inc. v. Excalibur Reinsurance Corp., Case No. 1:13-cv-08239 (USDC S.D.N.Y November 26, 2014)

This post written by Catherine Acree.

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FLORIDA COURT AWARDS OVER $3 MILLION IN ATTORNEYS’ FEES AND COSTS IN FAVOR OF PREVAILING REINSURANCE BROKERS

February 3, 2015 by Carlton Fields

Following the rejection by a Florida jury of all claims made by Instituto Nacional de Seguros (as we reported on July 9, 2014), a Costa Rican insurer, against two reinsurance brokers, Hemispheric Reinsurance Group and Howden Insurance Brokers, the trial court entered final judgment in defendants’ favor. The court conducted an evidentiary hearing to determine reasonable attorneys’ fees and costs. It entered judgment in the amount of $3,134,459.30, which included an award of $2,456.131.10 for attorneys’ fees, $497,469.32 for taxable costs, $96,297.00 for expert fees, and $84,561.98 for prejudgment interest. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33-653 CA 04 (Fla. Cir. Ct. Jan. 5, 2015).

This post written by Leonor Lagomasino.

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INSURANCE GUARANTY ASSOCIATION MUST PAY WORKERS’ COMPENSATION CLAIMS OF A FORMER, NON-MEMBER GROUP SELF-INSURER

February 2, 2015 by Carlton Fields

The North Carolina Court of Appeals has held that the state’s Insurance Guaranty Association is obligated to pay for workers’ compensation claims made or incurred against CompTrust, a former group self-insurer that issued workers’ compensation insurance policies to certain employer members. CompTrust was never an Association member, but had converted itself into the CAGC Insurance Company, a North Carolina licensed direct insurer, and CAGC joined the Association. Only CAGC survived the merger and members of CompTrust were converted into CAGC policyholders. CAGC had assumed liability for all claims previously held by CompTrust but was liquidated in January 2014. At issue were workers’ compensation claims that occurred when CompTrust was still in business and responsible for the relevant insurance policies. The Association argued that it should not be obligated for those claims because, in part, they did not arise under policies of direct insurance issued by CAGC and were therefore outside the scope of the Association’s statutory obligations.

The appellate court disagreed. All of CompTrust’s debts and obligations were transferred to CAGC “to the same extent as if said debts, liabilities, and duties had been incurred or contracted” by CAGC. The court found no difference between the merger agreement at issue and the assumption reinsurance agreement at issue in a prior North Carolina case whereby Reliance National Insurance assumed a self-insurer’s responsibilities and the Association was then obligated, upon Reliance’s insolvency, to workers’ compensation obligations that originated with the self-insurer. CAGC was a direct insurer placing it within the Association’s statutory obligations and, therefore, when CAGC became insolvent the covered claims became the Association’s responsibility. The appellate court reversed the trial court’s decision and remanded with directions to enter judgment that the Association was estopped from denying its obligations for any pre-merger workers’ compensation claims made or incurred against CompTrust. Goodwin v. CAGC Insurance Co., No. COA14-445 (N.C. Ct. App. Jan. 20, 2015).

This post written by Renee Schimkat.

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THE IMPORTANCE OF SELECTING AN AVAILABLE ARBITRATION FORUM

January 27, 2015 by Carlton Fields

The Eleventh Circuit affirmed a Florida district court’s denial of Cashcall’s motion to compel arbitration, as the forum selected in the parties’ loan agreement was not available. Appellee Abraham Inetianbor initially borrowed $2,600 from Western Sky Financial LLC. He subsequently repaid $3,252.65 to the servicer of the loan, CashCall, over twelve months. Mr. Inetianbor refused to pay a subsequent bill from Cashcall because he believed his financial obligations had been fulfilled. CashCall disagreed, and reported Mr. Inetianbor’s purported default to credit agencies. Mr. Inetianbor then sued, inter alia, for defamation and usury violations.

The loan agreement mandated any dispute be arbitrated by the Cheyenne River Sioux Tribal Nation (the “Tribe”). Despite attempts to comply with arbitration, the Tribe explained to Mr. Inetianbor and the district court on multiple occasions that the Tribe does not authorize arbitration. CashCall argued that the specified arbitral forum was not integral to the agreement, and therefore its unavailability should not cause the court to deny its motion to compel. The Court looked to “how important the term was to one or both of the parties at the time they entered into the agreement” – to determine whether the arbitration agreement is integral. In this case, the agreement made multiple references to the Tribe. In nine paragraphs regarding arbitration in the contract, the Tribe was specifically mentioned in five of them. The Court concluded that the contract’s use of “shall” and “is required to” was sufficient evidence of the intent to make the Tribal arbitral forum the exclusive forum. Since that arbitral forum was unavailable, Appellant’s motion to compel arbitration was denied. Inetianbor v. Cashcall, Inc., No. 13-cv-60066-JIC (11th Cir. 2014).

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

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FIO ISSUES REPORT ON GLOBAL REINSURANCE MARKET AND ITS IMPORTANCE TO THE U.S. INSURANCE INDUSTRY

January 26, 2015 by Carlton Fields

On December 31, 2014, the Federal Insurance Office (FIO) issued a report entitled “The Breadth and Scope of the Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States.” The report was prepared pursuant to the Dodd-Frank Act. It provides an overview of the history, forms, and purposes of reinsurance, the U.S. regulatory framework governing reinsurance, and the global reinsurance market. The report analyzes the important role that global reinsurers play to U.S. insurance industry generally. It does not, however, purport “to analyze the extent to which reinsurance or any particular reinsurer could be systemically important.”

The report discussed two roles of the federal government in the reinsurance market. First, it mentions that the Dodd-Frank Act contains several provisions relating to the oversight of reinsurance. It is noted that the approach of those provisions is “to enhance uniformity in the state-based insolvency regulation of insurers and reinsurers by increasing deference to the state in which the reinsurer is domiciled or licensed.”

Second, it discusses some of the history of credit for reinsurance collateral reform, and mentions that efforts by the NAIC to achieve uniformity with respect to this area through a Model Act have not been successful. The report states that the Treasury Department and the United States Trade Representative are considering exercising their authority to enter into an international agreement concerning this issue, which would preempt inconsistent state laws.

This post written by Michael Wolgin.

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