Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

District Court Grants Motion to Compel Arbitration, Finding Arbitration Provision Not Severable From Allegedly Void Contract

by

A Pennsylvania federal district court granted a motion to compel arbitration pursuant to 9 U.S.C. § 4 of the Federal Arbitration Act, over objection by the defendant on severability grounds. The defendant argued that its contract with the plaintiff was void ab initio and thus unenforceable. While the contract contained an arbitration clause, the defendant argued that under Pennsylvania law, an arbitration provision is not severable from the remainder of a void contract, and as such, the arbitration clause at issue was unenforceable. The court disagreed, however, finding the proposition to be “directly at odds” with U.S. Supreme Court precedent. The court noted that the Supreme Court explicitly held in Buckeye that “an arbitration provision is severable from the remainder of the contract” and that “unless the challenge is to the arbitration clause itself,” a challenge to the validity of the contract as a whole must go to the arbitrator in the first instance. Because the defendant here challenged the validity of the contract as a whole, the court granted the plaintiff’s motion to compel arbitration.

Thrivest Specialty Funding, LLC v. Wright, No. 2:18-cv-04764 (E.D. Pa. June 5, 2019)

Ninth Circuit Affirms Order Denying Arbitration, Applying Precedent That State Law Does Not Overcome the New York Convention’s Signatory Requirement to Compel Arbitration

by

In a trademark dispute, Shrinivas Sugandhalaya LLP (SS LLP), an incense manufacturing company based in Mumbai, appealed the denial of its motion to compel arbitration against Balkrishna Setty and his company Shrinivas Sugandhalaya (BNG) LLP, located in Bangalore. SS LLP sought to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention), by invoking the arbitration clause in a partnership agreement to which SS LLP was not a signatory. The Ninth Circuit affirmed the denial of arbitration, relying on the requirement under the New York Convention that the party seeking to compel arbitration be a party to the arbitration agreement. The court explained that to the extent the FAA would permit a nonsignatory to invoke arbitration through certain state contract or equitable laws, the Convention’s bar of arbitration would control over the FAA. The court also rejected other arguments of SS LLP, finding that they were not raised before the district court.

Setty v. Shrinivas Sugandhalaya LLP, No. 18-35573 (9th Cir. June 6, 2019).

Court Compels Arbitration Under the New York Convention and Dismisses Case in Windstorm Insurance Claim Dispute

by

The underlying insurance policy was issued by Certain Underwriters at Lloyd’s London and contained an arbitration clause. The court applied the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention) under the FAA. The court found that all four requirements under the Convention were met. The court easily determined that there was a written agreement and that the agreement arose out of a commercial relationship. With respect to the requirement that the agreement provide for arbitration in the territory of a signatory of the Convention, the court found that the requirement was met where the insurance policy (although separate from the arbitration clause), provided that “any action brought against [the insurer] must be in the United States of America, ‘in a court having proper jurisdiction.'” And regarding the final requirement of the Convention, that a party to the agreement is not an American citizen or that the commercial relationship has a reasonable relation with a foreign state, the court found it was met because a portion of the insurance policy was subscribed to by Lloyd’s Syndicate 2001, which is wholly owned by a company that is organized and principally based in the United Kingdom.

Although Section 3 of the FAA states that district courts “shall” stay proceedings pending arbitration upon the motion of a party, the court found that it is appropriate to dismiss the lawsuit where all of the issues presented are arbitrable and the plaintiff has not requested a stay. The complaint only raised one claim, which the court found subject to arbitration, and the plaintiff did not respond to the motion to compel or otherwise request a stay. As a result, the court dismissed the complaint with prejudice.

German Int’l Sch. of Fort Lauderdale, LLC v. Certain Underwriters at Lloyd’s, London, No. 0:19-cv-60741 (S.D. Fla. May 14, 2019).

An Agreement to Arbitrate Is Not a Contract Defense Under Montana Law

by

The Ninth Circuit reversed the District of Montana’s denial of a motion to compel arbitration on the grounds that “the insurer was estopped from asserting contract defenses as a result of its breach of its duty to defend.” The Ninth Circuit held that neither the 2014 Montana Supreme Court decision Tidyman’s Management Services, Inc. v. Davis, 330 P.3d 1139, nor any other Montana case, treats an agreement to arbitrate as a contract defense that an insurer is estopped from asserting as a result of its breach of its duty to defend. Rather, such agreement “establishes how the parties choose to resolve disputes arising out of the contract.” A party successfully compelling arbitration “may nevertheless have any insurance contract defenses arising out of its policy resolved against it by the arbitrator.”

Am. Trucking & Transp. Ins. Co., v. Nelson, No. 18-35414 (9th Cir. June 4, 2019)

Second Circuit Affirms Ruling Rejecting Lack of Notice Defense Under New York Convention Article

by

Affirming the confirmation of a Chinese arbitral award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Second Circuit held that notice mailed directly to an entity is sufficient to afford it due process pursuant to American standards. The China International Economic and Trade Arbitration Commission sent notice and arbitration materials to the respondent at the address listed in the parties’ contract. When some of these materials were returned, the items were mailed to the respondent’s address on file with the New York Department of State as well as a third address. The documents sent to the latter two addresses were not returned, and service was assumed.

Although the respondent argued it never received notice of the arbitration, which is a defense under Article V(1)(b) of the New York Convention, and submitted a declaration to that effect, the declaration did “not satisfy the ‘heavy’ burden imposed on a party asserting a defense under” the Convention.

Tianjin Port Free Trade Zone Int’l Trade Serv. Co. v. Tiancheng Chempharm, Inc. USA, No. 18-1918 (2d Cir. June 4, 2019)