Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT PARTIALLY GRANTS AND PARTIALLY DENIES MOTION FOR SUMMARY JUDGMENT IN CROP INSURANCE COMMISSION DISPUTE

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Plaintiff Hudson Insurance Company brought suit against DuRussel Insurance Agency, Inc. and Blue Water Agribusiness LLC concerning the alleged breach of two separate crop insurance contracts issued by Hudson. The first contract was between only Hudson and DuRussel and provided that DuRussel would sell crop insurance and place it with Hudson. The first contract also provided that commissions might be paid by Hudson to DuRussel in advance based on projected policy placement and that DuRussel would be obligated to Hudson for any resulting overpayment of commissions. Both parties conceded the existence of this obligation and that DuRussel owed Hudson an amount of overpaid commissions. The second contract was between all three parties and provided an identical sale structure and advance commission provision as the first contract. The parties conceded that Hudson did not pay Blue Water any advance commissions pursuant to the second contract.

On Hudson’s motion for summary judgment, the court examined each contract separately. For the first contract, the court granted summary judgment against DuRussel because there was no genuine dispute between the parties as to DuRussel’s obligation to pay back any overpaid commission and the pending amount owed to Hudson. Although DuRussel claimed that since Hudson sought summary judgment against both DuRussel and Blue Water, its otherwise meritorious claim against just DuRussel cannot be sustained, the court reasoned that either Blue Water is not liable because it signed a separate agreement, or it is jointly liable with DuRussel because it signed the same agreement. For the second contract, the court held that summary judgment for breach of contract was inappropriate against Blue Water because Hudson did not pay Blue Water any advance commissions. Hudson Insurance Co. v. DuRussel Insurance Agency, Inc., No. 15-cv-12073 (USDC E.D. Mich. May 9, 2016).

This post written by Brian Perryman.

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COURT PARTIALLY ALLOWS POST-PROCEEDING MODIFICATION OF PROTECTIVE ORDER FOR DOCUMENTS SOUGHT IN ARBITRATION

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A federal district court dealt with a novel approach where parties to an arbitration wanted to gain access to documents from a previous proceeding. The original case before the court pitted one plaintiff against three defendants—and the parties had a protective order entered following two differing proposals. The plaintiff opposed language in a protective order that would allow the confidential documents to be used in a subsequent arbitration, while the defendants advocated for the documents’ use. The court entered hybrid language allowing “information derived from any Protected Material” to be used in other matters but not allowing the documents themselves to be used. That case was later dismissed.

The matter is now being arbitrated between two of the defendants to the earlier action. The tribunal ordered the parties to produce the relevant documents. The two remaining parties returned to court to modify the protective order to allow the documents to be disclosed. One party sought to have only documents of the third defendant disclosed while the other party sought to have only documents of the plaintiff disclosed. In a March 9, 2016 opinion, the court determined that it had retained jurisdiction to modify the protective order, even though the case was dismissed. Rio Tinto PLC v. Vale, S.A., No. 14-3042 (USDC S.D.N.Y. Mar. 9, 2016).

In an April 18, 2016 opinion, the court took a split approach, determining that the defendant’s documents could be used, while the plaintiff’s could not. In reaching this determination, the court reasoned that the third defendant “had no or minimal reliance interest” because they had advocated for language allowing the documents’ use, whereas the plaintiff had “insisted” that the documents not be used. Rio Tinto PLC v. Vale, S.A., No. 14-3042 (USDC S.D.N.Y. Apr. 18, 2016).

This post written by Zach Ludens.

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FEDERAL DISTRICT COURT CONFIRMS ARBITRATION AWARD IN HOSPITAL SERVICES DISPUTE

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Weirton Medical Center, Inc. (“WMC”), a hospital in West Virginia, entered into an agreement with QHR Intensive Resources, LLC, under which QHR provided hospital administrative services. WMC ultimately terminated the agreement and refused to pay QHR’s invoices. As a result, QHR commenced arbitration in accordance with the arbitration provision in the operative agreement, alleging that WMC was in breach of contract for failing to reimburse QHR for amounts owed thereunder and seeking to recover those amounts.

After three years of discovery and an evidentiary hearing on the merits, the arbitrator issued an award in favor of QHR. WMC then brought an action in the U.S. District Court for the Northern District of West Virginia to vacate the award under Section 10 of the Federal Arbitration Act, and QHR cross-moved for confirmation. The Court ruled in QHR’s favor, finding that the arbitrator did not exceed his powers in basing the award on the proposed findings of fact and conclusions of law submitted by QHR in lieu of those submitted by WMC, as there was sufficient evidence to support the arbitrator’s decision, and it was apparent he considered the claims and defenses asserted by WMC. Moreover, the Court held that the arbitrator’s ruling was not in manifest disregard of the law, as he did not refuse to apply a legal principle that was clearly defined and not subject to reasonable debate. Last, the Court found that the award was not procured by fraud, corruption or undue means based on QHR’s having paid four of its fact witnesses for the time spent traveling to and preparing for their testimony at the arbitration, as WMC did not show by clear and convincing evidence that the witnesses were paid for their testimony, the arrangements did not materially influence the outcome of the hearing, and WMC failed to address this issue before the award was rendered, even though it was aware of the situation. Weirton Medical Center, Inc. v. QHR Intensive Resources, LLC, No. 5:15CV131 (USDC N.D.W.Va May 12, 2016).

This post written by Rob DiUbaldo.

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REINSURANCE (E) TASK FORCE OF THE NAIC MEETS IN NEW ORLEANS

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The minutes of the April 4, 2016 task force meeting (available here) included the following seven items of activity:

  • Adopted its Jan. 6, 2016 and Dec. 9, 2015 minutes (which were attached), which reflected the adoption of revisions to the Credit for Reinsurance Model Law (#785).
  • Received a status report from the Qualified Jurisdiction (E) Working Group.
  • Adopted the report of the Reinsurance Financial Analysis (E) Working Group, which had reviewed and recommended three renewals for certified reinsurer passporting purposes, and discussed and made revisions to the Uniform Application Checklist for Certified Reinsurers (attached to the minutes).
  • Requested an extension from the Financial Condition (E) Committee in order to continue working on a proposed XXX/AXXX Credit for Reinsurance Model Regulation (Model Regulation).
  • Discussed comments received on the Feb. 26 draft of the Model Regulation (attached to the minutes) and the accompanying NAIC staff memorandum (also attached), which details the revisions made from the prior exposure draft. Comment letters were received from a handful of organizations, state regulators, and insurance companies. Affiliated captive reinsurance was addressed as a significant focus area for several federal agencies. Several reports published by these agencies were discussed detailing significant concerns with the use of affiliated captive reinsurance. A comment letter from the Life Actuarial (A) Task Force submitted to the Reinsurance (E) Task Force was also discussed (attached to the minutes).
  • Adopted the recommendation of the Valuation of Securities (E) Task Force to expand the NAIC Bank List, which is used by insurers to identify letters of credit that can be used as collateral in reinsurance transactions under Model #785, to include eligible non-bank financial institutions. Proposed amendments to the Purposes and Procedures Manual of the NAIC Investment Analysis Office and an executive summary from the Securities Valuation Office were attached to the minutes.
  • Discussed reinsurance collateral next steps. Regarding the states’ implementation of the revised Model #785 and Credit for Reinsurance Model Regulation (#786), to date 32 states have passed legislation to implement the revised Model #785, with 22 of those states enacting Model #786 as well. Insurers domiciled in these states represent more than 66% of the direct insurance premium written in the U.S. across all lines of business.

This post written by Michael Wolgin.
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FAILURE TO PAY COSTS DID NOT MATERIALLY BREACH ARBITRATION AGREEMENT IN LIGHT OF LEGITIMATE DISPUTE AS TO THE FORUM

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A New Jersey appellate court affirmed an order dismissing a class action and compelling individual (non-class) arbitration. The underlying arbitration agreements provided that the defendant car dealership would pay all costs of the arbitration, which would be arbitrated pursuant to the rules of the American Arbitration Association (AAA). The putative class members interpreted the sole forum as the AAA and central to the purposes of the agreement. When the putative members attempted to initiate arbitration with the AAA, the defendant did not pay the filing and arbitrator fees, resulting in AAA refusing to arbitrate the claims. The putative class members alleged that due to the defendant’s inaction, the arbitration agreement was materially breached. The lower court disagreed, and the appellate court affirmed, holding that the agreement was neither voluntarily breached nor waived. The defendant’s failure to pay the costs of arbitration to the AAA did not evidence an intent to avoid arbitration; the defendant was legitimately disputing whether the AAA was the obligatory forum. Roach v. BM Motoring, LLC, No. A-0749-14T4 (N.J. Super. Ct. App. Div. Jan. 20, 2016).

This post written by Joshua S. Wirth.

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