Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

OREGON FEDERAL COURT FINDS ARBITRATION AGREEMENT IN CGL POLICY INVALID

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Plaintiff, Technical Security Integration, Inc., a Washington company, sold certain security and surveillance equipment and services. It hired Corey Tharp as a sales associate in Oregon, to tap his connections to that state’s gaming casinos, and later terminated him. After the casinos Tharp sold contracts to refused to renew their contracts with Plaintiff, and instead signed on with the company that later employed Tharp, Plaintiff brought suit against Tharp and his employer, alleging interference with contract and related claims. Tharp and his employer asserted counterclaims, and Plaintiff sought coverage from its CGL carrier, the defendant, Philadelphia Indemnity. Philadelphia declined coverage, citing the policy’s employment-related practices exclusion, and Plaintiff thereafter brought a coverage action in federal court. Philadelphia moved to compel arbitration, citing the policy’s arbitration endorsement. Plaintiff objected. The matter was heard by a Magistrate, who held that Washington law applied, and that, pursuant to Revised Code of Washington § 48.18.200(1)(b), which prohibits insurance contracts from “depriving the courts of this state of the jurisdiction of action against the insurer,” the arbitration agreement was invalid. The Magistrate therefore denied the motion to compel arbitration. Philadelphia sought de novo review by the District Judge, who approved and adopted the Magistrate’s recommended ruling. Technical Security Integration, Inc. v. Philadelphia Indemnity Ins. Co., No. 3:14-cv-01895-SB (USDC D. Ore. May 27, 2015) (Magistrate’s report and recommendation); Technical Security Integration, Inc. v. Philadelphia Indemnity Ins. Co., No. 3:14-cv-01895-SB (USDC D. Ore. July 30, 2015) (approving and adopting Magistrate’s report).

This post written by John Pitblado.

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OIL SUPPLIER APPEALS CONOCO’S RIGHT TO BUY STAKE IN REFINERY UNIT

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In a long-standing dispute between Venezuelan state-owned Oil Company Petroleos de Venezuela SA (“Petroleos”) and ConocoPhillips, a New York district court judge upheld ConocoPhillips’ acquisition of a 50% stake in a Texas refinery. The two parties were former joint partners in an oil refining operation but disagreements between them led to the triggering of a contract provision that automatically dissolved the joint venture. Following the dissolution, the parties proceeded to arbitration.

The arbitration action concerned a range of disputes, one of which involved the parties’ Transfer Agreement, pursuant to which mandatory transfers of joint venture interests acted as a remedy for ConocoPhillips in the event of Petroleos’s breach. This was referred to as the “Call Option,” which Petroleos contended at arbitration acted as a penalty because it resulted in a purchase price of zero dollars for its share of the joint venture. The arbitration panel concluded that the Call Option was valid and enforceable under New York law and did not constitute an impermissible contractual penalty. Petroleos petitioned to vacate the portion of the award regarding the Call Option, but the district court denied the petition, and granted ConocoPhillips petition to confirm.

PDV Sweeny, Inc. v. ConocoPhillips Co., No. 14-cv-5183 (U.S.D.C. S.D.N.Y. Sept. 1, 2015).

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

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EIGHTH CIRCUIT HOLDS NJ LAW TOLLS ARBITRATION AGAINST BROKER

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The Eighth Circuit Court of Appeals recently held that New Jersey state law fraud claims against Morgan Keegan, the brokerage firm now part of Raymond James & Associates, were tolled by the plaintiffs’ efforts to collect an arbitration award. The Eighth Circuit reasoned that, while the district court correctly held that certain federal and Arkansas state law claims were time-barred, the New Jersey claims were timely and erroneously dismissed.

Zaracor v. Morgan Keegan & Co., Inc., No. 13-3315 (8th Cir. Sept. 1, 2015).

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

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FEDERAL CIRCUIT ENFORCES ARBITRATION AWARD, REJECTS FOREIGN SOVEREIGN’S IMMUNITY CHALLENGE

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In 1973, Chevron and Ecuador signed an agreement allowing Chevron to develop oil fields in Ecuador. Years later, litigation ensued and eventually Chevron commenced an arbitration action before a tribunal in the Hague. Ecuador objected to the arbitral tribunal’s jurisdiction. The tribunal rejected the jurisdictional challenge and ultimately awarded Chevron $96 million. After appeals in the Dutch courts, Chevron sought to confirm the award in a federal district court under the New York Convention. Ecuador challenged the court’s jurisdiction under the Foreign Sovereign Immunities Act (“FSIA”), lost and appealed.

The main issue before the Federal Circuit Court was whether the district court had subject-matter jurisdiction under the FSIA. Resolution of that issue turned, in great part, the arbitration provision contained in the U.S.-Ecuador Bilateral Investment Treaty (“BIT”) pursuant to which Chevron initiated the arbitration. The appellate court rejected Ecuador’s argument that Ecuador’s offer in the BIT to arbitrate certain types of disputes was not an agreement to arbitrate the Chevron dispute. The court found that BIT included a “standing offer to all potential U.S. investors to arbitrate investment disputes” and that Chevron properly accepted that offer. Thus, the court concluded, the FSIA allowed the district court to exercise jurisdiction over Ecuador to consider an action to confirm or enforce the arbitral award.

The appellate court noted that the FSIA required Chevron to make a prima facie showing that there was an agreement to arbitrate. Once Chevron met that burden, the burden shifted to Ecuador to demonstrate that the notice to arbitrate in the BIT did not constitute a valid arbitration agreement. Resolution of this question was critical, the appellate court noted, to the district court’s jurisdictional analysis: “The statute requires the District Court to satisfy itself that the party challenging immunity has presented prima facie evidence of an agreement between the parties and that the sovereign asserting immunity has failed to sufficiently rebut that evidence.” The district court had failed to make that determination, which might have been reversible error. However, the appellate court found that because the district court had separately determined that there was a valid agreement to arbitrate, there was no need to remand. Chevron Corp. v. Republic of Ecuador, No. 13-7103 (D.C. Cir. Aug. 4, 2015).

This post written by John A. Camp.

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RHODE ISLAND ENACTS AMENDMENTS TO CREDIT FOR REINSURANCE ACT

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Rhode Island recently amended its Credit for Reinsurance Act to include two provisions regarding credits for reinsurance relating to the insolvency of the ceding insurer. Specifically, the first provision states that no credit is allowed “unless the reinsurance is payable by the assuming company on the basis of liability of the ceding company under the contractor contracts reinsured without diminution because of the insolvency of the ceding company.” Additionally, the second provision states that no credit is allowed “unless the reinsurance agreement provides that payments by the assuming company shall be made directly to the ceding company or to its liquidator, receiver, or statutory successor” or directly to the insured. Finally, the amendments state that no assuming company “may pay or settle, or agree to pay or settle, any policy claim, or portion of a claim, directly to or with a policyholder of any ceding company if an order of rehabilitation or liquidation has been entered against the ceding company.” These changes appear to be to bring Rhode Island’s statute closer to the model act promulgated by the National Association of Insurance Commissioners.

R.I. HB 6179 (enacted June 17, 2015) and R.I. SB 939.

This post written by Zach Ludens.

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