Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT INTERPRETS CONTRACT CONTAINING MANDATORY DE NOVO REVIEW PROVISION OF ARBITRATION AWARD

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The Tenth Circuit Court of Appeals determined that an ADR provision of an agreement which called for arbitration, but also indicated that either party may “notwithstanding any provision of law bring an action against the other in a federal district court for the de novo review of any arbitration award” was legally invalid, rendering the arbitration clause unenforceable.

Relying on the Supreme Court’s decision in Hall Street Associates, LLC v. Mattel, Inc., which “makes clear de novo review is entirely incompatible with the expedited process envisioned in the FAA,” the Tenth Circuit was “unwilling to treat the mere provision of a federal forum in [the Indian Gaming Regulatory Act] as some implicit rejection of the applicability of the FAA review standards to arbitrations involving gaming compacts.”

The Court recognized that the ADR provision “makes clear that the parties’ agreement to engage in binding arbitration was specifically conditioned on, and inextricably linked to, the availability of de novo review in federal court” and would not sever the de novo language from the parties’ agreement.

Citizen Potawatomi Nation v. State of Oklahoma, No. 16-6224 (10th Cir. Feb. 6, 2018)

This post written by Nora A. Valenza-Frost.

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SECOND CIRCUIT REJECTS MANIFEST DISREGARD OF LAW AS A BASIS FOR VACATING AN ARBITRATION AWARD

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A panel of the Second Circuit has, in an unpublished summary order, emphasized the high bar that must be cleared by a party seeking to vacate an arbitration award.  The matter arose from the decision of a financial advisor not to follow instructions from a client to transfer all assets from a trust for the benefit of their children to one for the benefit of the client’s wife. After the client passed away, Ms. Pfeffer (the deceased client’s wife) sued the advisor before a FINRA arbitration panel, alleging that this failure to follow instructions constituted a breach of fiduciary duty.  The advisor responded that the client’s instructions were not followed due to concerns that he was not competent, a concern supported by the opinion of two physicians.

The panel denied Ms. Pfeffer’s claim, and she moved to vacate the award in federal district court, alleging that this decision “was procured by undue means, evident partiality, and misconduct because the Panel was intimidated by defense counsel and refused to consider relevant evidence.” The district court confirmed the award, and Ms. Pfeffer appealed.  The Second Circuit emphasized that it “does not recognize manifest disregard of the evidence as a proper ground for vacating an arbitration panelʹs award, and will only find a manifest disregard for the law where there is no colorable justification for a panelʹs conclusion.”  Finding no evidence in the transcript of the arbitration proceeding “that the award was produced by undue means, evident partiality, or misconduct,” or that “the Panel failed to abate defense counsel’s abrasive manner . . . [or] was intimidated by him,” the court found no support for the conclusion that the panel had manifestly disregarded the law and affirmed the lower court’s decision confirming the award.

Pfeffer v. Well Fargo Advisors, LLC, et al., No. 17-1819-cv (2d. Cir. Feb. 15, 2018).

This post written by Jason Brost.
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NEBRASKA FEDERAL COURT APPLIES FIRST-TO-FILE RULE TO REINSURANCE BREACH OF CONTRACT DISPUTES, TRANSFERS CASE TO CONNECTICUT

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The District of Nebraska recently ruled in favor of Charter Oak Oil Co. (“Charter Oak”)’s attempt to dismiss a breach of contract case by Applied Underwriters Captive Risk Assurance Co. (“AUCRA”) based on the first-to-file rule. AUCRA administered the investment component of a reinsurance participation plan with Charter Oak. Charter Oak moved to dismiss for improper venue based on concurrent litigation by Charter Oak against AUCRA in Connecticut federal court. AUCRA opposed the motion to dismiss, arguing that “compelling circumstances” and “red flags” existed sufficient to warrant an abrogation of the first-to-file rule. Specifically, AUCRA alleged it warned Charter Oak via a demand letter of its intent to file this lawsuit in Nebraska and Charter Oak raced to the Connecticut courthouse first. AUCRA further alleged that it was attempting to settle the dispute out of court by notifying Charter Oak of its intent to file suit.

The court, however, brushed off those arguments and held that “even assuming them to be true” the first-to-file rule still applied. It noted there was no evidence that Charter Oak knew the Nebraska lawsuit was imminent, that Charter Oak misled AUCRA to gain the advantages of filing first, or that Charter Oak made any prior assurances it would not file a complaint but then did anyway. Additionally, the court rejected AUCRA’s argument that jurisdiction did not attach in Connecticut because that court was still considering AUCRA’s motion to enforce a Nebraska forum-selection clause at the time this lawsuit was filed because the Connecticut court had since denied that motion. Finally, the court noted that while the Connecticut litigation included different allegations, the two complaints “substantially overlap” which strengthened the case for applying the first-to-file rule.

Procedurally, the court denied the dismissal of AUCRA’s breach of contract claim and asked AUCRA to decide whether it wished to dismiss the complaint without prejudice or transfer it to Connecticut. On January 16, 2018, the Court granted AUCRA’s request and transferred the case to Connecticut.

Applied Underwriters Captive Risk Assurance Co. v. Charter Oak Oil Co., Case No. 17-164 (D. Neb. Jan. 4, 2018).

This post written by Thaddeus Ewald .
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FEDERAL COURT DENIES REINSURER’S POST-TRIAL MOTIONS IN LONG-RUNNING DISPUTE WHICH RESULTED IN A VERDICT IN ITS CEDENT’S FAVOR

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A federal district court has denied both a motion for judgment as a matter of law or for a new trial and a motion to correct the interest calculation filed by Fireman’s Fund Insurance Company after a jury award of $35 million in damages and $29 million in prejudgment interest against Fireman’s Fund based on its reinsurance obligations to Utica Mutual Insurance Company.

Fireman’s Fund motion argued that there was insufficient evidence that it had breached the relevant reinsurance contracts with Utica because: (1) the facultative certificates at issue did not cover the underlying loss; (2) the follow the settlements doctrine did not apply; and (3) Utica’s late notice either economically prejudiced Fireman’s Fund or was the result of gross negligence or recklessness by Utica.  The court began by finding that the follow the settlements doctrine applied to the facts of the dispute unless Fireman’s Fund could show that Utica’s settlement decisions, by which it allocated portions of a settlement to certain reinsured policies, were objectively unreasonable.  The court found that, based on the evidence presented at trial, a reasonable jury could have concluded that Utica’ settlement decisions were objectively reasonable, and therefore that the follow the settlements doctrine obligated Fireman’s Fund to indemnify Utica for the amounts sought under the certificates.

Regarding Fireman’s Fund’s late notice defense, the court found that a reasonable jury could have concluded that Fireman’s Fund failed to prove that it suffered tangible economic injury from any late notice on Utica’s part with respect to the claims for which it sought reinsurance coverage. The court also found that evidence Utica presented of its routine procedures related to its search for applicable reinsurance and reporting claims to reinsurers was sufficient for the jury to conclude that Utica’s late notice to Fireman’s fund in this instance was not the result of gross negligence or recklessness.  Because the court found the jury’s decisions on these issues to be reasonable and not against the weight of the evidence, the court refused to grant Fireman’s Fund’s motion for either judgment as a matter of law or a new trial.

As regards Fireman’s Fund’s motion to correct the interest calculation, it argued that this interest was based on the faulty assumption that the entire $35 million that the jury found Fireman’s Fund owed Utica came due on September 22, 2008, when Utica first provided Fireman’s Fund with a claims narrative and billings. The court found the motion to be procedurally improper, as the revision requested “would be substantive rather than clerical,” as it required findings regarding each of the multiple days on which Fireman’s Fund’s argued its obligation to pay Utica accrued, findings that would contradict the jury’s finding that Utica provided Fireman’s Fund’s with sufficient proof of loss as of September 22, 2008.  The court found that such a reconsideration of the jury’s factual findings was beyond its authority under Rule 60, and it denied the motion.

Utica Mutual Insurance Company v. Fireman’s Fund Insurance Company, Case No. 6:09-CV-853 (N.D.N.Y. Feb. 28, 2018).

This post written by Jason Brost.
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