Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

LONG-TIME REINSURANCE ATTORNEY RULED NOT QUALIFIED TO ARBITRATE 9/11 WORLD TRADE CENTER REINSURANCE DISPUTE

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An attorney with “considerably more than ten years’ experience of insurance and reinsurance law” has been deemed unqualified to arbitrate a reinsurance dispute stemming from the September 11, 2001 terrorist attack on the World Trade Center. The arbitration agreement called for an arbitration tribunal consisting of “persons with not less than ten years’ experience of insurance or reinsurance.” The High Court of Justice, Business and Property Courts of England and Wales, determined that this language required appointment of an individual with more than ten years’ experience in the business of insurance or reinsurance, rather than the law of insurance or reinsurance.

The court’s determination was largely dictated by a 2000 decision in which the judge held that the parties to an arbitration agreement utilizing the same language intended a “trade arbitration” meaning “the tribunal was to consist of persons from the trade or business of insurance or reinsurance.” Although the court acknowledged the strength of the argument that the “ordinary and natural meaning” of “experience of insurance or reinsurance included experience acquired not only from working within the insurance and reinsurance industry but also from working with or on behalf of that industry,” the court nevertheless held that the previous decision was not so “obviously wrong” that the precedential decision (Company X v. Company Y date July 17, 2000), should be departed from.

The court relied in part on the fact that the 2000 decision was “mentioned in Butler & Merkin’s Reinsurance Law … at paragraph C-0729.” This was accepted as evidence that the decision was “fairly well known in the legal/reinsurance claims community.” Therefore, in light of “the importance of precedent,” if the parties had intended a different meaning than that adopted in the “fairly well known” prior case, they would have used different language. As such, the court ruled that legal insurance or reinsurance experience was not sufficient under the clause and the attorney could not be appointed as an arbitrator. Tonicstar Ltd. v. Allianz Ins. PLC, [2017] EWHC (Comm) 2753.

This post written by Benjamin E. Stearns.

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SECOND CIRCUIT HOLDS SECTION 1782 DISCOVERY IS AVAILABLE FOR USE IN A FOREIGN OR INTERNATIONAL PROCEEDING EVEN WHERE APPLICANT MAKES NO CLAIM FOR MONETARY DAMAGES

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This case arose out of a dispute between Intervenors-Appellants Yves Bouvier and MEI Invest Ltd. (collectively, “Bouvier”) and Petitioners-Appellees Accent Delight International Ltd. and Xitrans Finance Ltd. (collectively, “Petitioners”) over the sales to Petitioners of thirty-eight works of art, including paintings by Picasso and van Gogh, for a total of approximately $2 billion. Petitioners ultimately initiated criminal and civil proceedings against Bouvier in Monaco, France and Singapore on the grounds of fraud. Petitioners filed a 28 U.S.C. § 1782 application in the District Court for the Southern District of New York claiming that Sotheby’s was involved in relevant acquisitions by Bouvier. Petitioners requested discovery of documents relevant to all thirty-eight artworks involved in the alleged fraud. The district court granted the discovery application with respect to the French proceedings and denied Bouvier’s request for a protective order limiting the discovery to be used in the Monaco proceeding.

On appeal, the first issue was whether discovery was “for use in a proceeding in a foreign or international tribunal” for the purposes Section 1782, where the applicant is a crime victim authorized to submit the discovery to the foreign tribunal, but where the applicant is not making a claim for damages. On this issue, the Court held in the affirmative. The Court rejected Bouvier’s argument that the statute’s “for use” clause was limited to cases where monetary relief was sought. Specifically, the Court reasoned that “Section 1782 explicitly permits district courts to grant discovery in aid of ‘criminal investigations conducted before formal accusation,’ which are among the cases least likely to feature claims by private litigants for money damages notwithstanding the considerable variation in procedural rules across countries (including those involved in this appeal).” As to the second issue on appeal, whether an applicant that lawfully has obtained discovery under Section 1782 as to one foreign proceeding may use that discovery in another foreign proceeding, the Court held that Section 1782 permits such use, absent an order to the contrary by the district court. In so finding, the Court “s[aw] no reason why the number or identity of the foreign proceedings in which a successful applicant may use discovery produced pursuant to the statute would fall outside that discretionary grant” and reasoned that “Section 1782 leaves to the district courts’ discretion both the decision to grant discovery and to ‘prescribe the practice and procedure’ for its production.”

In a related summary order, the Court addressed the remaining issues on appeal. It found that the district court did not abuse its discretion in dismissing Bouvier’s argument that the district court failed to properly consider the third Intel factor, whether the Section 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions. In addition, the Court declined to resolved a district court split as to whether Section 1782 permits discovery of documents located outside the United States. The Court affirmed the lower court’s decision in its entirety. Bouvier v. Adelson, Case No. 16-3655 (2d Cir. Aug. 28, 2017) (Opinion at Dkt. 131 & Summary Order at Dkt. 132).

This post written by Gail Jankowski.

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NATIONAL FLOOD INSURANCE PROGRAM IS RELIEVED OF $16 BILLION OF DEBT

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On October 26, 2017, President Donald Trump signed H.R. 2266, a disaster relief bill. Pursuant to section 308 of the bill, the Department of the Treasury will forgive $16 billion in debt owed by FEMA under the National Flood Insurance Program. The forgiven debt is designated as an emergency requirement under the Statutory Pay-As-You-Go Act of 2010 and the Balanced Budget and Emergency Deficit Control Act of 1985. See the full text H.R. 2266 here.

This post written by Jeanne Kohler.
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DISTRICT OF COLORADO AFFIRMS FINRA ARBITRATION AWARD

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A Colorado federal court affirmed a FINRA arbitration award, despite a cross-motion to vacate the award on the bases of alleged panel misconduct; exceeding its powers; manifest disregard of the law; and that the award did not contain a showing as to how the evidence justifies the award.

First, the Court rejected defendant’s argument that the Panel’s refusal to grant a second continuance did not amount to misconduct. Following the first continuance, defendant was given ample time – three months – to obtain new counsel and have them prepare for the hearing.

Second, the Court also rejected defendant’s argument that the panel exceeded its powers by hearing and ruling on claims that were beyond the Panel’s jurisdiction under FINRA rules. The Court reasoned that, “because it was for the Panel and not this Court to decide whether Plaintiff’s claims fell within Rule 12206(a)’s six-year time frame, the Court reject[ed] Defendant’s invitation to second-guess the Panel’s interpretation of FINRA Rule 12206(a).”

Third, the Court rejected defendant’s argument that the Panel acted in manifest disregard of the law by hearing, and ruling on, claims which were barred by state law under the relevant statutes of limitations. The Court reasoned that, even if the Panel had erroneously applied the applicable statutes of limitations, “incorrect application of a state’s statute of limitations does not rise to the level of manifest disregard of the law.”

Lastly, the Court rejected defendant’s argument that the award did not contain a showing as to how the evidence justifies the award, findings of fact or conclusions of law. Despite this argument being improperly raised in defendant’s reply, the arbitration provision specifically stated the arbitrators do not have to explain the reasons for their award, and the “Panel could have reasonably concluded that this provision allowed the Panel to dispense with written findings of fact and conclusions of law”.

Huitt v. Wilbanks Securities, Inc., 1:17-cv-00919 (USDC D. Col. Oct. 19, 2017)

This post written by Nora A. Valenza-Frost.

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COURT RULES AGAIN ON MOTION TO DISMISS IN MATTER INVOLVING UNFILED RATES CHARGED UNDER REINSURANCE AGREEMENT

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On July 21, 2016, we reported on a putative class action filed in a California U.S. district court by Shasta Linen Company against Applied Underwriters, Inc. and its affiliated entities, alleging that the “EquityComp” workers’ compensation insurance program marketed and sold by Applied Underwriters violated California insurance law and regulations. Shasta asserted that the defendants unlawfully used a Reinsurance Participation Agreement (“RPA”) to control workers’ compensation rates (and thus, charge higher rates) without first having the RPA filed and approved by the department of insurance as required by law. The court dismissed Shasta Linen’s claims to the extent that they sought to invalidate the RPA’s rates on the theory that the RPA was an unfiled plan pursuant to section 11735 of the California Insurance Code. The court reasoned that the use of a rate that has not been filed is not an unlawful rate unless and until the commissioner conducts a hearing and disapproves the rate.

On December 1, 2016, we reported that subsequent to the court’s ruling, the California Commissioner issued an order in an administrative proceeding, finding that the RPA was void because it had not been filed and approved by the department. Shasta Linen then sought reconsideration of the court’s prior dismissal, arguing that the Commissioner’s Order was a “change in controlling authority meriting reconsideration” by the court. On October 17, 2016, the court held that the Commissioner’s order misinterpreted the law, and was not “controlling.” The court denied reconsideration, but it did so “without prejudice as to attempts by plaintiff to invalidate the [RPA] on grounds other than the theory that defendants violated” section 11735.

Since our last blog on the case, Pet Food Express filed a separate class action against Applied Underwriters and its affiliates in California state court, which was removed to federal court. As they had in the Shasta case, the defendants moved to dismiss Pet Food’s complaint to the extent it sought to invalidate the RPA on the ground that it is an unfiled plan in violation of section 11735. The court denied the motion as Pet Food’s complaint did not rely on section 11735. Both plaintiffs in the two action then filed nearly identical amended complaints, asserting claims under RICO, the California Unfair Competition Law (“UCL”), California Business and Professional Code and for unjust enrichment. Defendants moved to dismiss. The court consolidated the actions for pre-trial purposes.

With respect to the motions to dismiss, the court granted them as to the RICO claims because plaintiffs had not sufficiently alleged a plausible basis to infer a specific intent to defraud with respect to the RPA. Consistent with its earlier rulings, it also again granted defendants’ motions to dismiss as to plaintiffs’ attempts to invalidate the RPA on the theory that defendants violated Insurance Code section 11735. The court denied as to plaintiffs’ UCL claim and unjust enrichment claim, and on the ground that plaintiffs lacked standing to seek injunctive relief and to seek restitution.

Shasta Linen Supply, Inc. v. Applied Underwriters, Inc., Case No. 2:16-cv-00158 and Pet Food Express Ltd. V. Applied Underwriters, Inc., Case No. 2:16-cv-012111 (E.D. Cal. Oct. 17, 2017).

This post written by Jeanne Kohler.

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