Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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FEDERAL COURT LOOKS TO PETITION TO COMPEL ARBITRATION, NOT THE FACTS OF THE UNDERLYING LITIGATION, TO DETERMINE WHETHER IT HAS DIVERSITY JURISDICTION OVER DISPUTE

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The Second Circuit has upheld an order granting a petition by Hermès of Paris to compel arbitration after Matthew Swain, a former employee, sued Hermès and a coworker in state court for alleged violations of state non-discrimination laws. The Second Circuit rejected Swain’s argument that there was no subject matter jurisdiction, finding that only parties to the petition to compel arbitration, not the parties in the underlying lawsuit, should be considered when evaluating diversity jurisdiction.

After Swain was fired by Hermès, he sued asserting claims under New Jersey law. Hermès filed a petition in federal court to compel arbitration, and the district court granted that petition. On appeal, Swain argued that the district court lacked subject matter jurisdiction, which the court had based on complete diversity of citizenship, because, even though Hermès and Swain were citizens of different states, Swain and the coworker defendant in the underlying action were both citizens of New Jersey.  Thus, Swain argued that the district court was required to “look through” the arbitration petition to the facts of the underlying state court litigation to determine the jurisdiction issue, citing the Supreme Court’s 2009 ruling in Vaden v. Discover Bank.

The Second Circuit, applying its 1995 decision in Doctor’s Associates v. Distajo, held that the court could only consider the citizenship of the parties to that petition—Hermès and Swain—in evaluating whether diversity jurisdiction existed.  The court further held that Vaden, in which the Supreme Court found that the allegations of the underlying lawsuit were relevant to jurisdiction over the arbitration petition, did not apply because it dealt with federal question jurisdiction, not diversity. Diversity jurisdiction raises different concerns, the Second Circuit found, including the possibility that a plaintiff could try to defeat diversity by adding a party from the same state as a defendant.

The court also rejected Swain’s argument that the coworker, as a third-party beneficiary of the contract containing the arbitration clause, was an indispensable party to the federal litigation. In fact, the court held that whether the coworker was a third party beneficiary did not matter, as the district court could afford full relief to Hermès in the form of an order compelling arbitration without the coworker’s presence in the lawsuit, such that the coworker was not an indispensable party.

Hermès of Paris, Inc. v. Swain, Docket No. 16-3182-cv (2d Cir. Aug. 14, 2017)

This post written by Jason Brost.
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SOUTH CAROLINA FEDERAL COURT ORDERS SEPARATE TRIALS OF PRIMARY AND THIRD-PARTY CLAIMS IN REINSURANCE TRUST INVESTMENT DISPUTE

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A federal district court in South Carolina recently granted motions to bifurcate a trial involving various claims, crossclaims, and counterclaims between an insured, reinsurers, and a reinsurance agreement trustee.  Companion Property and Casualty Insurance Co. (“Companion”) was the beneficiary of a reinsurance collateral trust for which U.S. Bank served as a trustee. Under the trust agreement, the reinsurers could direct U.S. Bank to substitute assets according to certain specifications with appropriate notification to Companion. Alexander Burns founded a number of corporate entities (“Southport”) which acquired the relevant reinsurance companies and therefore managed the trust’s asset allocation strategies through appropriate direction to U.S. Bank.

The lawsuit filed by Companion against U.S. Bank alleges certain trust investments violated the terms of the trust agreement. U.S. Bank subsequently asserted counterclaims against Companion as well as claimed that Burns and Southport (“third-party defendants”) were the cause of any alleged injuries. Companion and Burns filed separate motions requesting the Court bifurcate the trial: one proceeding to adjudicate the claims between Companion and U.S. Bank and a second proceeding to adjudicate the third-party claims if Companion were to prevail in the first proceeding.

Ultimately, the Court granted both motions for separate trials after finding that bifurcation would serve the “objectives of promoting convenience and achieving an expeditious and economical resolution” to the various claims asserted by the parties. It noted that cases involving third-party claims are particularly suitable for bifurcation given that resolution of the primary claims may obviate the need for trial of third-party claims, such as contribution or indemnification, and also reduce the amount of discovery needed overall.

Because the adjudication of U.S. Bank’s third-party claims is contingent upon Companion prevailing in its primary claims, trying the primary claims first would either eliminate the need for trial of the third-party claims, or alternatively, encourage settlement negotiations between U.S. Bank and the third-party defendants. Additionally, bifurcation in complicated cases such as this one involving multiple claims, crossclaims, and counterclaims, can avoid prejudice stemming from jury confusion from being presented contingent and contradictory claims simultaneously. The Court acknowledged the slight risk of inefficiency should U.S. Bank be required to litigate two separate trials which might include some overlapping evidence, but concluded that the efficiency gains outweighed that risk and granted the motions.

Companion Prop. and Cas. Ins. Co. v. U.S. Bank National Assn., Case No. 15-1300 (USDC D.S.C. Aug. 23, 2017).

This post written by Thaddeus Ewald .
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