Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Eleventh Circuit Finds Removal Jurisdiction Is Included Within Federal Subject-Matter Jurisdiction Under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards

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In 2001, Del Monte International GmbH and Inversiones y Procesadora Tropical INPROTSA, S.A. entered into an agreement for the production, packaging, and sale of MD-2 pineapples, a variety of pineapple that Del Monte had developed and which subsequently became the most popular pineapple in the world. The contract included an agreement to arbitrate as well as an agreement that, upon termination of the contract, INPROTSA would either destroy or return its stock of pineapples to Del Monte. However, when the agreement expired in 2013, INPROTSA sold the MD-2 pineapples to third parties rather than destroy or return them to Del Monte.

Del Monte initiated arbitration and was ultimately awarded approximately $26 million and an injunction against INPROTSA’s continued sale of the MD-2 pineapple. INPROTSA filed a petition to vacate the award in Florida state court. Del Monte removed the case to federal court and filed a combined motion to dismiss the petition to vacate and cross-petition to confirm the award. After some “procedural detours,” the district court granted Del Monte’s cross-petition to confirm the award.

INPROTSA appealed, arguing that the district court lacked subject-matter jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, among other issues. INPROTSA argued that there are only two causes of action that may be brought under 9 U.S.C. § 203, the jurisdictional provision of the statute implementing the Convention: (1) an action to compel arbitration; and (2) an action to confirm an arbitral award. According to INPROTSA, because a petition to vacate an arbitral award is not one of the recognized causes of action, the federal court did not have subject-matter jurisdiction over the case.

INPROTSA conceded that the district court had removal jurisdiction under 9 U.S.C. § 205, but argued that the scope of the court’s removal jurisdiction was not coterminous with that of its subject-matter jurisdiction. Effectively, INPROTSA argued that federal courts should be required to remand any case removed to federal court under § 205 that did not also have a federal jurisdictional basis under § 203.

The Eleventh Circuit disagreed on all counts. First, the court held that the Convention does not provide an “exhaustive list of actions and proceedings falling under the Convention” such that the court must inquire whether the action is one of the two types recited above. Rather, the relevant inquiry for the court is whether the action or proceeding “falls under the convention.” The court stated that an action or proceeding falls under the Convention for purposes of § 203 when the action “sufficiently relate[s] to an agreement or award subject to the Convention, such that the agreement or award could conceivably affect the outcome of the case.”

Second, although the court agreed with INPROTSA that removal jurisdiction was not necessarily coterminous with subject-matter jurisdiction, the court nevertheless determined that Congress intended to provide a federal forum for resolving issues implicating the Convention. The court reasoned that it would “make little sense for Congress to specifically authorize removal of cases over which the federal courts would lack subject-matter jurisdiction. … It makes far more sense to conclude Congress intended § 203 to be read consistently with § 205 as conferring subject-matter jurisdiction over actions or proceedings sufficiently related to agreements or awards subject to the Convention.”

Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int’l GmbH, 921 F.3d 1291 (11th Cir. 2019).

Court Denies Reinsurers’ Attempts to Avoid Suit

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The U.S. District Court for the District of Columbia recently denied attempts by reinsurers to avoid a suit by moving to have the claims against them dismissed or, in the alternative, seeking to compel arbitration or stay the case pending a related arbitration.

Vantage Commodities Financial Services I, LLC sued various reinsurers. The court dismissed Vantage’s breach of contract claim but allowed Vantage to file an amended complaint in which it alleged breach of implied contract, promissory estoppel, and unjust enrichment claims. The reinsurers moved to dismiss those claims. They argued that express agreements foreclosed the claim that there was a breach of an implied contract. The court disagreed. It noted that Vantage was not a party to any agreement with the reinsurers. Thus, the court also rejected the reinsurers’ claim that Vantage’s claim was untimely under an agreement.

In the alternative, the reinsurers sought to compel arbitration. Because Vantage and the reinsurers were not parties to an agreement with Vantage, however, the court concluded that the parties had not agreed to arbitrate disputes under arbitration clauses in a related agreement.

The court then rejected the reinsurers’ request that Vantage revise its amended complaint, reasoning that the complaint was not unduly vague or ambiguous. Finally, the court denied the reinsurers’ request for a stay pending ongoing arbitration. The court recognized that there were “overlapping factual issues common to both the arbitration and [the] litigation,” but found that overlap was insufficient to justify a stay and that it would not be in anyone’s interest to allow the “case to languish” during a pending arbitration of undetermined length.

Vantage Commodities Fin. Servs. I, LLC v. Assured Risk Transfer PCC, LLC, No. 1:17-cv-01451 (TNM) (D.D.C. Apr. 26, 2019).

Northern District of New York Declines to Imply a Follow-the-Fortunes or Follow-the-Settlements Obligation in Reinsurance Certificate

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After a ten-day bench trial involving ten fact witnesses and five expert witnesses, the Northern District of New York found that certain facultative certificates did not implicitly contain follow-the-settlements or follow-the-fortunes provisions. Utica Mutual Insurance Co. was permitted to present evidence at trial as to whether the doctrines were, at the time the parties agreed to the certificates, so “fixed and invariable in the reinsurance industry as to be part of the Certificates.” We previously wrote about the court’s decision to permit such evidence here.

Utica presented three expert witnesses who testified that follow-the-settlements and follow-the-fortunes doctrines were “industry-wide concepts that did not need to be stated in reinsurance certificates to apply” but “acknowledged that not all reinsurers included these provisions” in their certificates — as was the case here. The court determined that Utica “failed to prove that follow the fortunes or follow the settlements were so ‘fixed and invariable’ in the facultative reinsurance industry as to warrant importing them into” the subject certificate.

As a result, Utica had to prove that the loss was specifically caused by a risk covered in the reinsurance contract. The court concluded that Utica did not meet that burden, and Munich Reinsurance America Inc. was not obligated to pay loss expenses incurred in investigating, adjusting, and litigating claims supplemental to the liability limits.

Munich Reinsurance Am., Inc. v. Utica Mut. Ins. Co., No. 6:13-cv-00743 (N.D.N.Y. Mar. 29, 2019)

New York Court Discusses Qualifying and Disqualifying Conditions for Umpires

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A New York Supreme Court recently explained the conditions that qualify and disqualify a proposed umpire. National Union Fire Insurance and Enstar could not agree on an umpire for their asbestos-claim-related arbitration. Each felt the umpires proposed by the other’s arbitrator should be disqualified. They invoked a procedure allowing the court to select the umpire.

The court explained that umpires must be “impartial such that his/her decision will be based upon the merits of the dispute rather than the personal influence or identity of the disputants.” Applying that general standard, the court struck one proposed umpire (Chaplin) on the ground that he had previously testified for Enstar in another arbitration on an issue material to the present arbitration and was therefore “not entirely neutral as to this arbitration.” The court noted, however, that prior service as an expert is not always an automatic disqualification. The court then struck another proposed umpire (Maneval) because he had voted against Chaplin’s interpretation in a prior arbitration. The court explained that his service as an umpire in the instant arbitration could therefore create “an appearance of possible bias.” Another proposed umpire (Stern) was previously adverse to National Union’s arbitrator and, while not necessarily a problem, there was no reason to put that arbitrator in such an “untenable position” when there were other qualified candidates. Those candidates did not include an arbitrator (Gurevitz) who had previously worked for National Union’s counsel, which warranted disqualification, and another arbitrator (White) who was not a lawyer and who was therefore not ideal given the legal nature of the issues in the forthcoming arbitration. The court determined that another arbitrator (Bickford) with substantial industry experience was best suited to serve in this dispute.

Enstar EU Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No 654089/2018 (N.Y. Sup. Ct. Apr. 19, 2019).

Tenth Circuit Finds No Jurisdiction to Hear Appeal of District Court Stay Order While Motion to Compel Arbitration Is Pending in Parallel Federal Court Proceeding

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The plaintiff sued the defendants (collectively, DAL) in Colorado federal court after they denied his application for a Subway restaurant franchise. Because an arbitration clause in the franchise application required that any arbitration be held in Connecticut, DAL filed a motion to compel arbitration in Connecticut federal court. All proceedings in Colorado were stayed pending that motion. After DAL’s motion was denied, DAL appealed to the U.S. Court of Appeals for the Second Circuit. That appeal is currently pending. Meanwhile, the plaintiff asked the Colorado court to dissolve the stay and resume proceedings. The plaintiff lost that motion and appealed to the U.S. Court of Appeals for the Tenth Circuit. DAL moved to dismiss the appeal for lack of appellate jurisdiction.

The Tenth Circuit granted DAL’s motion, agreeing that the stay order issued in Colorado did not “end the litigation,” and thus was not a “final decision” for purposes of 28 U.S.C. § 1291. While there is an exception for stay orders that effectively put a party out of federal court, the exception was deemed inapplicable here, where one federal court deferred decisional authority to another federal court — the Second Circuit. The court also held that the stay order did not fall within the “small class” of collateral rulings that may be treated as “final” for purposes of appellate jurisdiction. It rejected the plaintiff’s contention that delaying review here until the entry of a final judgment “would imperil a substantial public interest” or “some particular value of a high order.”

Alemayehu v. Gemignani, No. 18-1340 (10th Cir. Apr. 17, 2019)