Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

In Deepwater Horizon Arbitration, UK Appellate Court Declines to Remove Arbitrator with Multiple Related Appointments

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The underlying case concerned the 2010 explosion and fire on the Deepwater Horizon oil rig in the Gulf of Mexico, when a well which was in the process of being plugged and temporarily abandoned, experienced a blow out. The appellant, Halliburton, provided cementing and well-monitoring services to BP in relation to the temporary abandonment of the well. Halliburton made a claim on its liability insurance against Chubb; however, Chubb refused to pay Halliburton’s claim, contending, among other things, that Halliburton’s settlement of the claims was not reasonable and that Chubb had not consented to the settlement.

At the coverage dispute arbitration between Halliburton and Chubb, two arbitrators were appointed on behalf of Halliburton and Chubb respectively. The third arbitrator, however, was Chubb’s preferred candidate. While the third arbitrator disclosed to Halliburton that he had acted, and was currently acting, as an arbitrator in multiple arbitrations involving Chubb, he did not disclose that he was serving as an arbitrator appointed by Chubb in two other disputes involving Transocean, the owner of the rig in this case. As such, in both instances, the third arbitrator heard similar or identical arguments by Chubb. Upon learning of this information, Halliburton issued a claim form seeking that the third arbitrator be removed. But the claim form was subsequently dismissed, and Chubb went on to win the arbitration against Halliburton.

Among several issues on appeal was “[w]hether and to what extent an arbitrator may accept appointments in multiple references concerning the same or overlapping subject matter with only one common party without thereby giving rise to an appearance of bias.” On this question, the Court reasoned that “the mere fact that an arbitrator accepts appointments in multiple references concerning the same or overlapping subject matter with only one common party does not of itself give rise to an appearance of bias.” With regard to the requirement, if any, of disclosure, the Court reiterated the English law principle that the required disclosure was “facts or circumstances which would or might lead the fair-minded and informed observer, having considered the facts, to conclude that there was a real possibility that the arbitrator was biased.”

Applying these principles, the court was persuaded that “(1) the non-disclosed circumstance does not in itself justify an inference of apparent bias; (2) disclosure ought to have been made, but the omission was accidental rather than deliberate; (3) the very limited degree of overlap means that this is not a case where overlapping issues should give rise to any significant concerns; (4) the fair-minded and informed observer would not consider that mere oversight in such circumstances would give rise to justifiable doubts as to impartiality; and (5) there is no substance in Halliburton’s criticisms of [the third arbitrator’s] conduct after the non-disclosure was challenged or in the other heads of complaint raised by them.” The court then affirmed the judgment, denied Halliburton’s challenge, and declined to find a real possibility that the third arbitrator was biased. Halliburton Co. v. Chubb Bermuda Ins. Co., Case No. [2018] EWCA Civ 817 (Royal Courts of Justice, Apr. 19, 2018).

This post written by Gail Jankowski.

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New Federal Law Aims To Increase Transparency Of International Insurance Standard-Setting Bodies

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President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act into law on May 24, 2018. Section 211 of the law requires the Secretary of the Treasury, Board of Governors of the Federal Reserve System, and Director of the Federal Insurance Office (“federal regulators”) to support “increasing transparency at any global insurance or international standard-setting regulatory or supervisory forum in which they participate.” The law requires the federal regulators to achieve consensus positions with State insurance regulators through the NAIC when the federal regulators “take a position or reasonably intend to take a position with respect to an insurance proposal by a global insurance regulatory or supervisory forum.”

The law creates the Insurance Policy Advisory Committee on International Capital Standards and Other Insurance Issues at the Board of Governors of the Federal Reserve System. The Committee must comprise of not more than 21 members representing a “diverse set of expert perspectives from the various sectors of the United States insurance industry.”

The law requires the Secretary of the Treasury and the Chairman of the Board of Governors of the Federal Reserve System to submit an annual report and provide annual testimony on their efforts with the NAIC with respect to global insurance regulatory or supervisory forums. The reports must address (i) issues under discussion at international standard-setting bodies, including the Financial Stability Board (FSB) and the International Association of Insurance Supervisors (IAIS); (ii) the effects that proposals discussed at the international bodies could have on consumer and insurance markets in the United States; (iii) any position taken by the federal regulators in international insurance discussions; and (iv) efforts by the federal regulators to increase transparency at the FSB and the IAIS. The law also permits the NAIC to provide congressional testimony.

The law requires the federal regulators, in consultation with the NAIC, to complete a study and report to Congress on the impact of any final international insurance capital standard on consumers and markets in the United States before supporting or consenting to the adoption of the standard. The law provides for public notice and an opportunity for public comment with respect to the report. The federal regulators are required to submit to the Comptroller General of the United States the report for his or her review.

Finally, not later than 180 days after the date of enactment of this law (November 20, 2018), the Chairman of the Board of Governors of the Federal Reserve System and the Secretary of the Treasury, or their designees, shall submit to Congress a report and provide testimony to Congress on the efforts of the Chairman and the Secretary to increase transparency at meetings of the IAIS. S. 2155, 115th Cong. § 211 (2018).

This post written by Benjamin E. Stearns.

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Texas Department Of Insurance Seeks Comments on Reorganized Surplus Lines Insurance Chapter

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The Texas Department of Insurance has proposed to reorganize its Surplus Lines Insurance Chapter 15 in the Texas Administrative Code. The proposed new Chapter 15 can be found here. Comments on the proposal are due to the Texas Department of Insurance by July 23, 2018 and the Texas Commissioner will also consider written or oral comments on the proposal in a public hearing on July 19, 2018 in Room 100 of the William P. Hobby Jr. State Office Building.

This post written by Jeanne Kohler.

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Fourth Circuit Upholds Arbitration Award Involving Termination of Employee

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Affirming the trial court’s ruling, the Fourth Circuit upheld the denial of a motion to vacate or modify an arbitration award involving the termination of an employee.

The first challenge to the award was that “the arbitrator impermissibly ruled on whether 3D systems breached the Agreement’s manager terms – a matter not submitted to arbitration – and awarded damages based upon the breach.” The Court declined to vacate the award on this ground because “even if the arbitrator erred in determining that 3D Systems breached the manager term, the damages award is sufficiently supported by the arbitrator’s finding of three other breaches.”

The second challenge to the award was that “the arbitrator awarded [the employee] all of the potential earn-out and the amended award violated AAA Commercial Rule 50 and the common law doctrine of functus officio.” The Court declined to vacate the award on this ground, as the “district court did not err in refusing to modify the damages pursuant to 9 U.S.C. § 11(a) because 3D Systems failed to allege a mathematical error that appears on the face of the award.” Moreover, the amended award did not violate functus officio or AAA Commercial Arbitration Rule 50 because it contained only minor changes for clarification purposes.

The third challenge to the award was that “the arbitrator failed to follow the parties’ agreed-upon methodology or the Agreement’s fee-sharing provision in calculating attorney’s fees and costs” The Court again declined to vacate the award on this ground, as “3D Systems again fails to show [it is] entitled to modification of the award under 9 U.S.C. § 11(a)” and, moreover “the arbitrator’s methodology followed the exact language of the unambiguous fee-sharing provision … the arbitrator was not bound the parties’ agreed-upon methodology.”

Barranco, et al. v. 3D Systems Corp., et al., No. 17-1744 (4th Cir. May 31, 2018)

This post written by Nora A. Valenza-Frost.

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Fifth Circuit Reversed Judgment Compelling Arbitration Because Unsigned Arbitration Agreement Was Invalid

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This matter involved a lawsuit brought in Texas federal court by a former employee (Huckaba) against Ref-Chem L.P., alleging sexual harassment, discrimination and retaliation in violation of Title VII. Ref-Chem moved to dismiss the lawsuit and compel arbitration, which was granted by the Texas district court, finding that Huckaba’s “continued employment” after she signed an arbitration agreement “constituted acceptance of that agreement” by both parties, even though Ref-Chem never executed the agreement. Huckaba appealed to the Fifth Circuit.

The Fifth Circuit reversed the Texas district court’s judgment, holding that the express language of the arbitration agreement at issue required for it to be signed by both parties and it was undisputed that Ref-Chem did not sign the agreement. Therefore, there was no valid agreement to arbitrate in this case, and thus, the court remanded to the district court for further proceedings.

Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir. June 11, 2018).

This post written by Jeanne Kohler.

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