Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT HOLDS THAT SERVICE-OF-SUIT CLAUSE WAIVES RIGHT TO SEEK REMOVAL

by

The Northern District of Illinois recently granted a motion to remand filed by an insolvent insurer’s assignee because the removal contravened the forum-selection clauses of the reinsurance agreements at issue. Pine Top Receivables of Illinois LLC (PTRIL) sued Transfercom Ltd. (Transfercom) in Illinois state court for breach of contract and certain state law claims. Pine Top Insurance Company’s rights to certain accounts receivable due from reinsurers were assigned to PTRIL when the insurer became insolvent. Transfercom was one of the reinsurers that was indebted to Pine Top Insurance Company.

Transfercom removed the case to the U.S. District Court for the Northern District of Illinois, and PTRIL filed a motion to remand. PTRIL argued, and the court agreed, that the reinsurance agreements contained an agreed-upon clause to accept plaintiff’s choice of forum. The court noted that this clause meant that Transfercom agreed to “submit to the jurisdiction of any Court of competent jurisdiction within the United States.” Further, the court held that “[t]his clause’s ‘plain and ordinary meaning’ constitutes a ‘clear and unequivocal’ waiver of Transfercom’s removal rights.” As a freely negotiated forum selection clause, the court held, the parties must be bound by it.  Pine Top Receivables of Illinois, LLC. v. Transfercom, Ltd., No. 15-CV-8908 (USDC N.D. Ill. Dec. 14, 2015).

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

COURT DENIES RECONSIDERATION OF ORDER STAYING ACTION TO COMPEL ARBITRATION

by

A federal district court refused to reconsider its order staying Allstate’s action to compel arbitration against its insured, A.O. Smith. The case involved a Settlement/Coverage-in Place Agreement between A.O. Smith and Allstate regarding coverage for asbestos liability. Continental Casualty Company, another insurer for A.O. Smith, filed an action in Wisconsin state court against both A.O. Smith and Allstate arguing that the Agreement impermissibly limited its subrogation and contribution rights against Allstate. When Allstate and A.O. Smith asserted their defenses in the Wisconsin action, a dispute emerged between them as to the nature of the Agreement. Allstate attempted to compel arbitration against A.O. Smith in federal court and to stay the Wisconsin litigation pending the outcome of the arbitration. The federal court, however, refused to compel arbitration and instead stayed its own proceedings, in deference to the Wisconsin court’s determination of a pending motion for summary judgment that could impact arbitrability. In denying reconsideration of that ruling, the court explained that its stay was warranted because the Wisconsin litigation was further along, the Wisconsin court was “currently in a more informed position from which to address the issue of arbitrability, and a stay [was therefore] warranted on that basis.” Allstate Insurance Co. v. A.O. Smith Corp., Case No. 1:15-cv-06574 (USDC N.D. Ill. Dec. 11, 2015).

This post written by Barry Weissman.

See our disclaimer.

COURT CONFIRMS FINAL ARBITRATION AWARD IN REINSURANCE DISPUTE

by

Certain Underwriters at Lloyd’s of London petitioned the U.S. District Court for the District of Massachusetts to confirm an award issued by a three-member panel in an arbitration against Transport Insurance Company. The arbitration involved aggregation and allocation disputes related to certain billings submitted by Transport to Underwriters under various excess of loss reinsurance treaties. In 2014, the panel issued an interim award that imposed prospective obligations on the parties. Thereafter, a dispute arose between them regarding a revised billing submitted by Transport, resulting in the issuance of a final award that incorporated the panel’s interim ruling by reference. Underwriters moved to confirm under Section 9 of the Federal Arbitration Act, and, specifically, Chapter 2 of that Act, 9 U.S.C. §§ 201-208, which provides for enforcement of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (and applied, as the arbitration involved UK syndicates). The District Court granted Underwriter’s motion and entered judgment consistent with the final award. Certain Underwriters at Lloyd’s, London v. Transport Insurance Co., No. 1:15-cv-12313 (USDC D. Mass. Nov. 20, 2015).

This post written by Rob DiUbaldo.

See our disclaimer.

NEW YORK FEDERAL DISTRICT COURT DISMISSES THIRD PARTY CLAIM AGAINST INSURANCE BROKERAGE SERVICE

by

In what the court termed a “risk-free reinsurance scheme [that] proved anything but,” a New York federal court dismissed a third-party claim against the insurance brokerage service that put the two parties to the insurance arrangement in contact and counterclaims against the reinsurer that acquired business through the customers of its insured. The case involves a dispute between AmTrust North America, Inc. and SafeBuilt Insurance Services, Inc., as well as a third-party insurance consulting service, Preferred Reinsurance Intermediaries. AmTrust had retained PreferredRe to help AmTrust find prospective business opportunities, and PreferredRe succeeded in introducing AmTrust to SafeBuilt. As a result, AmTrust and SafeBuilt entered into an agreement in which AmTrust provided reinsurance to SafeBuilt, which SafeBuilt then provided a retrocession through a Montana subsidiary. The idea was that AmTrust was “to provide reinsurance but was not actually to have anything at risk.” Because of undercapitalization in the primary insurer and the retrocessionaire, however, AmTrust ended up shouldering close to $10 million of liability. When faced with the lawsuit, SafeBuilt filed a third-party complaint against PreferredRe, alleging, among other things, that PreferredRe was negligent because it “knew or should have known that . . . the parties were not well-suited for one another.” Having indemnified PreferredRe, AmTrust filed a motion to dismiss the third-party claims against it, which the court granted. In addition, AmTrust faced a counterclaim for breach of fiduciary duty and tortious interference with business relationships that the court dismissed.

Dispatching the claims against PreferredRe, the court found, among other things, that “there [was] no allegation of any agreement between PreferredRe and [SafeBuilt] at all.” Even if SafeBuilt was an intended beneficiary of a contract between AmTrust and PreferredRe, this did not include a duty to conduct due diligence of a relationship between AmTrust and SafeBuilt. The counterclaims against AmTrust centered on allegations that AmTrust used information from auditing the insurance arrangement to provide to a subsidiary, which was able to acquire business from SafeBuilt’s former customers. The fiduciary duty claim centered on allegations that AmTrust was the principal and SafeBuilt was its agent—however, absent specific contractual language, “a principal does not necessarily owe its agent a fiduciary duty.” As to tortious interference, the court ruled that absent a contractual duty to keep information confidential, AmTrust’s did “nothing more than engage in sharp practice” which “may be repugnant, but is not a wrongful means.” AmTrust North America, Inc. v. SafeBuilt Insurance Services, Inc., No. 14-cv-09494-CM-JLC (USDC S.D.N.Y. Dec. 1, 2015).

This post written by Zach Ludens.

See our disclaimer.

SOUTH CAROLINA FEDERAL COURT GRANTS IN PART, DENIES IN PART, TRUSTEE’S MOTION TO DISMISS CLAIMS BROUGHT BY FRONTING INSURER IN DISPUTE INVOLVING REINSURANCE TRUST AGREEMENTS

by

Plaintiff Companion Property and Casualty Insurance Company (“Companion”) brought suit against U.S. Bank National Association (“US Bank”) arising from its role as trustee under various reinsurance collateral trusts that secured certain reinsurers’ obligations to Companion for its participation in a fronted insurance program. Companion asserted the following claims against US Bank: breach of contract (the trust agreements); breach of fiduciary duty; negligence/gross negligence; negligent misrepresentation; equitable estoppel; and violation of the South Carolina Unfair Trade Practices Act (“SCUTPA”). US Bank moved to dismiss each cause of action for failure to state a claim.

The U.S. District Court for the District of South Carolina granted in part, and denied in part, US Bank’s motion. First, the Court found that Companion adequately pled a cognizable claim for breach of the trust agreements, rejecting US Bank’s argument that this claim (as pled) was premised on duties not expressed in those agreements. Next, Companion’s breach of fiduciary duty and negligence claims were ruled actionable, even though they involved US Bank’s purported breach of its contractual duties, because Companion sufficiently alleged the existence of an independent duty of good faith and care owed to it as beneficiary of the trusts. Finally, while Companion adequately pled sufficient facts to establish that US Bank is liable for negligent misrepresentation, the claims for equitable estoppel and for violating SCUTPA failed as a matter of law, because the former cannot be brought affirmatively in a complaint under South Carolina law, and the latter failed to allege facts demonstrating that US Bank’s conduct was the result of “standard procedures or business practices that have an adverse impact on public interest”, as required by SCUTPA. Companion Property & Casualty Insurance Co. (n/k/a Sussex Ins. Co.) v. U.S. Bank NA, No. 3:15-cv-01300 (USDC D.S.C. Nov. 24, 2015).

This post written by Rob DiUbaldo.

See our disclaimer.