Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT SUMMARILY AFFIRMS DENIAL OF PETITION TO VACATE ARBITRATION AWARD BASED ON PARTIALITY CLAIM

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Late last month, the Second Circuit Court of Appeals summarily affirmed denial of a petition to vacate an arbitration award where a party was arguing that the arbitrator was biased. The case involved a dispute between an Israeli medical device company and a New York-based investment company and whether the medical device company owed a fee when it located an investor. The investment company argued that “the Arbitrator’s procedural rulings and fee award in [the medical device company]’s favor, along with her professional affiliations, evince[d] partiality.” The investment company attempted to point to the facts that (i) the arbitrator struck six of its ten document requests and refused to grant it an extension of time to engage an expert witness and (ii) the arbitrator came from the International Chamber of Commerce, where two attorneys of the medical device company were affiliated, neither of which the trial court accepted as bases for vacating the arbitration award. The Second Circuit entered an order summarily affirming. Landmark Ventures, Inc. v. InSightec, Ltd., No. 14-4599-cv (2d Cir. Oct. 30, 2015).

This post written by Zach Ludens.

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VERMONT REVISES CREDIT FOR REINSURANCE REGULATION

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The Vermont Department of Financial Regulation recently amended its regulation pertaining to credit for reinsurance. As we detailed on June 16, 2015, the amendment follows a proposal issued by the Department of Financial Regulation earlier this year. This follows a 2014 amendment to Vermont’s Credit for Reinsurance Act and brings the regulations in compliance with that act. Specifically, the amended regulation sets forth the procedural requirements through which a Vermont insurance company may take credit for insurance ceded to a reinsurer in line with the amended Credit for Reinsurance Act, as well as requires specific clauses in the reinsurance agreements in order for ceding insurers to receive credit for reinsurance.  4-3 Vt. Code R. § 32 (Oct. 28, 2015).

This post written by Zach Ludens.
See our disclaimer.

COURT FINDS THAT FOLLOW THE FORTUNES DOCTRINE DOES NOT APPLY TO CLAIMS AGAINST A REINSURANCE PROGRAM’S TPA, BUT DISMISSES SUIT AGAINST IT ON OTHER BASES

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A New York federal district court recently held that the follow the fortunes doctrine does not govern certain claims brought against a third-party administrator of a reinsurance program, but otherwise granted the administrator’s motion to dismiss on various grounds. AmTrust North America, Inc. and its affiliate, Technology Insurance Company, Inc., brought suit against certain individuals and companies in which those individuals were purportedly involved (the “Third-Party Plaintiffs”) seeking a declaratory judgment and monetary damages arising from a reinsurance venture. The gist of the insurers’ claims was that the Third-Party Plaintiffs fraudulently induced the insurers to act as “middle men” in a reinsurance program that was supposed to be structured so that the insurers avoided risk, when in fact they were exposed. The Third-Party Plaintiffs, in turn, sued Network Adjusters, Inc., the claims administrator for the program, alleging that its conduct inflated the insurers’ purported losses.

The factual background discussing the complex transactions involved in the lawsuit is described here. Network moved to dismiss the third-party complaint. The court denied the prong of Network’s motion that sought dismissal under the follow the fortunes doctrine, finding the doctrine inapplicable to the claims alleged against Network, which did not arise from a cedent/reinsurer relationship. Dismissal was nonetheless warranted because: (a) the Third-Party Plaintiffs’ breach of contract claim was not actionable, as they were not parties to or third-party beneficiaries of the contract under which the claims against Network arose; (b) Network owed no duty of care to the Third-Party Plaintiffs, defeating the cause of action for negligence; (c) the Third-Party Plaintiffs’ contribution claim sought only economic/contract damages, and was not cognizable under New York law; and (d) the causes of action for common law and contractual indemnification failed because Network owed no independent duties to the Third-Party Plaintiffs, nor did they plead facts alleging that Network’s contractual duty to indemnify was triggered. Amtrust North America, Inc. v. Safebuilt Insurance Services, Inc., No. 1:14-cv-09494 (USDC S.D.N.Y. Oct. 28, 2015).

This post written by Rob DiUbaldo.

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INSURER’S ACTION TO ARBITRATE STAYED IN LIEU OF EARLIER-FILED STATE COURT COVERAGE ACTION

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An Illinois federal court recently stayed an insurer’s petition to compel arbitration of a dispute with its policyholder, finding that abstention in favor of an earlier-filed suit involving the parties was appropriate under the so-called Colorado River doctrine. A.O. Smith Corporation entered into a settlement/coverage-in-place agreement (the “Agreement”) with Allstate Insurance Company to resolve disputes between them concerning the coverage afforded by various policies for underlying asbestos claims. In exchange for certain payments, the Agreement released Allstate from all claims and liabilities under the subject policies, provided that A.O. would be responsible for a share of defense and indemnity costs, and required A.O. to cooperate in the defense of such claims. The Agreement also contained a provision mandating that A.O. and Allstate resolve disputes by arbitration.

The complex factual history regarding this case can be found here. In short, years after the Agreement was entered into, Continental Casualty Company brought suit in Wisconsin against Allstate, A.O., and other insurers seeking contribution and indemnification for amounts paid by Continental to resolve certain asbestos claims. Allstate moved to stay the action and petitioned an Illinois federal court to compel arbitration under the Agreement on the basis that certain issues involved in the Wisconsin action concerning the Agreement’s scope and A.O.’s duty to cooperate were arbitrable. The Illinois court held that it had subject matter jurisdiction over the action, rejecting A.O.’s motion to dismiss for lack thereof, on the grounds that the Wisconsin suit plainly involved matters that fell within the ambit of the Agreement’s arbitration provision, making it ripe under Section 4 of the Federal Arbitration Act. However, the court granted A.O.’s request to stay the lawsuit pursuant to the Colorado River doctrine, finding that the Wisconsin action would dispose of all the claims presented by Allstate, and that other factors, such as the desire to avoid piecemeal litigation with the other insurer-defendants, that the Wisconsin suit was filed first, the Agreement’s incorporation of Wisconsin law, and the risk of inconsistent rulings weighed in favor of abstention. Allstate Insurance Co. v. A.O. Smith Corp., No. 1:15-cv-06574 (USDC N.D. Ill. Oct. 23, 2015).

This post written by Rob DiUbaldo.

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TEXAS COURT AFFIRMS ARBITRATION AWARD IN LAW FIRM FEE ROW

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A Texas district court denied Curtis International, Ltd.’s (“Curtis”) counter-motion to vacate an arbitration award in a row over attorney and expert witness fees and expenses. Curtis, a manufacturer and distributor of electronic and home appliances, retained McKool Smith as counsel to handle several patent infringement lawsuits. Upon settlement of these underlying actions, McKool Smith sought over $1.4 million dollars in unpaid legal fees and expert witness expenses. An arbitrator awarded McKool Smith fees and expenses with interest, after the dispute stalled at mediation. Curtis sought to vacate the award based on public policy, arbitrator authority, and manifest disregard of the law concerns.

Curtis argued that the arbitrator award conflicted with the Texas Disciplinary Rules of Professional Conduct in contravene to Texas public policy. The court quickly dismissed this argument finding that “[t]he Fifth Circuit has foreclosed the use of non-statutory grounds for vacatur, including public policy grounds.” The court again invoked the Fifth Circuit regarding manifest disregard of the law, finding the ground invalid when applying for vacatur. The court finally addressed Curtis’ concerns that the arbitrator exceeded his authority. The court noted that the engagement agreement between the parties explicitly stipulated that Curtis would be responsible for the expenses incurred by the use of expert witnesses. The court also found that contrary to Curtis’ assertions, McKool Smith did discuss the use and retention of expert witnesses. For these and other reasons, the court denied Curtis’ motion and confirmed the arbitration award. McKool Smith, P.C. v. Curtis Int’l, Ltd., No. 3:15-cv-01685-M (N.D. Tex. Oct. 14, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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