Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT PROVIDES REFRESHER ON DISCOVERY IN BAD-FAITH LITIGATION WHERE REINSURERS ARE INVOLVED

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A Nevada federal district court provides a primer on discovery rules relating to bad faith claims and reinsurers. The case involved a bad-faith claim between OOIDA Risk Retention Group, Inc. and an individual insured. When the insured’s counsel made an array of discovery requests, OOIDA claimed attorney-client privilege and work-product doctrine for many of the documents. The dispute involved five different types of documents: 1): documents authored by or received by the liability adjuster; 2) communications between coverage counsel and liability defense counsel; 3) communications between adjusters and re-insurers; 4) communications or documents related to reserves; and 5) documents related to communications with third-party counsel or staff. The court noted that “the presumption against work product doctrine protection applies prior to a final coverage decision,” at which point there is no presumption that the documents are kept in the ordinary course of business. Given this, and that counsel for the individual claimant did not challenge OOIDA’s contention that providing information to a reinsurer does not waive privilege, the court found that emails “which discuss the liability lawsuit, coverage issues, reserves, and the budget from outside coverage counsel,” were protected by the “qualified immunity bestowed by the work product doctrine.” The court also found that withholding information regarding reserves in a bad faith case on the grounds that they are not relevant holds little water. The “bulk of cases” to consider the issue, the court stated, “have concluded that reserve information is relevant to whether an insurer acted in bad faith.” OOIDA Risk Retention Group, Inc. v. Bordeaux, Case No. 3:15-cv-00081-MD-VPC (USDC D. Nev. Feb. 3, 2016).

This post written by Zach Ludens.

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FIFTH CIRCUIT UPHOLDS DISTRICT COURT DISMISSAL OF MOTION TO STAY ARBITRATION

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The appellant disputed the manner in which the arbitrators were selected under the applicable arbitration agreement, as well as the partiality of the arbitrators. The district court refused to stay the arbitration, ruling that it lacked jurisdiction to address these issues before the panel renders a decision. The Fifth Circuit affirmed on this ground, but also noted that the appellant could not show a “lapse” in the selection of arbitrators or another significant breakdown in the arbitration process. The court characterized the appellant’s argument as an attempt to “rewrite” the arbitration agreement “to require that every arbitration among [the] multiple parties comprise only two ‘sides.’” The “plain wording of that provision,” however, showed that three or more “sides” were contemplated. Avic Int’l USA, Inc. v. Tang Energy Group, Ltd., Case No. 15-10190 (5th Cir. Aug. 25, 2015).

This post written by Joshua S. Wirth.

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MAINE AMENDS RULE REGARDING CREDIT FOR REINSURANCE

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Effective January 24, 2016, Maine amended Bureau of Insurance Rule 740, Credit for Reinsurance, in order to implement the newly adopted provision of the Maine Credit-for-Reinsurance Act that allows reduced collateral for reinsurance ceded to “certified” reinsurers. The amendments make other “necessary revisions that have been identified since the Rule’s 1993 adoption in order to address various technical issues and to reflect changes to the controlling Maine law and National Association of Insurance Commissioners (NAIC) accreditation standards.” The amended Rule 740 is attached here, along with a redline of the changes, and the Summary of Comments and Statement of Basis of Adopted Amendments.

This post written by Michael Wolgin.

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SECOND CIRCUIT FINDS PANEL DID NOT COMMIT A “MANIFEST DISREGARD OF THE LAW” AND DENIES VACATUR OF ARBITRATION AWARD

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The appellee, Sutherland Global Services, a call center support service provider, invoked the arbitration clause contained in its Master Service Agreement with the appellant, Adam Technologies, after Adam reportedly failed to pay for call center services rendered under the contract. The arbitration resulted in an award for Sutherland, which the district court confirmed. Adam appealed this ruling, contending that the arbitrators exceeded their authority and manifestly disregarded the terms of the contract. The Second Circuit found that Adam’s attempts to demonstrate errors committed by the panel were nothing more than attacks on “an arbitrator’s factual findings and contractual interpretation” which “generally are not subject to judicial challenge.” To the extent Adam argued that the panel overlooked certain provisions in the MSA limiting damages, the court held that the FAA “does not permit vacatur for legal errors.” Finally, with respect to Adam’s argument that the panel was improperly constituted, the court held that this contention was previously rejected by an earlier proceeding before the Fifth Circuit, and therefore barred by the doctrine of issue preclusion. Sutherland Glob. Servs. Inc. v. Adam Techs. Int’l SA de C.V., Case No. 15-1063-cv (2d Cir. Feb. 9, 2016).

This post written by Joshua S. Wirth.

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FOLLOWING REVERSAL OF ARBITRABILITY RULINGS ON APPEAL, COURT DISMISSES REINSURANCE LITIGATION BASED ON FORUM SELECTION

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On August 15, 2014, we reported on a Tennessee district court finding unenforceable an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer. The insured had filed a lawsuit seeking to reform the RPA, and the reinsurer sought to compel arbitration. The court refused to compel arbitration, finding that the arbitration clause was invalid. Subsequently, the Sixth Circuit vacated this ruling, finding that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court. On remand to arbitration, the arbitrator then determined that the matter was not arbitrable based on the RPA’s forum selection clause. In response to that ruling, the reinsurer moved to vacate it, and to dismiss the lawsuit altogether based on the choice of a Nebraska forum in the RPA’s forum selection clause.

The court has now granted dismissal, holding that the forum selection clause was unambiguous, and it was mandatory. The court also found that the insured failed to demonstrate that the clause was obtained by fraud, duress or other unconscionable means, that a Nebraska court would not handle the suit properly, or that Nebraska was seriously inconvenient to the insured. The insured also failed to show that “public-interest” factors disfavored a dismissal. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Feb. 2, 2016).

This post written by Barry Weissman.

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