Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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NAIC ADOPTS AMENDMENTS TO CREDIT FOR REINSURANCE MODEL LAW

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The NAIC Executive (EX) Committee and Plenary adopted amendments to the Credit for Reinsurance Model Law (#785). These amendments are part of a larger effort to modernize reinsurance regulation in the United States. The changes allow a commissioner to adopt additional requirements relating to: “(1) the valuation of assets or reserve credits; (2) the amount and forms of security supporting reinsurance arrangements…; and/or (3) the circumstances pursuant to which credit will be reduced or eliminated.”

This new regulatory authority was added in response to reinsurance arrangements entered into, directly or indirectly, with life/health insurer-affiliated captives, special purpose vehicles, or similar entities that may not have the same statutory accounting requirements or solvency requirements as U.S.-based multi-state life/health insurers. To assist in achieving national uniformity, the NAIC has asked commissioners to strongly consider adopting regulations that are substantially similar in all material aspects to NAIC-adopted model regulations in the handing and treatment of such reinsurance arrangements.

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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APPELLATE COURT REVERSES ORDER GRANTING MOTION TO COMPEL ARBITRATION

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In a three paragraph memorandum decision, the Ninth Circuit has reversed an order of a district court granting a motion to compel arbitration.  The Court  held that the district court erred in holding that the non-movant, GIB, had waived its right to a trial to determine the enforceability of a written arbitration agreement.  The Court stated that once GIB challenged the validity of the agreement the district court was obligated under the Federal Arbitration Act to hold a trial on the issue of the validity of the agreement.  Second, the Court held that the district court erred in holding GIB, which was not a signatory to the written arbitration agreement, bound by the agreement by the doctrine of estoppel, finding the factual record insufficient to support the district court’s ruling.  Finally, the Court held that the submission by GIB of a sworn declaration denying that the parties had entered into a written agreement, accompanied by e-mails which suggested a different, more informal, agreement, precluded the district court from deciding, as a matter of law, that the parties had entered into an agreement to arbitrate.  GIB, LLC v. Salon Ware, Inc., No. 14-55399 (9th Cir. Feb. 5, 2016) (unpublished).

This post written by Rollie Goss.
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DISTRICT COURT HOLDS ARBITRATION CLAUSE DOES NOT APPLY TO SWISS INSURER

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The United States District Court for the Southern District of New York recently denied a captive insurer’s motion to compel arbitration. The captive insurer, First Mutual Transportation Assurance Company, Inc. (FMTAC), argued that its reinsurer, Infrassure Ltd. (Infrassure), should be compelled to arbitrate a Hurricane Sandy-related reinsurance dispute in London. The parties shared a Certificate of Facultative Reinsurance that contained an arbitration clause setting forth arbitration procedures applicable to disputes between them. The district court held that the clause is inapplicable to this suit “because, by its explicit language, it only governs disputes between FMTAC and ‘UK and Bermuda Insurers.’” Infrassure is a Swiss insurer and therefore is not bound by the arbitration clause.

Infrassure, Ltd. V. First Mutual Transportation Assurance Company, Inc., No. 15-cv-8230 (U.S.D.C. S.D.N.Y. Jan. 22, 2016)

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.