Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

New York Federal Court Awards Damages for Reinsurance Payments in Lawsuit Against Iran Related to September 11 Attacks

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The Southern District of New York recently granted a motion for damages by insurance plaintiffs in a multidistrict litigation case against Iran stemming from the September 11, 2001 terrorist attacks. The court previously entered a default judgment against Iran and tasked a magistrate judge with calculating damages. The present opinion stemmed from plaintiff’s objections to the magistrate’s recommendations that plaintiffs could not recover reinsurance payments made related to the attacks and that prejudgment interest began to accrue on the individual dates of payment of each claim for which plaintiffs sought damages.

First, the court agreed with plaintiffs and awarded damages for the reinsurance payments at issue. Plaintiffs objected to the magistrate’s recommendation because another case in the MDL had previously awarded damages for reinsurance payments (constituting law of the case) and that, contrary to the magistrate’s logic, their subrogation rights did not depend on contractual privity. The Southern District side-stepped the issue of whether the “law of the case” doctrine applied by concluding equitable subrogation, a doctrine sounding in equity rather than contract, does not require contractual privity under New York law. While not officially deciding the law of the case issue, the court in dicta noted the existence of a D.C. federal case allowing recovery for reinsurance payments on an unrelated terrorist attack and that the magistrate provided no basis for distinguishing the present case from the previously decided MDL case.

Second, the court determined that the date of the September 11 terrorist attacks was the appropriate benchmark for when prejudgment interest should start accruing. New York law provides that damages for losses arising in the state incurred at various times may trigger interest either at the date of each loss individually or upon a “single reasonable intermediate date.” Instead of triggering interest accrual for each loss based on the date each claim was paid, the court affixed all prejudgment interest to begin accruing on September 11, 2001 to promote consistency in the MDL cases and avoid complex calculations. As to losses arising outside of New York, the court likewise exercised its broad discretion to select September 11, 2001—the date of the underlying terrorist attack and the date selected for New York losses—to be the date from which prejudgment interest is to be calculated for non-New York losses.

In re Terrorist Attacks on Sept. 11, 2001, Case No. 03-MDL-1570 (USDC S.D.N.Y. June 25, 2018).

This post written by Thaddeus Ewald .

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Rhode Island Amends Laws to Permit Voluntary Restructuring of Insurers Using Protected Cells with Commissioner Approval

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Rhode Island has amended its laws related to voluntary restructuring of insurers and protected cell companies to allow for domestic insurance companies to enter into a voluntary restructuring, including the use of a protected cell, with the approval of the commissioner. The law now defines voluntary restructuring as “the act of reorganizing the legal ownership, operational, governance, or other structures of a solvent insurer, for the purpose of enhancing organization and maximizing efficiencies, and shall include the transfer of assets and liabilities to or from an insurer, or the protected cell of an insurer pursuant to an insurance business transfer plan. A voluntary restructuring under this chapter may be approved by the commissioner only if, in the commissioner’s opinion, it would have no material adverse impact on the insurer’s policyholders, reinsureds, or claimants of policies subject to the restructuring.” R.I. H8163A (eff. July 2, 2018).

This post written by Michael Wolgin.

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Eleventh Circuit Reverses NLRB Order, Enforcing Individualized Arbitration Clause in Employee Agreement

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A pizza delivery driver employed by Domino’s Pizza franchisee Cowabunga Inc. filed a collective action under the Fair Labor Standards Act with the National Labor Relations Board. Cowabunga moved to dismiss, or in the alternative, to stay and compel arbitration based on the employment agreement’s individualized arbitration clause. The day before he dismissed his FLSA lawsuit, the employee filed an unfair labor charge with the NLRB, alleging that Cowabunga violated the National Labor Relations Act by (1) prohibiting Cowabunga employees from filing collective action lawsuits and instead forcing the employees to individually arbitrate such claims, and (2) causing Cowabunga employees to reasonably believe that they were prohibited from filing unfair labor charges with the NLRB. The NLRB granted summary judgment to the employee on both claims.

Cowabunga petitioned the Eleventh Circuit for review of the NLRB panel’s order. With regard to the employee’s first claim, the Eleventh Circuit relied on the U.S. Supreme Court’s recent decision in Epic Systems Corp. v. Lewis which held that individualized arbitration agreements do not violate the NLRA and that those agreements should be enforced as written pursuant to the FAA. With regard to the second claim, the court explained that after the NLRB panel issued its order, it refashioned its test for determining whether an employer’s allegedly facially neutral policy, such as the arbitration provision here, would reasonably lead an employee to believe that he could not file an unfair labor charge with the NLRB. The Court therefore granted Cowabunga’s petition for review and reversed the NLRB panel’s order as to the employee’s first claim and vacated and remanded the order as to the second claim. Cowabunga, Inc. v. Nat’l Labor Relations Bd., Case No. 16-10932 (11th Cir. June 26, 2018).

This post written by Gail Jankowski.

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Court Orders Compliance with Arbitral Subpoenas, Deferring to the Panel’s Assessment of the Value of the Requested Testimony

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In a case that had been filed and then stayed in a New York federal district court in connection with an ongoing arbitration involving alleged violations of federal securities laws, the plaintiffs filed a motion to enforce two subpoenas issued by the arbitrators. The arbitral subpoenas were issued to two non-party witnesses who were refusing to appear to testify at the arbitration hearings. The defendants and the non-parties did not challenge the subpoenas as being invalid, improperly issued by the arbitrators, or improperly served. Instead, they argued that the court should apply its discretion and determine that the requested testimony would be improper rebuttal, duplicative, and overly burdensome. The court rejected defendants’ and the non-parties’ arguments and found that if the arbitration panel, which had sat through more than thirty days of hearings over two years, believed that the non-parties’ testimony was appropriate, the court could find no basis to quash either subpoena. Notwithstanding that the court had the authority to assess the value of the requested testimony, it was not obligated to make that assessment and was not sufficiently informed to do that here. The court found that the arbitrators were best-suited to do so, and ordered compliance with the subpoenas. Shasha v. Malkin, Case No. 1:14-cv-09989 (USDC S.D.N.Y. July 5, 2018).

This post written by Michael Wolgin.

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Two Federal Appellate Courts Decline to Find “Evident Partiality” Due to Trivial Omissions in Arbitrator’s Disclosures

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In two separate appellate decisions, two circuit courts of appeal declined to overturn orders enforcing arbitration awards where the appellants had challenged the respective awards based on “evident partiality” under the FAA. In Republic of Argentina v. AWG Group Ltd., Argentina contended that there was evident partiality by one of the arbitrators who did not disclose that she at one time (more than a year before the arbitration panel found Argentina liable) sat on the board of directors for a company with investments in two of the parties. Argentina appealed, but the appellate court affirmed, reasoning that the company on whose board the arbitrator sat had only trivial interest in the parties, and therefore, the arbitrator’s interests in the parties were insignificant.

Similarly, in Ploetz v. Morgan Stanley Smith Barney LLC, an arbitrator had submitted a disclosure report stating that he was currently serving as an arbitrator in two other cases that had Morgan Stanley as a party and that he had served as an arbitrator in eight closed cases in which an affiliate of Morgan Stanley had been a party. However, the arbitrator failed to disclose that he had once served as a mediator in another case, which was unsuccessful, in which an arbitration panel (on which he did not sit), ultimately found that Morgan Stanley owed the claimant $75,000 in damages. Despite this omission, the appellate court affirmed the order denying vacatur of the award. The appellate court reasoned that because the arbitrator timely disclosed the ten other cases he arbitrated where a member of the Morgan Stanley family was a party, his undisclosed mediation of the omitted case represented at most a trivial and inconsequential addition to that relationship. Republic of Argentina v. AWG Group Ltd., Case No. 1:15-cv-01057 (D.C. Cir. July 3, 2018); Ploetz v. Morgan Stanley Smith Barney LLC, Case No. 17-2405 (8th Cir. July 2, 2018).

This post written by Gail Jankowski.

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