Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

UPDATE ON LIQUIDATION OF THE HOME INSURANCE COMPANY

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The New Hampshire liquidation court approved the commutation, settlement, and release agreement between The Home Insurance Company (liquidating) and OIC Run-Off Limited (formerly known as The Orion Insurance Company) (OIC) and The London Overseas Insurance Company Limited (formerly known as The London and Overseas Insurance Company Plc) (L&O). As the motion for approval of the agreement explained, “[t]he Agreement is unusual in that the Liquidator is seeking to collect from insurers that are themselves insolvent and in insolvency proceedings in London under English law.” For example, the agreement is governed by and construed in accordance with English law and is subject to the exclusive jurisdiction of the High Court of Justice of England and Wales. The commutation agreement was approved March 13, 2017 and provides for the commutation of all of Home’s ceded and assumed business to or from OIC and L&O, as well as the resolution of all of OIC’s and L&O’s contribution claims against Home. A redacted copy of the commutation agreement, with economic terms removed, was filed with Home’s motion for approval. In re Liquidation of The Home Insurance Co., Case No. 217-2003-EQ-00106 (N.H. Sup. Ct. Mar. 13, 2017) (Order Approving Commutation); Motion for Approval (Feb. 6, 2017).

This post written by Gail Jankowski.

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ENGLISH HIGH COURT OF JUSTICE ANALYZES STANDARDS GOVERNING FRAUDULENT INDUCEMENT CLAIMS IN REINSURANCE DISPUTES

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The Court of Appeal of England and Wales approved the judgment of the trial court in a reinsurance dispute between Axa and Arab Insurance Group (Arig) related to certain insured energy construction risks. The trial court had ruled in favor of Arig finding that, notwithstanding that an “unfair presentation of the risk” was made to Axa by Arig by failing to disclose past loss statistics, the latter failed to establish that its underwriter was induced to accept the ceded risks, i.e., Axa did not demonstrate that it “would have declined the risk if a fair presentation had been made” to it by Arig. The appellate court analyzed at length the evidence and testimony before the trial court related to the placement of the risks and the negotiation process. The court upheld the judgment, clarifying that the standard for evaluating non-disclosure includes both an objective component involving what a reasonable underwriter would conclude, and subjective components involving what the insured or broker would have said to the underwriter. The court made clear that whether the underwriter was induced turns on a subjective test; the fact that a reinsurer “could have been interested in something is irrelevant if in fact he would not have been.” Axa Versicherung Ag v. Arab Insurance Group, Case No. [2017] EWCA Civ 96 (Royal Courts of Justice Feb. 28, 2017).

This post written by Michael Wolgin.

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FIFTH CIRCUIT DISMISSES FOR LACK OF JURISDICTION APPEAL OF COURT’S ORDER SELECTING ARBITRATORS

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Bordelon Marine, LLC sued Bibby Subsea ROV, LLC for damages and for writ of attachment arising out of a disagreement over the chartering of an offshore vessel. Pending arbitration, litigation was stayed, but a dispute arose regarding the selection of arbitrators. Bordelon filed a “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” contending that Bibby violated the arbitration clauses by appointing a certain arbitrator. After the court granted Bibby’s motion confirming the selection of arbitrators, Bordelon appealed to the Fifth Circuit.

The Fifth Circuit focused on whether it had subject matter jurisdiction to hear the appeal. Bordelon first argued that the Fifth Circuit had appellate jurisdiction because the lower court’s order amounted to a final decision. The Fifth Circuit rejected this argument, reasoning that the court’s order did not expressly stay the case, and furthermore, the court had subsequently reopened the case. Bordelon’s second argument turned on whether or not its “Motion to Re-Open Case to Enforce the Method of Appointment of Arbitrators” amounted to an appealable petition directing arbitration to proceed under § 4 of the FAA, or alternatively a non-appealable motion under § 5 to intervene in the selection of an arbitrator. The Fifth Circuit concluded that the order was the latter, and therefore, the court found that it did not have subject matter jurisdiction over the appeal. Bordelon Marine, LLC v. Bibby Subsea ROV, LLC, Case No. 16-30847 (5th Cir. Apr. 14, 2017).

This post written by Gail Jankowski.

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THIRD CIRCUIT HOLDS OVERTIME CLASS ACTION IS NOT SUBJECT TO ARBITRATION

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The Third Circuit recently affirmed the decision of a Pennsylvania district court, holding that a class action involving overtime compensation filed against the operating companies of a senior care facility is not subject to arbitration.

The background of the case is as follows. Plaintiffs filed their putative class and collective action against the defendants under the Fair Labor Standards Act (FLSA) and Pennsylvania wage and hour statutes. Plaintiffs alleged that the defendants failed to pay proper overtime compensation. The defendants moved to compel arbitration, based on an arbitration clause in an Employment Dispute Resolution Program book that plaintiffs agreed to as a condition of employment. The clause provides that arbitration is “the only means of resolving employment related disputes.” However, the clause also states that it “covers only claims by individuals and does not cover class or collective actions.” The Pennsylvania district court read the clause as unambiguously carving out class and collective actions from mandatory arbitration and accordingly denied defendants’ motion to compel arbitration. The defendants appealed to the Third Circuit.

The Third Circuit noted the question presented: “Does an arbitration clause stating that it ‘covers only claims by individuals and does not cover class or collective actions’ nonetheless require that a putative class and collective action for overtime pay be sent to arbitration?” The Third Circuit affirmed the district court’s decision. Recognizing the strong federal policy favoring arbitration, the Court noted that policy has its limits, and the text of the arbitration clause controls. The Court then held the clause at issue “unmistakably provides that plaintiffs’ class and collective actions need not be subject to arbitration.”

Novosad v. Broomall Operating Company LP, No. 16-2089 (3d Cir. April 10, 2017).

This post written by Jeanne Kohler.

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THIRD CIRCUIT VACATES DISTRICT COURT’S DECISION AND REMANDS FOR FURTHER PROCEEDINGS REGARDING WHETHER THE PARTIES AGREED TO ARBITRATE

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In this case, plaintiff Aliments Krispy Kernels, a Canadian “snack purveyor,” brought suit to confirm an arbitration award it received against Nichols Farms, a pistachio grower, in New Jersey federal district court. Nichols Farms moved to vacate the award. The New Jersey district court granted Nichol’s motion to vacate the arbitration award. Aliments appealed to the Third Circuit.

The background of this case is as follows. The underlying arbitration involved a breach of contract claim. Aliments and Nichols, through brokers, had exchanged some sales confirmations for Aliments to purchase pistachios from Nichols, none of which were signed and some, but not all, of the sale confirmations created by the brokers contained arbitration clauses. Nichols ended up refusing to deliver the pistachios without advance payment from Aliments, based on Aliments’ credit application. Aliments eventually bought the pistachios from another seller, and then sought to recoup the extra cost from Nichols in arbitration. Nichols refused to participate in the arbitration because it alleged that the sales confirmations it received did not contain arbitration clauses. Aliments was awarded $222,100 against Nichols in the arbitration, which Nichols refused to pay.

In the action to confirm or vacate the award, the district court allowed months of discovery and then vacated the award, finding no genuine issue of fact on the issue of whether the parties entered into a “an express unequivocal agreement” to arbitrate.

On appeal, the Third Circuit disagreed with the district court, vacated its decision and remanded for further proceedings. In its decision, the Third Circuit noted that its previous expressed standard to be applied in the context of whether to enforce an arbitration agreement under the Federal Arbitration Act — that there must be “an express and unequivocal agreement” to an arbitration contract — is outdated and no longer valid. Rather, the Third Circuit noted that “[t]he legal standard is simply that we apply the relevant state contract law to questions of arbitrability, which may be decided as a matter of law only if there is no genuine issue of material fact when viewing the facts in the light most favorable to the nonmoving party.”

In its analysis, the Third Circuit then found that per New Jersey’s “choice-of-law rules,” New Jersey law (rather than New York) on contract formation, applied to the determination of whether Aliments and Nichols agreed to arbitrate Aliment’s breach of contract claim. The Court then also found that multiple issues of material fact prevented it from concluding that Nichols and Aliments made an agreement to arbitrate. Thus, the Third Circuit vacated and remanded to the New Jersey district court for further proceedings.

Aliments Krispy Kernels, Inc. v. Nichols Farms a/k/a Nichols Family Farms a/k/a Nichols Pistachios, No. 16-1975 (3d Cir. Mar. 21, 2017).

This post written by Jeanne Kohler.

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