Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Eighth Circuit Upholds Confirmation of Arbitration Award Directing Payment of Attorney’s Fees and Expenses Unrestricted by Contractual Limit on Liability

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In a case concerning a contract for the construction of a pipe conveyor system, ProEnergy Services, LLC, and its surety Western Surety Company (collectively, “ProEnergy”), appealed a judgment confirming an arbitration award that included payment of attorneys’ fees and expenses to Beumer Corporation and Beumer Kansas City, LLC (collectively, “Beumer”). ProEnergy appealed, specifically questioning the arbitrator’s conclusion that the contract’s limitation on liability did not extend to attorney’s fees, and that an award of damages plus attorneys’ fees could exceed the cap.

The Eight Circuit affirmed the district court’s confirmation, concluding that the arbitrator acted within the scope of his authority and did not, as ProEnergy argued, “specifically and expressly disregard[] an unequivocal choice-of-law provision.” Instead, the court found that the arbitrator cited applicable Missouri law throughout his order, and moreover, reasoned that even “[i]f the arbitrator mistakenly overlooked Missouri decisions that favored a contrary result, then he might have made an error of law in applying the contract, but such an error of law does not justify vacating the award.” As such, the Eighth Circuit affirmed. Beumer Corp. v. ProEnergy Servs., LLC, Case No. 17-2862 (8th Cir. Aug. 8, 2018).

This post written by Gail Jankowski.

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New Mexico Adopts NAIC Credit for Reinsurance Model Regulation

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Effective July 24, 2018, New Mexico adopted the NAIC Credit for Reinsurance Model Regulation. New Mexico adopted the Model Rule as “part of a broad effort to modernize reinsurance regulation and to conform with the Nonadmitted and Reinsurance Reform Act component of Dodd-Frank.” The new rule is codified in the New Mexico Administrative Code at 13.2.8 NMAC – Insurance Company Licensing and Operation – Credit for Reinsurance. The Notice of Proposed Rulemaking and the now-adopted rule is linked here.

This post written by Benjamin E. Stearns.

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Delaware Bankruptcy Court Confirms Restructuring Plan Involving Scottish Re

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A Chapter 11 restructuring plan involving various affiliates of Scottish Re, each of which separately declared bankruptcy in different jurisdictions, was recently approved by a bankruptcy court in Delaware. The finalization of the plan depended on coordination among: (1) Scottish Holdings Inc. (“SHI”), (2) Scottish Re: Group, LTD., SHI’s parent company, (3) Scottish Annuity & Life Insurance Co. Ltd. (“SALIC”), an indirect debtor subsidiary, and (4) Scottish Financial Luxembourg (“SFL”), a financing entity. Prior to the approval of the plan, the receiver for SFL, which asserted an unsecured, nonpriority claim against SALIC in the amount of $63,536,041.32 for a debenture assigned from Scottish Re, stipulated with SHI that any potential claims against certain current or former members of the board of managers for SFL would be preserved. The stipulation and the restructuring plan was then approved. In re Scottish Holdings Inc. et al., Case No. 18- 10160 (U.S. Bankr. Ct. Del. Aug. 22, 2018).

This post written by Gail Jankowski.

See our disclaimer.

Eleventh Circuit Reverses Sanction Imposed Against Party That Defaulted in Arbitration to Determine Whether Party Acted in Bad Faith

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The Eleventh Circuit reversed a lower court’s entry of a default judgment against Acosta Tractors, Inc., that was based solely on Acosta’s default in the underlying arbitration. Julio Hernandez had filed a claim for unpaid wages against Acosta under the Fair Labor Standards Act, and Acosta compelled arbitration. However, the arbitration did not “proceed as planned,” as the arbitrator refused to consolidate Mr. Hernandez’s case with two similar actions and allowed “extensive discovery,” including 29 depositions, across the three separate arbitrations. Arbitration fees quickly added up to over $100,000, far exceeding the amount of the plaintiffs’ claims. Acosta refused to pay the arbitration fees and sought to return to the trial court. Instead, the trial court entered a default judgment against Acosta, based on its admission that it had refused to pay the costs of the arbitration and the lack of evidence establishing its inability to do so.

On appeal, the Eleventh Circuit vacated the trial court’s ruling. The Eleventh Circuit noted that it was within the lower court’s inherent power to enter a default judgment against Acosta, but held that it was error to do so “solely because a party defaulted in the underlying arbitration.” In order to impose a sanction against a party pursuant to its inherent power, the court “must make a finding that the sanctioned party acted with subjective bad faith.” The case was remanded to the District Court to determine whether the requisite bad faith existed. Hernandez v. Acosta Tractors, Inc., Case Nos. 17-13057; 17-13673 (11th Cir. August 8, 2018).

This post written by Benjamin E. Stearns.

See our disclaimer.

Eighth Circuit Finds All Claims Involving Consumer Credit Dispute Subject to Arbitration

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A federal court in Minnesota determined that three of Plaintiffs’ claims were not subject to the applicable arbitration clause: (1) state-law usury claims; (2) state and federal financial disclosure claims; and (3) state-law unjust enrichment counts. The Eighth Circuit reversed, directing the District Court to compel arbitration of all claims.

The Circuit Court first looked at whether the arbitration clause was broad or narrow, given that arbitration clauses which cover claims “arising out of” or “relating to” an agreement are treated broadly, so the clause at issue here, which contained both terms, was broad.

The Circuit Court then looked at whether “the underlying factual allegations simply touch matters covered by the arbitration provision.” Looking at the three claims, the Court found that “each claim implicates the credit offered or provided to the consumers because the facts underlying every claim overwhelmingly detail the financing relationship between the consumers and Bluestem.”

Lastly, the Circuit Court noted that the district court had “flipped the inquiry. The question is not whether there was a way to interpret the claims as falling outside the scope of the agreements; instead, where a valid arbitration agreement exists, the claims are arbitrable unless it may be said with positive assurance that the arbitration clause is not susceptible of any interpretation that covers the asserted dispute.”

Parm v. Bluestem Brands, Inc., No. 17-1931, 17-1932 (8th Cir. Aug. 7, 2018)

This post written by Nora A. Valenza-Frost.

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