Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT CONFIRMS ARBITRATION AWARD IN CHEMICAL TRANSPORT DISPUTE FINDING NO MANIFEST DISREGARD OF THE LAW

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ICC Chemical Corporation sued Nordic Tankers Trading A/S concerning a cancelled charter agreement. Per the agreement, Nordic was scheduled to have its vessel present at the port ready to be loaded with ICC’s chemical cargo. The vessel arrived six days late and ICC was forced to pay a higher price for the cargo as a result. Once the vessel arrived, ICC’s inspector tested the vessel’s tanks to avoid blending the chemical cargo. The inspector found some of the tanks to be “off-color.” Nordic attempted to wash the tanks several times, but the tanks continued to fail inspection tests. Nordic rejected further tank cleaning and requested cancellation of the agreement. ICC then initiated arbitration against Nordic alleging that it suffered significant losses as a result of Nordic’s allegedly wrongful cancellation. In arbitration, the panel issued an award in favor of Nordic, finding that they made every possible effort to present a clean and suitable vessel. ICC filed a motion in New York federal court to vacate the award, alleging that the panel committed a manifest disregard of the law by misallocating the burden of proof by requiring ICC to show that the cargo was not contaminated, rather than requiring Nordic to show due diligence in providing a seaworthy ship. The court found, however, that the record did not support an erroneous allocation of the burden of proof; the panel had determined that the dispute surrounded whether the cargo was contaminated, and appropriately placed the burden on ICC to show that it was not. Accordingly, the court found no manifest disregard and confirmed the award. ICC Chem. Corp. v. Nordic Tankers Trading A/S, Case No. 15-cv-9766-KPF (USDC S.D.N.Y. May 12, 2016).

This post written by Michael Wolgin.
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COURT DENIES MOTION TO ENFORCE JUDGMENT AND GRANTS MOTION TO STAY PENDING APPEAL IN CONTENTIOUS ARBITRATION CLAUSE DISPUTE

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We previously reported on the confirmation of three awards in a dispute between National Indemnity Company (“NICO”) and IRB Brasil Ressegurous S.A (“IRB”).  In April, NICO submitted a motion for an award of its fees and costs incurred in different forums related to the dispute, and requested oral argument. The court has now denied the motion because it was “ill-timed and ill-conceived” and denied oral argument “given the extensive opportunity for briefing.” The court also granted IRB’s motion to stay the underlying judgment pending appeal, in a separate order entered on the same day. National Indemnity Co. v. IRB Brasil Ressegurous S.A., Case No. 15-cv-3975 (USDC S.D.N.Y. May 17, 2016) (Order on Motion for Fees) (Order on Motion for Stay Pending Appeal).

This post written by Michael Wolgin.
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UPDATE ON COVERED AGREEMENT NEGOTIATIONS BETWEEN THE U.S. AND THE EUROPEAN UNION

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As we previously reported in March 2016, the United States initiated discussions with the European Union to enter into a Covered Agreement addressing: (1) the equivalence of the U.S. insurance and reinsurance regulatory regime in the context of the EU’s Solvency II initiative; and (2) credit for reinsurance collateral requirements. The Dodd-Frank Act introduced Covered Agreements as a means for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states.

On May 27, 2016, the United States and the European Union released another joint statement on their continued negotiations for a Covered Agreement. U.S. and EU representatives met in Washington, D.C. on May 24-25 to discuss the future bilateral agreement. Both sides agreed to continue in good faith to pursue an agreement on matters relating to group supervision, exchange of confidential information between supervisory authorities on both sides, and reinsurance supervision. U.S. and EU representatives expressed their commitment to pursuing an agreement that will improve regulatory and supervisory treatment for insurers and reinsurers. Both sides are considering next steps to ensure the advancement of negotiations.

This post written by Michael Wolgin.
See our disclaimer.

COURT CONSIDERS DEFENSES UNDER BOTH NEW YORK CONVENTION AND THE FAA IN CONFIRMING DOMESTIC ARBITRATION AWARD AGAINST FOREIGN PARTY

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Immersion Corporation, a U.S. company, had previously entered into a settlement with Sony, a Japanese company, regarding the latter’s alleged patent infringement.   Subsequently, a dispute arose surrounding whether Sony was selling a “Royalty Bearing Product” within the meaning of the settlement agreement.  An arbitration was held pursuant to the settlement agreement that found in favor of Immersion, which then sought to confirm the award in court.  Sony put forth three grounds of opposition to the award: (1) under the New York Convention, the award was contrary to public policy because the arbitrator did not allow Sony  to assert an “invalidity” defense; (2) under the FAA, the arbitrator impermissibly refused to hear evidence related to patent infringement that was pertinent and material to the controversy; and (3) under the FAA, the arbitrator committed a manifest disregard of the law “by failing to determine the extent of direct infringement as a necessary predicate for a finding of indirect infringement.”

In ruling on the petition, the court first determined that Sony appropriately argued defenses under both the New York Convention and the FAA.  The former was appropriate, the court explained, because Sony is not a U.S. citizen.  The FAA defenses were also appropriate under Ninth Circuit precedent because the arbitration had been held in the U.S.  The court then turned to the defenses, and determined after a lengthy analysis that public policy had not been violated, that the arbitrator did provide a process to hear material evidence, and that the arbitrator had not committed a “manifest disregard” because it had in fact determined the necessary predicate of indirect infringement under the law.  Accordingly, the court confirmed the award and denied Sony’s motion to vacate.  Immersion Corp. v. Sony Comp. Entertainment America LLC, et al., Case No. 16-cv-00857 (USDC N.D. Cal. May 19, 2016).

This post written by Michael Wolgin.
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SDNY DETERMINES COMMISSIONER OF INSURANCE’S REPORT ON CAPTIVE INSURER IS NOT PRIVILEGED UNDER MONTANA LAW

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In a case of first impression, the Southern District of New York determined Montana Code § 33-28-108(3) did not mandate the Montana Commissioner of Insurance’s report on a captive insurer was privileged. The Code provision stated:

[A]ll examination reports, preliminary examination reports or results, working papers, recorded information, documents, and their copies produced by, obtained by, or disclosed to the commissioner or any other person in the course of an examination made under this section are confidential, are not subject to subpoena, and may not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company or upon court order.

The Court required the subject documents be produced for three reasons. First, statutory interpretation did not support the privilege, as interpreting the statute so broadly would sweep in almost any company record – such as discoverable business records – that played a part in the Commissioner’s examination. Instead, the statute should be found to protect documents in the possession of the Commissioner, not the examined company. Furthermore, the statute noted the documents are “confidential,” and did not expressly create an evidentiary privilege.

Second, the Court looked at the interpretation of similarly worded statutes from other jurisdictions, as this was a case of first impression under Montana law. Statutes surveyed included Indiana, Rhode Island, New Hampshire, West Virginia and New Jersey – all of which prohibited the state insurance agency from disclosing company records but not information in the company’s control. Notably, California Insurance Code § 735.5, which was also analogous to the Montana statute yet interpreted very broadly to support the withholding of such documents, was not considered by the Court because of the “odd” result such a statutory interpretation would yield.

Finally, the Court looked at the Commissioner’s conduct: it declined to submit any formal administrative interpretation of the statute; it appeared at a deposition to discuss the company; and, it freely discussed the allegedly privileged documents over objections. The documents were thus subject to the case’s confidentiality order, but were not privileged.

Amtrust North America, Inc., et al. v. Safebuilt Insurance Services, Inc., et al., Nos. 16-MC-169 and 16-MC-170 (USDC S.D.N.Y. May 16, 2016)

This post written by Nora A. Valenza-Frost.
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