Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

UK COURT ADDRESSES ARBITRATOR’S PURPORTED CONFLICT OF INTEREST

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A dispute arose over a project in Iraq between a British Virgin Island claimant and a Malaysian defendant with a sole Canadian QC arbitrator. The claimant’s challenge of the arbitrator’s award was based upon bias because of the arbitrator’s purported conflict of interest. The basis of the conflict was that members of the arbitrator’s firm regularly represented the claimant’s affiliate, deriving substantial financial income from the representation. The arbitrator neither advised nor received income from the firm’s representation of the affiliate. Further, for the past dozen years or so, the arbitrator served almost solely as an international arbitrator, did not participate in partnership matters, nor really represented clients and is treated by the firm as a sole practitioner. In accepting the appointment, the arbitrator never disclosed that his firm represented the affiliate because the firm’s conflict system never disclosed the representation and he was not aware of it.

In finding that there was no possibility of bias, the court considered these facts: (i) the arbitrator was a partner in a law firm; (ii) the law firm earns a substantial amount of money from another entity that has the same corporate parent as the party in the arbitration; (iii) the party in the arbitration was not advised by the firm or the arbitrator; (iv) the arbitrator operated as a sole practitioner only using the firm for secretarial and administrative support; and (v) the arbitrator made all disclosures of which he was advised, although the firm’s conflict system had not advised him of its representation of the affiliate. The court then examined the 2014 International Bar Association Guidelines on Conflicts of Interest in International Arbitrations, pointing out that these were only guidelines and not the force of law. While the Guidelines contain a section entitled “Non-Waivable Red List” which encompassed this situation, the court took issue with them since he believed that this situation was clearly one that should be waivable. Finding that the challenge must fail, the award was confirmed. In the High Court of Justice Queen’s Bench Division Commercial Court, W Limited v. M SDN BHD, Neutral Citation Number [2016] EWHC 422 (Comm).

This post written by Barry Weissman.

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SECOND CIRCUIT AFFIRMS THE CONFIRMATION OF AN ARBITRATION AWARD, FINDING NO MANIFEST DISREGARD OF THE LAW

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The appellant argued that the arbitrator failed to weigh evidence properly when it made a finding of fact with respect to the passing of title. The Second Circuit rejected this as a basis of overturning an award based “manifest disregard of the law,” holding that the Second Circuit “does not recognize manifest disregard of the evidence as proper ground for vacating an arbitrator’s award.” The court then ruled out any other basis to find a manifest disregard of the law, and affirmed the lower court’s confirmation of the arbitral award. ISMT, Ltd. v. Fremak Indus., Inc., Case No. 15-2086 (2d Cir. Feb. 24, 2016).

This post written by Zach Ludens.

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NINTH CIRCUIT REMANDS PAGA CASES TO LOWER COURTS TO DETERMINE THE PROPER FORUMS FOR ARBITRATION OR LITIGATION

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We previously reported on California courts refusing to enforce waivers contained in arbitration agreements of representative claims under California’s Private Attorneys General Act of 2004 (“PAGA”). These cases have generally held that rights provided under PAGA were not waivable (the “Ishkanian rule”) and not preempted by the Federal Arbitration Act (“FAA”). Two recent cases within the Ninth Circuit upheld these rulings, but held that arbitration agreements containing provisions purporting to waive representative claims do not automatically render the whole agreement unconscionable; the purported waivers may be severed, if possible. Hopkins v. BCI Coca-Cola Bottling Co. of Los Angeles, Case No. 13-56126 (C.D.Ca. Feb. 19, 2016); Sierra v. Oakley Sales Corp., Case No. 13-55891 (9th Cir. Feb. 18, 2016).

This post written by Joshua S. Wirth.

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FEDERAL COURT WEIGHS PERSONAL JURISDICTION IN RETROCESSION DISPUTE

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A New Jersey federal district court recently weighed whether it had personal jurisdiction over a foreign corporation in a reinsurance and retrocession dispute. The case involved insurance coverage for Companhia Siderurgica Nacional, S.A. (“CSN”), one of the largest conglomerates in Brazil with interests in steel, iron ore, mining, and various other operations. The direct coverage was provided by Brazilian insurance corporations, which reinsured through IRB Brasil Resseguros S.A. (“IRB”); in turn, IRB sought retrocessional coverage from National Indemnity Company (“NICO”) through a reinsurance broker in New Jersey, Catalyst Re Consulting, LLC (“Catalyst Re”).

The dispute involved nearly $200 million in retrocessional coverage provided to IRB by NICO. When IRB indicated that it may not be able to make a $9 million premium payment on time, NICO issued an extension on the premium payment based on a personal guarantee by CSN. Then, CSN filed a claim for coverage under the direct policies and initiated a lawsuit against IRB for failure to acknowledge that it was the reinsurer of that direct coverage. CSN and IRB settled this dispute, with IRB agreeing to “help CSN retrieve the $9 million premium that CSN paid to NICO” to secure the retrocessional agreement.

As a result, NICO filed suit in New Jersey seeking a declaration that the retrocessional agreement was binding and enforceable, and that CSN had no right to the premium. NICO further alleged tortious interference with a contractual relationship, unjust enrichment, injurious falsehood, and civil conspiracy against CSN. CSN, a Brazilian corporation, moved to dismiss for lack of personal jurisdiction. The court explained that “specific jurisdiction analysis is claim-specific,” and it must therefore “consider whether the defendant’s contacts with the forum arise under or relate to each claim alleged.” The court found that it had jurisdiction over CSN on the declaratory actions because it had acted through a New Jersey reinsurance broker to secure coverage and guarantee payment to NICO. However, the court found that it did not have jurisdiction over CSN related to the actions for damages because those involved actions between two Brazilian corporations and lawsuits and settlement agreements effectuated in Brazil. Thus, NICO will only be able to pursue the declaratory action against CSN in the United States, and will likely have to file any suit for damages against CSN in Brazil. National Indem. Co. v. Companhia Siderurgica Nacional, S.A., Case No. 15-cv-00752-JLL (D.N.J. Feb. 8, 2016).

This post written by Zach Ludens.

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ELEVENTH CIRCUIT UPHOLDS REFUSAL TO COMPEL ARBITRATION DUE TO UNAVAILABLE FORUM

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A borrower had previously entered into a pay day loan agreement in August of 2012, which contained an arbitration provision mandating that all claims be arbitrated in the National Arbitration Forum (NAF), and under the Code of Procedure of the NAF. However, as of 2009, NAF did not accept consumer arbitrations. Under Section 5 of the Federal Arbitration Act, where a forum chosen is unavailable, the court may substitute another arbitrator. An agreement to arbitrate is only enforceable if the choice of forum provision was not integral to the agreement as a whole. The Eleventh Circuit affirmed the trial court’s ruling that the arbitration agreement’s choice of forum of the NAF was not an “ancillary logistical concern,” but was central to the arbitration agreement. Accordingly, the lender could not enforce the arbitration agreement, and the borrower’s lawsuit was permitted to proceed in court. Flagg v. First Premier Bank, Case No. 14-14052 (11th Cir. Feb. 23, 2016).

This post written by Joshua S. Wirth.

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