Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ALABAMA FEDERAL COURT FINDS CEDENT DID NOT WAIVE ARBITRATION, AND ORDERS REINSURANCE DISPUTE TO BE ARBITRATED

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Alabama Municipal Insurance Corp. (“AMIC”), an Alabama non-profit public insurer, brought suit in Alabama federal court against Munich Reinsurance America Inc. (“Munich Re”), alleging breach of a reinsurance contract for failing to fully reimburse a settlement of flood claims asserted against an insured city. Munich Re answered, denying liability under the reinsurance contract alleged in the complaint, and stated that another reinsurance contract (Agreement No. 1236-0009, endorsed by Agreement No. 1236-0009-E003) applied to the claims. After the parties submitted their Rule 26(f) report and a Scheduling Order was entered by the court, AMIC amended its complaint without opposition from Munich Re, asserting a claim under another reinsurance contract, Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Munich Re answered the Amended Complaint and AMIC noticed the depositions of two Munich Re employees. AMIC then filed a Motion to Stay Pending Arbitration under Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Thereafter, the depositions of the two Munich re employees took place.

Both parties agreed that Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003 referenced in the Amended Complaint contains an arbitration clause. However, Munich Re contended that AMIC’s claim in the case is not subject to arbitration because that agreement is not applicable to the claims. The Alabama federal court found that the only claim brought in the case was under a contract which contains an arbitration clause, and thus is subject to arbitration. Munich Re, however, claimed that AMIC had waived its right to arbitrate. In response, the court held that AMIC had not waived the right to arbitrate. The court found that the actions taken toward litigation prior to filing the Amended Complaint should not be considered a waiver of the right to arbitrate, as the Amended Complaint was the first time that AMIC had alleged a breach of a reinsurance contract which contained an arbitration clause. Thus, the Alabama federal court granted the motion to stay pending arbitration. Alabama Municipal Ins. Corp. v. Munich Reinsurance America Inc., Case No. 2:16-CV-948-WHA-SRW (USDC M.D. Ala. Sept. 7, 2017).

This post written by Jeanne Kohler.

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EIGHTH CIRCUIT HOLDS THAT A MOTION TO DISMISS BASED ON AN ARBITRATION CLAUSE IS NOT A CHALLENGE TO THE COURT’S JURISDICTION

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A municipality sued the company that constructed its water treatment facility, in connection with contaminants found in the water supply. The parties had entered into a series of agreements which contained choice of law and arbitration clauses governing the resolution of any disputes. The company filed a motion to dismiss for lack of jurisdiction based on the contracts’ forum selection and arbitration clauses, and the court construed the motion as falling under Rule 12(b)(1). The court then found that the contracts were inconsistent and ambiguous, and considered extrinsic evidence. The court ultimately granted the motion to dismiss and directed the parties to proceed to arbitration.

On appeal, the Eighth Circuit found that the district court erred by analyzing the motion to dismiss as a 12(b)(1) challenge to its jurisdiction. The court explained that the U.S. Supreme Court has held that “federal venue laws, not forum-selection clauses, govern the propriety of venue under Rule 12(b)(3). The same logic applies where, as here, a party seeks to enforce an arbitration agreement under Rule 12(b)(1). Just as a forum-selection clause has no bearing on the issue of whether venue is ‘wrong’ or ‘improper,’ an arbitration agreement has no relevance to the question of whether a given case satisfies constitutional or statutory definitions of jurisdiction.” The Eighth Circuit found that summary judgment standards should apply on remand because the parties submitted, and the district court considered, matters outside the pleadings. City of Benkelman, Nebraska v. Baseline Engineering Corp., et al., Case No. 16-1949 (8th Cir. Aug. 11, 2017).

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT AFFIRMS ARIZONA FEDERAL COURT’S ORDER DENYING PETITION TO VACATE ARBITRATION AWARD AS UNTIMELY

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A. Miner Contracting, Inc. (“Miner”) appealed an Arizona federal court’s order denying Miner’s petition to vacate an arbitration award entered against it and in favor of Appellee Dana Kepner Company, Inc.

The Ninth Circuit found that the district court did not err in finding that Miner’s petition to vacate the award was untimely because under Section 12 of the Federal Arbitration Act, the petition had to have been served within three months after the award was filed or delivered, and Miner’s petition was filed more than three years after the award was final. On appeal, Miner argued that the district court should have applied the doctrine of equitable tolling to find the petition was timely filed. Noting that “equitable tolling” would be applied “in situations where, despite all due diligence, the party invoking equitable tolling is unable to obtain vital information bearing on the existence of the claim”, the court held that the facts of the case at hand did not merit application of the doctrine. The information Miner claimed it could not discover was the “evident partiality” of the arbitrator, namely that two of the partners in the arbitrator’s law firm represented the attorney for Miner’s adversary in the arbitration, in an unrelated divorce matter. The Ninth Circuit ruled that Miner had not acted with due diligence because it admitted that it discovered that information by searching the internet, which was readily available to it during the limitations period. The Ninth Circuit also found that even if the petition to vacate was not time-barred, Miner had not shown that there was “evident partiality” on the part of the arbitrator, as the connection alleged “is too attenuated and too insubstantial to create the necessary ‘impression of partiality.’” Thus, the Ninth Circuit affirmed the district court’s order. A. Miner Contracting, Inc. v. Dana Kepner Co., Inc., Case No. 16-15209 (9th Cir. Aug. 17, 2017).

This post written by Jeanne Kohler.

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COURT DISMISSES SUIT BY REHABILITATOR FOR PMI INSURER AGAINST CAPTIVE REINSURER AND AFFILIATED BANK

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A district judge in the Northern District of Illinois has dismissed all claims brought by the Illinois Director of Insurance, acting as rehabilitator for Triad Guaranty Insurance Corporation and Triad Guaranty Assurance Corporation (collectively “Triad”), after it was placed in rehabilitation, against AAMBG Reinsurance, Inc. and Bank of America (“BOA”).

The dispute arose out of an arrangement under which AAMBG provided reinsurance to Triad for private mortgage insurance (PMI) provided by Triad to borrowers with mortgages from a set of lenders that were affiliates of AAMBG. The complaint alleged that AAMBG and BOA breached a contractual duty to disclose to borrowers any benefits the loan originators received from PMI premiums, breached the duty of good faith and fair dealing by only referring borrowers with the highest default risk to Triad, violated RESPA by accepting excessive reinsurance premiums, and were unjustly enriched by these practices. AAMBG and BOA moved to dismiss, and the court dismissed the complaint in its entirety.

In dismissing the breach of contract claim, the court found that the plaintiff had not pointed to anything creating a duty on the part of AAMBG to make any disclosures to borrowers. The court also found that the complaint failed to “allege who the affected borrower was, the specific regulation violated, how it was violated, and, most important, how Triad was damaged.”  The court found that the good faith and fair dealing claim was “totally implausible,” as it did “not make economic sense” for AAMBG to send poor risks to Triad when, under a hypothetical offered by the plaintiff,  AAMBG would actually be responsible for a larger portion of the loss than would Triad.  Fourth, the court found that the plaintiff had made no attempt to show that the safe harbor provision of RESPA Section 8(c) did not apply to AAMBG’s reinsurance contract with Triad, as the complaint did not allege that the agreement to provide reinsurance was illusory. The court also found that the RESPA claim was barred by the statute of limitations, rejecting a “continuing violation” theory put forth by the plaintiff and finding that the limitations period began to run when Triad last purchased reinsurance from AAMBG.  Finally, the court rejected the unjust enrichment claim because the parties’ relationship was governed by a contract.

People ex rel. Dowling v. AAMBG Reinsurance, Inc., 16 C 7477 (N.D. Ill. June 1, 2017)

This post written by Jason Brost.
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DISTRICT COURT DECIDES FLURRY OF DISCOVERY MOTIONS IN DISPUTE BETWEEN REINSURER AND INSURER OVER UNDERLYING ASBESTOS CLAIMS

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The Eastern District of Pennsylvania recently ruled on several discovery motions in a reinsurance dispute between R&Q Reinsurance Company (“R&Q”) and St. Paul Fire and Marine Insurance Company (“St. Paul”) over underlying asbestos claims. Both parties filed cross motions to compel, of which the Court granted R&Q’s motion and denied St. Paul’s, and St. Paul filed motions for protective orders that were also denied in an August 1, 2017 order .

R&Q’s motion to compel first sought unredacted versions of documents which St. Paul claimed contained proprietary information, which the Court granted because its previously issued discovery order sufficiently protected the information and rendered it discoverable. R&Q’s motion next sought to compel production of St Paul’s historical loss reserves, which St. Paul claimed were protected by the attorney-client privilege and work-product doctrines. The Court granted the motion, finding that the reserve information was relevant to when St. Paul had notice of potential losses and thus whether it gave sufficient notice to R&Q, as well as concluding that neither attorney-client nor work-product protection applied because the reserve information was created in the ordinary course of business. Finally, the Court granted the motion as to R&Q’s third request for unredacted information related to other reinsurance policies it maintained on the underlying claims. It found the information was relevant to R&Q’s late notice claim because St. Paul had begun defending against the underlying claims in the late 1980s but didn’t provide notice of loss to R&Q until 2013. The Court summarily dismissed St. Paul’s motions for protective orders because they addressed identical issues to those contained in R&Q’s motion to compel.

On the other hand, the Court rejected both grounds asserted in St. Paul’s motion to compel. First, St. Paul’s objections to insufficient interrogatory responses about whether R&Q suffered prejudice from St. Paul’s notice of loss were moot because R&Q had sufficiently addressed the issue in its response to St. Paul’s motion for protective order. Second, the Court denied St. Paul’s complaints over the minimal number of documents produced by R&Q because the characterization was misleading and because R&Q would naturally have fewer documents because of its relatively recent notice of loss in 2013.

After the Court issued the order deciding the various discovery motions, St. Paul moved on August 11, 2017 for clarification regarding the scope of the Court’s order on R&Q’s motion to compel. In particular, it sought to clarify whether the Court was merely ordering production of unredacted versions of documents previously produced based on its proprietary information and other reinsurers objections, or whether it was ordering a new collection and review of documents, including all other reinsurance information from other reinsurer files. St. Paul stated that it would conduct searches to locate and produce documents regarding the date St. Paul first provided notice of the underlying claims to other reinsurers. In its motion, St. Paul claims that in response to the Court’s order to designate relevant documents, R&Q designated hundreds of thousands of pages of documents without any attempt to narrow the designation to identify only potentially relevant documents.

In a short order issued on August 16, 2017, the Court ordered St. Paul to disclose all documents it previously redacted as “proprietary,” “reinsurance,” or “reserves,” and to provide responsive answers to R&Q’s interrogatories and search for documents relevant to the late notice issue.

R&Q Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., Case No. 16-1473 (USDC E.D. Pa.).

This post written by Thaddeus Ewald .
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