Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DENIES RECONSIDERATION OF RULING THAT REINSURER MUST POST PRE-PLEADING SECURITY

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On April 13, 2016, we reported on Select Insurance Company’s successful motion for pre-pleading security against Excalibur Reinsurance Corp., pursuant to Connecticut law.  Excalibur filed a motion for reconsideration, which the Magistrate has now denied.  The court rejected on procedural grounds Excalibur’s new argument that, because Connecticut law did not deem Select Insurance Co. a Connecticut citizen, Select should not be permitted to invoke the Connecticut pre-pleading statute.  The court also rejected Excalibur’s citation to certain Connecticut case decisions as dicta.  The court concluded: “In the March 2016 Ruling, this Court held that the language of the Connecticut Security Statute does not address the citizenship of the moving party, nor is there Connecticut case law to the contrary; the Court relied on controlling law in this district in interpreting Connecticut’s Security Statute … and the wording of the Security Statute itself.  There is no basis for reconsideration of the March 2016 Ruling on these issues.”  Select Insurance Co. v. Excalibur Reinsurance Corp., Case No. 3:15-cv-00715 (D. Conn. May 10, 2016).

This post written by Joshua S. Wirth.
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EIGHTH CIRCUIT: DELAY IN ASSERTING RIGHT TO ARBITRATE AND USING LITIGATION MACHINERY RESULTS IN WAIVER

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The plaintiff, a terminated employee, had signed a two year employment agreement and a separate arbitration agreement with a home décor company. The plaintiff was terminated after six months and sued the defendant in Minnesota state court for wrongful termination. After defendant removed the case to federal court in Minnesota it filed an answer with various affirmative defenses but never mentioned the arbitration agreement. Additionally, the parties engaged in various motion practice and meetings but the arbitration agreement was never raised. The defendant raised the separate arbitration agreement for the first time, eight months after the initiation of the lawsuit and after it lost a motion to transfer the matter to the Eastern District of California. The lower court denied the motion to compel arbitration on the ground of waiver. On appeal, the Eighth Circuit affirmed, finding that the defendant knew of the right to arbitrate, acted inconsistently with the right, and prejudiced the plaintiff causing him to incur litigation costs. The court noted that the defendant had filed the Joint Rule 26(f) report requesting that the court set the matter for trial, and then engaged in motion practice attempting to transfer venue. The actions of the defendant in using the litigation machinery until it lost, clearly prejudiced the Plaintiff and constituted waiver of the right to arbitrate. Messina v. North Central Distributing, Inc., Case No. 15-2323 (8th Cir. May 10, 2016).

This post written by Barry Weissman.

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THIRD TIME’S THE CHARM: EASTERN DISTRICT OF MICHIGAN REMANDS ARBITRATION AWARD FOR FAILING TO ALLOW PARTY TO PRESENT EVIDENCE

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On motion to vacate an arbitration award, a Michigan federal court held that the award lacked fundamental fairness and remanded to the same arbitrator with instructions to allow Plaintiffs their “opportunity to present pertinent and material evidence.”

The parties had agreed to submit to the arbitrator the threshold issue of whether a certain indemnity agreement was enforceable. However, the arbitrator did not address Plaintiffs’ alternative claims that if the indemnity agreements were unenforceable: (1) Plaintiffs were fraudulently induced to enter into an agreement Defendant believed to be void; and, (2) Defendant should be estopped from denying its indemnification obligations, as Plaintiffs relied to their detriment on Defendant’s indemnification promises.

For additional background and appellate history, see our prior post here.

Bernard J. Schafer, et al. v. Multiband Corp., No. 12-cv-13152 (USDC E.D. Mich. April 27, 2016).

This post written by Nora A. Valenza-Frost.

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NEBRASKA DEPARTMENT OF INSURANCE ISSUED NOTICE OF ADOPTION OF AMENDMENTS TO CREDIT FOR REINSURANCE RULES

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On February 25, 2016, the Nebraska Department of Insurance issued a notice to all insurers that amendments to Chapter 65, “Credit for Reinsurance”, of the Insurance Department Rules, have been filed with the Secretary of State for adoption. The amendments are to implement the recent statutory changes to sections pertaining to credit for reinsurance that were enacted in the 2015 Legislative Session and to reflect the changes made by the NAIC to the Credit for Reinsurance Model Act. A copy of the revised Chapter 65 is attached hereto, which shows in redline form the changes to it.

This post written by Jeanne Kohler.

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PENNSYLVANIA FEDERAL COURT REMANDS LITIGATION AGAINST BROKER BACK TO STATE COURT, FINDING THAT PARTY WAS NOT FRAUDULENTLY JOINED

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The background of this case is that Boomerang Recoveries LLC, a reinsurance program review company, investigated Farmers Insurance Company’s reinsurance contracts to identify any premiums Farmers had been overcharged in exchange for a percentage of any recoveries. Boomerang allegedly found that Farmers had been overcharged $2,246,014.65 in reinsurance premiums from 2003 to 2013.  Guy Carpenter & Company LLC, the reinsurance broker, conducted its own review in response to Boomerang’s, and found that Farmers owed reinsurers over two million dollars in premium that had not been paid, thus reducing the amount owed to Farmers to $273,989.97.  According to Boomerang, Guy Carpenter had no justification for performing the audit and disputing Boomerang’s findings, that Guy Carpenter disparaged Boomerang, and induced Farmers not to pursue a substantial portion of the recoveries.

On December 9, 2014, Boomerang brought a litigation against Guy Carpenter and two of its officers for various torts, including intentional interference with contract, unfair competition, commercial disparagement and other claims in Pennsylvania state court.  The case was removed and then later remanded back to the state court.  Boomerang then added Marsh & McLennan Cos. Inc. (MMC) as a defendant in a fifth amended complaint, and MMC again removed the case.  Boomerang then moved to remand on the basis that removal was improper given the forum defendant rule, 28 U.S.C. § 1441(b)(2), and that one of the defendants is a citizen of Pennsylvania. The defendants argued that the one officer who is a Pennsylvania citizen was fraudulently joined to defeat removal. The Pennsylvania federal court, however, concluded that the officer was not fraudulently joined, and that the case was improperly removed from state court.   Thus, the court remanded the action back to Pennsylvania state court for lack of federal subject matter jurisdiction.  Boomerang Recoveries, LLC v. Guy Carpenter & Co., LLC, Case No. 16-0222 (USDC E.D. Pa. Apr. 21, 2016).

This post written by Jeanne Kohler.
See our disclaimer.