Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

IN DECIDING WHETHER TO VACATE CONFIRMATION OF ARBITRAL AWARD SUBSEQUENTLY VACATED BY PRIMARY JURISDICTION, SECOND CIRCUIT CONSIDERS NORMAL RULE 60(B)(5) FACTORS PLUS INTERNATIONAL COMITY

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The Second Circuit recently affirmed a lower court’s decision to vacate its earlier judgment enforcing a Malaysian-based arbitration award against the government of Laos where a Malaysian court subsequently set aside the award. After a dispute between a Thai company and its Laotian subsidiary (“TLL”) against the Laotian government over mining contracts, an arbitration panel in Malaysia found Laos in breach and awarded TLL $57 million. Once the period for challenging the award under Malaysian law passed, TLL pursued enforcement actions against Laos in the U.S., U.K., and France. In late 2010, nine months after the operative deadline, Laos moved for an extension of time to challenge the award, which the Malaysian court granted. While a U.S. district court issued relief enforcing the award in 2011, the Malaysian court then set aside the award in 2012. The present appeal arose from the district court’s 2014 decision granting Laos’ Rule 60(b)(5) motion to vacate its previous confirmation order to give effect to the Malaysian court’s set-aside judgment and two subsequent orders.

First, the court held that Rule 60(b)(5) applies to motions to vacate judgments confirming arbitral awards that are subsequently set aside by the primary jurisdiction. Reviewing the New York Convention and FAA texts, it found the Convention’s requirement of enforcing arbitral awards in accordance with the secondary jurisdiction’s procedural rules includes post-judgment procedures like Rule 60(b). Further, the FAA provision subjecting judgments to the “provisions of law relating to” judgments in an action extends to the Federal Rules of Civil Procedure.

Next, the court discussed what a district court’s Rule 60(b)(5) analysis should entail in this context. It found that a district court should take into consideration the Convention’s concern for international comity as well as the “full range of Rule 60(b) considerations.” In the present case, the Second Circuit concluded that the lower court did not exceed its discretion in applying Rule 60(b)(5). The lower court did not explicitly lay out its Rule 60(b) analysis, but the appellate court reviewed the record and found all the circumstances potentially influencing the Rule 60(b) motion did not bar the district court from vacating its prior judgment. The Second Circuit observed that throughout the proceedings the lower court explicitly considered the interests of justice, appropriately declined to find Laos acted inequitably, and the interests of finality did not weigh against the lower court’s decision. The court concluded that had the lower court expressly reviewed the relevant conduct in context of Laos’s Rule 60(b)(5) motion, it would not have enforced the annulled award.

Finally, the Second Circuit found no abuse of discretion in two other district court decisions rejecting TLL’s request for a security bond and refusing to enforce the English judgment. It noted the English judgment’s strong connection (and reliance upon) the district court’s original confirmation award which had since been vacated and rejected TLL’s other arguments on that order.

Thai-Lao Lignite (Thailand) Co. v. Gov’t of the Lao People’s Democratic Republic, Nos. 14-597, 14-1052, 14-1497 (2d Cir. July 20, 2017).

This post written by Thaddeus Ewald .

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GEORGIA REVAMPS LAW GOVERNING CAPTIVE INSURANCE COMPANIES

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Significant changes to Georgia law governing captive insurance companies took effect on July 1, 2017. The changes relate to the permitted corporate structure of captive insurance companies, new restrictions on risks that may be reinsured by certain captives, procedures for forming, converting and dissolving a captive, and streamlining the issuance of certificates of authority to newly formed captives, among other changes.

Specifically, the new law authorizes captive insurance companies to be formed as manager-managed limited liability companies, in addition to continuing to permit them to be organized as stock or mutual insurers. The Act streamlines the default process to obtain a certificate of authority by directing the Insurance Commissioner to “promptly issue” a certificate of authority to a captive upon satisfaction that the documents filed by the captive comply with the requirements for captive formation. The prior procedure, which the Act authorizes the Commissioner to follow if he chooses, required a captive to provide additional documentation regarding the company’s capital or surplus and a certified financial statement. Under the new default procedure, the captive is required to provide this same documentation “as soon as practicable” after issuance of the certificate of authority, rather than before.

In addition, the law restricts “agency captive insurance companies” to reinsuring (1) risks of insurance or annuity contracts placed by the entity owning the agency captive, or (2) contractual liabilities arising out of service contracts or warranties sold by an entity owning the agency captive. Captives are exempted from the provisions of the insurance code relating to domestic stock and mutual insurers except as otherwise provided by certain specified provisions of the insurance code or by the Commissioner through regulation. The law also requires a captive to obtain prior written approval from the Commissioner before reinsuring certain risks, restricts taxes that apply to risk retention group captives to those on direct premiums for coverages in Georgia, and substantially amends several definitions. Georgia SB 173 (eff. 7/1/2017).

This post written by Benjamin E. Stearns.

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COURT FINDS THAT REINSURANCE TRANSACTION DID NOT BREACH INVESTMENT CONTRACT UNDERLYING AN ERISA PLAN

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MetLife acquired the rights to a fixed investment option contract with Midco, a trust established to administer a retirement plan for the employees of Midco International, Inc. Midco plan participants received interest each year pursuant to a “declared rate” which would be determined at MetLife’s discretion “from time to time.” Several years later, MetLife sold its 401(k) administration business to Great-West Life & Annuity Insurance Company in the form of a 100% indemnity reinsurance transaction, whereby the Midco assets backing the Midco contract were transferred to Great-West, and MetLife delegated responsibility for setting the declared rate to Great-West. MetLife informed Midco that its business had been transferred to Great-West and that Great-West would provide “recordkeeping and administrative services” going forward, but did not disclose that Midco’s assets would be transferred to Great-West and that Great-West would be delegated the responsibility to set the declared rate. The declared rate selected by Great-West in the subsequent years continually decreased, falling from 6.7% in 2007 to 1.2% in 2016. Later, upon learning that Midco’s assets were no longer with MetLife, Midco filed suit, alleging that Great-West’s control over the declared rate amounted to a breach of MetLife’s obligation to set the rate in good faith.

MetLife moved for summary judgment, which the court granted. The Court found significant that Midco provided no evidence that the parties expected that MetLife would not transfer assets or rate-setting responsibility to a third party. The court rejected Midco’s claim that MetLife’s lack of full disclosure about Great-West’s role in investment decisions violated the contract, stating, “as long as MetLife exercised its discretion in good faith, its failure to disclose how it exercised its discretion is not a breach of the implied covenant.” The Court also noted that Midco failed to provide evidence of industry custom to “show that delegating assets and responsibility to a third party without policyholder consent was an unusual act for an insurance company….” Midco Int’l, Inc. Employees Profit Sharing Trust v. Metro. Life Ins. Co., Case No. 14-9470 (USDC N.D. Ill. July 5, 2017).

This post written by Gail Jankowski.

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ELEVENTH CIRCUIT DEFERS TO ARBITRATOR’S INTERPRETATION OF FORUM SELECTION CLAUSE IN INTERNATIONAL DISPUTE AND AFFIRMS AWARD

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Questions of arbitral venue, even in international arbitration, are presumptively for the arbitrator to decide. The court so ruled despite arguments from an Israeli company that the arbitrator’s interpretation of an arbitration agreement with an American company violated Article V of the New York Convention and Section 10(a)(4) of the Federal Arbitration Act. The court’s decision was guided by a set of presumptions regarding the intent of the arbitrating parties. On the one hand, courts presume the parties intend courts to determine issues of “arbitrability” (i.e., whether the parties are bound by an arbitration clause or whether an arbitration clause applies to a particular controversy), but on the other, arbitrators are presumed to be the intended deciders regarding the “meaning and application of particular procedural preconditions for the use of arbitration.”

The court held that disputes over the interpretation of forum selection clauses presumptively fall into the latter category, because they are disputes over where an arbitration is conducted, not whether it is conducted. Therefore, when an arbitrator “even arguably” engages with the language of the venue provision in making his determination, the court must defer to that determination, “however good, bad, or ugly.” The court noted, however, that if the parties do not want the arbitrator determining the arbitral venue, they may limit the issues they choose to arbitrate. Bamberger Rosenheim 11th Cir 7.17.17, Case No. 16-16163 (11th Cir. July 17, 2017).

This post written by Benjamin E. Stearns.

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NEW YORK APPELLATE COURT SIDES AGAINST THE SECOND CIRCUIT AND HOLDS CLASS ACTION WAIVERS VIOLATE THE NLRA

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Plaintiffs, former insurance agents for defendants New York Life Insurance Company and its related companies, brought a putative class action seeking recovery for allegedly illegal wage deductions and violations of overtime and minimum wage laws. The main issue on appeal, and an issue of first impression for New York state courts, was the validity of an arbitration provision in one plaintiff’s agent contract that waived any right to a jury trial and agreed that no claim could be brought or maintained “on a class action, collective action or representative action basis either in court or arbitration.” The court held that arbitration provisions which prohibit class, collective, or representative claims violate the National Labor Relations Act (NLRA) and are therefore unenforceable. In addition, the Court agreed with the Seventh Circuit’s reasoning that arbitration provisions like the one at issue here fail to meet the criteria of the FAA’s Saving Clause for nonenforcement because the provision is unlawful under the NLRA. In holding that class waivers violated the NLRA, the court aligned itself with the Seventh and Ninth Federal Circuits and disagreed with the Second, Fifth, and Eighth Circuits. The Court noted that the Supreme Court would soon address this circuit split. Gold v. New York Life Ins. Co., Case No. 653923/12 (N.Y. App. Div. July 18, 2017).

This post written by Gail Jankowski.

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