Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

National Flood Insurance Program Extended to November 30, 2018

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On July 31, 2018, President Trump signed the National Flood Insurance Program Extension Act of 2018. The act extends the duration of the National Flood Insurance Act to November 30, 2018, updating both the “Financing” (42 U.S.C. § 4016(a)) and “Program Expiration” (42 U.S.C. § 4026) provisions of the Act. The program was set to expire on the day the law was passed. Calls for reform of the program remain outstanding. S. 1182, 115th Cong. (2018).

This post written by Benjamin E. Stearns.

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Court Construes Reinsurance Participation Agreement, Rejects Venue Objection, and Confirms Arbitration Award

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O’Connell Landscape Maintenance, Inc. (O’Connell) and Applied Underwriters Captive Risk Assurance Co. (AUCRA) entered into a reinsurance participation agreement (RPA). After a dispute arose related to the agreement, the parties entered arbitration in California, which resulted in an award to AUCRA of $38,960 in attorney fees and $43,170.44 in costs. AUCRA petitioned a California federal district court to confirm the award, but O’Connell opposed the petition, arguing that the RPA selected Nebraska as the exclusive jurisdiction for enforcing the award. The court disagreed, finding that the RPA obligated only O’Connell to submit to the jurisdiction of Nebraska. The RPA did not designate Nebraska as the exclusive jurisdiction for AUCRA to seek enforcement of the award. The court rejected an additional argument by O’Connell regarding the service of the petition, and confirmed the award. O’Connell noticed its appeal on July 6, 2018. Applied Underwriters Captive Risk Assurance Co., Inc. v. O’Connell Landscape Maintenance, Inc., Case No. 18-cv-00683 (USDC C.D. Cal. June 25, 2018) (order) & (USDC C.D. Cal. July 6, 2018) (notice of appeal).

This post written by Gail Jankowski.

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Minority Shareholders Utilize 28 USC § 1782 to Issue Subpoenas in Aid of Criminal Action They Plan to File Against Company Director in Luxembourg

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A group of minority shareholders of Acheron Portfolio Corporation Luxembourg S.A. have convinced a federal district court in New York to permit them to subpoena several large banks for documents in aid of the shareholders’ plan to file a criminal action in Luxembourg against the director of Acheron, Jean-Michel Paul. The shareholders allege that Paul improperly failed to disclose his ownership interest in Litai, a company that Acheron hired to administer life insurance policies in which Acheron had invested. The petitioners assert Paul’s ownership interest in Litai created a conflict of interest with his position at Acheron.

The petitioners applied to the court under 28 U.S.C. § 1782 for permission to issue the subpoenas. Section 1782 serves two purposes: “providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts.” There are three statutory prerequisites to obtaining relief under section 1782. “First, the person from whom discovery is sought must reside or be found in the district of the district court where the application is made; second, the discovery must be for use in a proceeding before a foreign tribunal; and third, the application must be made by the foreign tribunal or “any interested person.”

Once the statutory requirements are met, the district court has “wide discretion” whether to issue the discovery orders. Generally, the court should consider four discretionary factors: (1) whether the documents are within the foreign tribunal’s jurisdictional reach, (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or court abroad to U.S. federal court assistance, (3) whether the section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States, and (4) whether the subpoena contains “unduly intrusive or burdensome requests.”

Here, the shareholders overcame the fact that no action was pending by submitting a sworn statement that they “intend to file a criminal complaint against Paul in the Luxembourg Criminal Court and have articulated a specific legal theory on which they intend to rely.” Paul and Litai argued that it was “clear” that the shareholders had no “basis for bringing a criminal complaint in a Luxembourg court and therefore this application is simply a fishing expedition.” The court, however, determined that it was not tasked with considering the merits of the foreign proceeding when presented with an application under section 1782. Although it acknowledged that Paul and Litai “may be right” that the shareholders would ultimately fail, it nevertheless granted their request to issue the subpoenas to the banks. In re Application of Furstenberg Finance SAS, No. 18-mc-44 (USDC S.D.N.Y. July 12, 2018) (Memorandum Opinion & Order) & (Final Order)

This post written by Benjamin E. Stearns.

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Court Enforces Forum Selection And Choice Of Law Clauses In Worker’s Compensation Reinsurance Participation Agreement

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Plaintiff AGL Industries, Inc. (AGL), a steel fabrication and erection business, enrolled in a workers’ compensation insurance policy with Defendant Continental Indemnity Company and a reinsurance participation agreement (RPA) with Defendant Applied Underwriters Captive Risk Assurance Company, Inc. After Continental canceled the workers’ compensation insurance policy, AGL sued in New York for breach of contract and related claims and obtained emergency injunctive relief. Defendants then removed the case to federal court, which then granted a motion by Defendants to transfer venue to Nebraska based on the RPA’s forum selection and choice of law clauses. The federal court rejected AGL’s argument that the RPA was void ab initio because it was “an illegal workers’ compensation policy” in violation of New York insurance law. The court found that AGL did not assert that the forum selection clause was the result of fraud or misrepresentation, and therefore, at worst, the clause was severable from the RPA. Moreover, the Court found unpersuasive AGL’s sole argument against enforcing the forum selection clause that transferring the action to Nebraska would violate New York’s public policy in favor of “granting insureds access to the courts of the State of New York for all disputes regarding policies written in and for residents of the State [of New York].” AGL Industries Inc. v. Continental Indemnity Co., Case No. 17-4179 (USDC E.D.N.Y. July 18, 2018).

This post written by Gail Jankowski.

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New York Federal Court Confirms Arbitration Award

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The background and full procedural history of this case can be found here. In sum, the dispute stems from a 2011 agreement by KT Corporation and KTSAT Corporation (“KT”), a Korean satellite communications provider, to sell the KOREASAT-3 satellite for $500,000 to Asia Broadcast Satellite Global Ltd. and Asia Broadcast Satellite Holdings, Ltd. (“ABS”), a Bermuda satellite communications provider based in Hong Kong. It was also agreed that KT would operate the satellite for ABS for an $800,000 fee and additional technical engineering fees. The parties entered into a Purchase Agreement and Operating Agreement, both of which had arbitration clauses. In 2013, however, the Korean government declared the sale “null and void” because KT had failed to obtain a permit necessary to comply with the Foreign Trade Act. The parties then submitted issues relating to the Purchase Agreement and Operating Agreement to an International Chamber of Commerce (“ICC”) arbitration panel. The ICC panel first issued a partial award, which held that ABS has the title to the satellite and that no Korean mandatory law was violated when title passed. KT then moved to vacate the partial award in New York federal court and sought remand of the case to the ICC. ABS cross-moved to confirm the partial award. In April 2018, the New York federal court confirmed the partial award, finding that the ICC panel had not exceeded its authority and had not manifestly disregarded the law. In the meantime, in March 2018, the ICC panel issued its final award, which held that ABS had properly terminated the Purchase and Operating Agreements in response to KT’s breaches and was owed approximately $1 million in damages. ABS then moved to confirm the final award in New York federal court, and KT cross-moved to vacate the final award.

KT’s petition to vacate was based on two grounds: 1) the ICC panel acted in manifest disregard of New York law by failing to award KT the purchase price or other compensation after awarding ABS the title to the satellite; and 2) the ICC panel exceeded its authority by resting its holding on the invalidity of the Korean government’s order. The New York federal court denied KT’s motion to vacate, finding that the ICC panel did not exceed its authority because it found that KT had breached the Purchase and Operating Agreements. Thus, regardless of whether the ICC panel was correct or not in interpreting the Korean government’s order, the court held that the ICC panel had sufficient basis to find that KT had breached the Agreements, which was “squarely in its authority.” The court also held that the ICC panel did not act in manifest disregard of the law.

The New York federal court also granted ABS’ motion to confirm the final award. In so doing, the court noted that KT’s claim that the final award violated public policy is the same argument it made previously, which was rejected by the court in its previous opinion confirming the partial award. For the same reasons, the court again rejected the argument.

KT Corporation, et al. v. ABS Holdings, Ltd., et al., Case No. 17-Civ-7859 (USDC S.D.N.Y. July 12, 2018).

This post written by Jeanne Kohler.
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