Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NEW HAMPSHIRE FEDERAL COURT RULES THAT ENGLAND’S STATUTE OF LIMITATIONS APPLIES TO A CEDENT’S BREACH OF CONTRACT CLAIM

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In a diversity action based upon breach of a facultative reinsurance certificate, a New Hampshire federal court recently held that England’s six-year statute of limitations governed a cedent’s contract claim, rejecting the foreign reinsurer’s argument that the claim was time-barred under the shorter period afforded by New Hampshire law.

The lawsuit arose from a loss paid by the cedent in 2009 under a property insurance policy. The reinsurer rejected the cedent’s billing on, among other grounds, that the reinsurer’s share had not been allocated properly. After the cedent brought suit, the reinsurer moved for judgment on the pleadings, arguing that New Hampshire’s three-year statute of limitations for breach of contract claims barred the cedent’s recovery. The cedent opposed the motion on the basis that England’s limitations period governed. Applying New Hampshire choice of law rules, the court first found that the statute of limitations issue was substantive, and not procedural, because neither party is a “resident” of the state as defined by New Hampshire law, and the cause of action arose outside the forum. Thus, instead of simply applying New Hampshire’s limitations period for contract claims – which occurs when statute of limitations is deemed procedural in nature – the court found it was required to address the substantive conflict between English and New Hampshire law. Applying factors articulated by the New Hampshire Supreme Court, the court held that England’s six-year statute of limitations controlled because the certificate was negotiated and entered into in London, governed by English law, and the application of England’s statute of limitations would not complicate the dispute or extinguish a statutory cause of action under New Hampshire law. As both parties conceded that the subject claim would be timely under English law, the court ruled in the cedent’s favor, denying the reinsurer’s motion for judgment on the pleadings or, in the alternative, summary judgment. TIG Insurance Company v. EIFlow Insurance Limited, No. 1:14-cv-00459 (USDC D.N.H. Sept. 29, 2015).

This post written by Rob DiUbaldo.

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ELEVENTH CIRCUIT HOLDS THAT STATUTE TO AID DISCOVERY FOR FOREIGN LITIGATION DOES NOT BAR MATERIAL’S SUBSEQUENT USE IN DOMESTIC LITIGATION

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The Eleventh Circuit Court of Appeals has addressed what it deemed an issue of first impression for any circuit court: Whether documents obtained under 28 U.S.C. § 1782 can be used in a subsequent domestic litigation. The case pitted the former wife of Gaston Glock, founder of the Glock handgun company, against the Glock corporation. The former wife desired to use documents obtained through § 1782 for her Austrian divorce in a RICO action against Glock, Inc. Glock argued that § 1782 did not envision documents being used for such a purpose. The Eleventh Circuit agreed, but in so doing applied the rationale that allowing parties to use, “for purposes of litigation, documents they have lawfully obtained, regardless of whether they could have obtained them through discovery in the case in which they use them,” furthers the goals of the Federal Rules of Civil Procedure. Distinguishing between the former wife using the documents as part of the proceeding and whether the documents would be ultimately admissible, the court reasoned that a blanket rule precluding such use could create a procedural nightmare for lower courts. Such determinations should be committed to the discretion of the district courts to determine if the documents were solely obtained to abuse § 1782. Glock v. Glock, Inc., No. 14-15701 (11th Cir. Aug. 17, 2015).

This post written by Zach Ludens.
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PUTATIVE CLASS REPRESENTATIVE ACCUSING LIFE INSURER OF “HOLLOW ASSET” REINSURANCE LACKS ARTICLE III STANDING

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We previously reported on putative class actions pending against life insurers for allegedly misleading customers by engaging in “shadow” or “hollow” reinsurance transactions, doing so most recently on August 3, 2015. In early October, another judge in the Southern District of New York faced the same arguments and ultimately reached the same conclusion that Article III standing was lacking. Plaintiffs alleged that Metropolitan Life Insurance Company and MetLife, Inc. had not properly disclosed their reinsurance agreements to customers as part of their transaction purchasing life insurance. According to plaintiffs, MetLife engaged in such conduct as obtaining a reserve credit of over $1 billion based upon letters of credit that were backed by contractual parent guarantees. In particular, plaintiffs pointed to a $315 million letter of credit that the New York Department of Financial Services determined was a “hollow asset” even though MetLife reported it as an admitted asset.

Plaintiffs filed a putative class action seeking damages against MetLife for failure to disclose these transactions and for violating sections of the New York Insurance Law. Plaintiffs, however, could not prove an injury-in-fact and, therefore, lacked Article III standing. Plaintiffs lacked Article III standing, the court found, because they could not show a concrete injury as a result of this conduct. In fact, rather than resulting in higher premiums, as Plaintiffs alleged, “according to an economic study annexed as an exhibit to the complaint, using shadow insurance actually reduces the cost of life insurance policies and, if companies discontinued using shadow insurance, premiums might rise by as much as 10–21%.” Finding that the alleged risk of harm was in the future and not concrete, the court dismissed the case for lack of Article III standing. Robainas v. Metropolitan Life Insurance Co., No. 14-cv-09926-DLC (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Zach Ludens.

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FINRA PANEL DID NOT EXCEED AUTHORITY OR MANIFESTLY DISREGARD LAW BY FAILING TO AWARD “PREVAILING PARTY” ATTORNEY’S FEES

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A broker sought to vacate his FINRA compensatory damages award against a broker/dealer because the award did not include his attorney’s fees. The broker believed he was entitled to those fees as the “prevailing party” within the meaning of his contract with the broker/dealer. The broker argued that the panel exceeded its authority and manifestly disregarded the law by ignoring the contract and failing to award fees. The court, however, found that the panel did not exceed its authority because the panel’s authority was to award fees to the prevailing party, the panel had “interpreted that authority to include authority to award no fees,” and the panel was “arguably construing the contract before it and acting within its scope.” The court further found that the panel did not manifestly disregard the law because the panel never declared the broker to be the “prevailing party,” and the panel “was well within the limits of California law in deciding that despite recovering some damages, [the broker] was not a prevailing party, and was thus not entitled to attorney’s fees as a matter of right.” Lehner v. LPL Financial, LLC, Case No. 1:15-cv-01178 (USDC N.D. Ohio Aug. 7, 2015).

This post written by Michael Wolgin.

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OHIO JUDGE STAYS BAD FAITH ACTION PENDING ARBITRATION IN HEALTH CARE PAYMENT ROW

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A district court in Ohio granted defendant Pan-American Life Insurance Company’s (“Pan-American”) motion to stay pending arbitration finding a valid and enforceable arbitration provision within the pertinent group health policy. Plaintiffs Joan and Thomas Kirkland filed an action for breach of contract and bad faith arising from Pan-American’s denial of medical benefit payments. Plaintiffs alleged that defendant failed to uphold representations it made to pay for certain health procedures and office visits. Defendant sought arbitration of bad faith pursuant to the group health policy’s arbitration provision (the parties previously settled the breach of contract claim). The court found that the enforceable arbitration provision allowed for the arbitration of bad faith for a number of reasons. Plaintiffs had a duty to read the group health policy and further had an option to cancel within the prescribed time limit. The court also found that the policy did not lack mutuality. The court noted that the arbitration provision is applicable to both parties for “all claims or controversies” under the policy, including claims for bad faith. Kirkland v. Pan-Am. Life Ins. Co., No. 2:14-cv-2536 (S.D. Ohio Sep. 3, 2015)

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

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