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COURT DISMISSES ALL CLAIMS BROUGHT BY INSURED AGAINST REINSURANCE INTERMEDIARY AND AGENT IN CONNECTION WITH FRAUDULENT SCHEME AND ILLUSORY AGREEMENT

November 11, 2014 by Carlton Fields

A federal district court has dismissed all claims brought against American Special Risk (ASR), a reinsurance intermediary and agent for insurer Signet, by insured Car Sense. Car Sense sued Signet and ASR in connection with a Buy Back Guarantee program that Signet offered as a way to increase customer participation in certain incentive programs offered by Car Sense. Signet represented that the BBG program was 100% secured via a reinsurance agreement with Hannover Re. ASR acted as Signet’s reinsurance intermediary and agent in negotiating and procuring the reinsurance agreement. As alleged, though Signet represented that the BBG was a legitimate insurance product, the BBG was in fact a fraudulent scheme engineered to generate one-time fees. Moreover, the reinsurance agreement did not provide for 100% security of the BBG as Signet represented but was, in fact, illusory. Car Sense sued Signet and ASR for various claims ranging from breach of contract to fraud.

The court dismissed all claims against ASR finding, in large part, that ASR did not owe any duty, and had not made any misrepresentations, to Car Sense. The court also gave notice of its intention to dismiss all claims against Signet for Car Sense’s failure to serve Signet within the time required by the Federal Rules of Civil Procedure. Car Sense, Inc. v. American Special Risk, LLC, No. 13-CV-5661 (USDC E.D. Pa. Oct. 24, 2014).

This post written by Renee Schimkat.

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NEW YORK APPELLATE COURT DISMISSES CLAIMS AGAINST REINSURER AND ITS CLAIMS ADMINISTRATOR

November 10, 2014 by Carlton Fields

In what began as a dispute between OneBeacon America Insurance Company and its insured, Colgate, over OneBeacon’s asserted right to control the defense of claims against Colgate in connection with numerous personal injury suits, Colgate sued OneBeacon’s reinsurer, National Indemnity Company (“NICO), and its affiliated claims adjuster, Resolute Management. Colgate alleged that OneBeacon’s contractual relationship with NICO and Resolute created a conflict of interest because they served a dual role as both OneBeacon’s reinsurer and the claims adjuster under those policies. Colgate wanted to defend the actions against it, while NICO and Resolute wanted to settle the cases to minimize the legal expenses.

Colgate sued NICO and Resolute under several theories, including declaratory relief, breach of contract, tortious interference, breach of the implied covenant of fair dealing, and a statutory claim under Massachusetts law for unfair deceptive conduct. After the lower court only partially dismissed these claims, NICO and Resolute appealed. The appellate court dismissed all claims against NICO and Resolute. Central to the court’s ruling was the absence of a contract between Colgate and NICO or between Colgate and Resolute. Moreover, the agreement between NICO and Resolute provided that the agreement could not be assigned and that it did not confer any rights on third parties. Absent contractual privity or an assigment, Colgate could not assert any claims against NICO or Resolute despite their dual roles as OneBeacon’s reinsurer and Colgate’s claims administrator. OneBeacon America Insurance Co. v. Colgate-Palmolive, Index No. 651193/11 (N.Y. App. Div. Oct. 28, 2014).

This post written by Leonor Lagomasino.

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COURT OF APPEAL COMPELS ARBITRATION BASED UPON RELATED DOCUMENTS

November 4, 2014 by Carlton Fields

On August 29, 2014, the United States Court of Appeals for the Eleventh Circuit, in reversing the district court on interlocutory appeal, found that an indemnification agreement, performance bonds, and a subcontract between different parties formed a single transaction, therefore allowing indemnitors to compel arbitration.

The University of Alabama hired Brice Building Company (“Brice”), a general contractor, to develop a student housing complex. Brice then entered into a subcontract and arbitration agreement with Atlantis Drywall and Framing (“Atlantis”). Atlantis secured performance bonds through Hanover Insurance Company (“Hanover”), a condition necessary to work on the project. The subcontract contained an arbitration provision, but the bond did not. However, the bond incorporated the subcontract by reference. When Atlantis defaulted on its work, Hanover sought indemnification.

At issue before the district court was whether the arbitration clause in the subcontract between Brice and Atlantis required a signatory to arbitrate with a non-signatory in a related dispute. The circuit court found that the agreements entered into were all part of the same subject matter despite being signed by different parties. For that reason, the court noted that these documents should be viewed as a single transaction. The court further reasoned that, contrary to Hanover’s assertion, the bond does relate to the subcontract since it incorporated the subcontract between Brice and Atlantis. The district court therefore erred when it declined to read the three documents as a single transaction, denying arbitration. Hanover Ins. Co. V. Atlantis Drywall & Framing LLC, No. 13-14482 (11th Cir. Aug. 29 2014).

This post written by Matthew Burrows.

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SECOND CIRCUIT AFFIRMS ORDERS ENJOINING ARBITRATION, HOLDING BROAD FORUM SELECTION CLAUSE SUPERSEDES FINRA ARBITRATION RULE

November 3, 2014 by Carlton Fields

The Second Circuit affirmed two cases in which financial services firms had succeeded in enjoining FINRA arbitrations that were initiated against them by public financing entities. The court held that in each case, the FINRA arbitration rules were superseded by broad forum selection clauses in broker-dealer agreements requiring “all actions and proceedings” related to the transactions between the parties to be brought in court. The court noted that the interplay between forum selection clauses and the FINRA arbitration rule has been considered by the Ninth and Fourth Circuits, with the former holding that the forum selection clause controls and the latter reaching the opposite conclusion. In the Second Circuit, the court explained, “an agreement to arbitrate is superseded by a later-executed agreement containing a forum selection clause if the clause ‘specifically precludes’ arbitration.” The court found that the language “all actions and proceedings” fit that description, notwithstanding that the clause did not specify arbitration. Goldman Sachs & Co. v. Golden Empire Schools Financing Authority, Nos. 13-797-cv, 13-2247-cv (2d Cir. Aug. 21, 2014).

This post written by Michael Wolgin.

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COMMONWEALTH COURT OF PENNSYLVANIA APPROVES REINSURANCE COMMUTATION AGREEMENT

October 28, 2014 by Carlton Fields

On September 4, 2014, the receivership court for the Reliance Insurance Company (“Reliance’) estate (the “Reliance Estate”) approved a settlement agreement allowing the Liquidator to terminate and commute the obligations between Odyssey and Reliance under the reinsurance agreements. The receivership court accepted the liquidator’s representations that the settlement agreement is a fair and reasonable settlement of Odyssey’s obligations to the Reliance estate under the reinsurance agreements and that the payment contemplated under the settlement constituted fair and reasonable value to the Reliance Estate. The Reliance estate will receive an economic benefit amounting to $6,450,000. In re Liquidation of Reliance Insurance Company, Docket No. 1 REL 2011 (Pa. Comm. Ct. Oct. 8, 2014)

This post written by Kelly A. Cruz-Brown.

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