Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT RULES FEDERAL ARBITRATION ACT REQUIRES STAY, NOT DISMISSAL, OF LITIGATION

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In Katz v. Cellco Partnership, the United States Court of Appeals for the Second Circuit confronted the question of “whether district courts retain the discretion to dismiss an action after all claims have been referred proceedings,” or should stay the litigation. Acknowledging a split in the circuits, the court, in the context of an order compelling arbitration under the Federal Arbitration Act answered, “stay.”

Katz sued Cellco (better known as Verizon) on behalf of a putative class of Verizon subscribers. Katz’s contract with Verizon contained an arbitration clause that required arbitration under the FAA. Verizon moved to compel arbitration and stay the proceedings. Katz sought to void the arbitration provision on constitutional grounds. The district court (1) rejected Katz’s constitutional argument; (2) granted Verizon’s motion to compel arbitration; and (3) having compelled arbitration, dismissed Katz’s claims. The sole issue addressed by the Second Circuit was whether the case should have been dismissed or stayed.

The Second Circuit outlined the divide among federal circuit courts on the stay versus dismiss question. The federal courts of appeals requiring a stay include the Third, Seventh, and Tenth Circuits; those allowing dismissal include the First, Fifth, and Ninth Circuits; the Fourth Circuit remains uncommitted. The Second Circuit then analyzed the question in the light of the Act’s language, which states that if a suit is “referable to arbitration,” the court “shall … stay the trial of the action until such arbitration has been had….” That language, along with the Act’s underlying policy, makes a stay mandatory. Thus, the Second Circuit joined the circuit’s ruling in favor of a stay over dismissal. Katz v. Cellco Partnership, No. 14-138 (2d Cir. July 28, 2015).

This post written by John A. Camp.

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NEW HAMPSHIRE COURT APPROVES COMMUTATIONS CONCERNING THE HOME INSURANCE COMPANY

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A superior court in New Hampshire has entered two orders – one concerning Arrowood Surplus Lines Insurance Company, the other concerning Providence Washington Insurance Company – approving commutations regarding The Home Insurance Company. Separate motions – one for Arrowood, the other for Providence Washington – were brought by New Hampshire’s Insurance Commissioner as Home’s liquidator regarding liabilities ceded from Home to Arrowood and Providence Washington to Home. Home has been in liquidation since 2003. In the Matter of the Liquidation of the Home Insurance Co., No. 03-E-0106 (N.H. Super. Ct. June 15, 2015).

This post written by Zach Ludens.

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NEW YORK FEDERAL COURT ORDERS END TO ARBITRATION FIGHT OVER DOCUMENT ALLEGEDLY WITHHELD PRIOR TO ARBITRATION

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A federal district court in New York entered an order enjoining an attempt at a second arbitration initiated by Equitas Insurance Limited and Certain Underwriters at Lloyd’s of London against Arrowood Indemnity Company. The second attempt at arbitration comes after five years of dispute, which resulted in a $45 million arbitration award in favor of Arrowood. After the arbitral award and a court order confirming the award, the Underwriters filed a motion for post-judgment discovery and relief from judgment based on a document that the Underwriters had obtained in another proceeding against Arrowood that purportedly showed the disingenuity of Arrowood’s stance in the arbitration. The court denied the motion, finding that such a motion “cannot be used to collaterally attack an arbitration award for misconduct in the arbitration in the guise of an attack on the judgment confirming it.” Following the court’s order, the Underwriters demanded a second arbitration. In response, Arrowood filed a motion seeking to enforce the court’s earlier order.

The court held that Section 10 of the Federal Arbitration Act provides “the exclusive means of addressing and redressing wrongdoing in an arbitration proceeding” and that any such grounds must be raised within three months of the award. Finding that the Underwriters’ second attempt at arbitration was “in direct contravention of the FAA” and that a second arbitration cannot be used to undo the award of the first, the court enjoined the Underwriters’ attempts at a second arbitration—perhaps bringing the dispute to a conclusion. Arrowood Indemnity Co. v. Equitas Insurance Limited, No. 1:13-cv-07680-DLC (USDC S.D.N.Y. July 30, 2015).

This post written by Zach Ludens.

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UNITED STATES SUPREME COURT CONSIDERING A CALIFORNIA APPELLATE COURT OPINION INVALIDATING A CLASS ACTION ARBITRATION WAIVER

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In a Special Focus article Rollie Goss previews another arbitration case coming before the United States Supreme Court involving the issue of whether a class arbitration waiver is unconscionable, and the impact of such a finding on the viability of the agreement to arbitrate.

This post written by Rollie Goss.

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PARTY WAIVED UNTIMELY DEFENSE TO ARBITRATION, NOTWITHSTANDING PARTY’S CLAIM THAT COUNSEL COMMITTED MALPRACTICE

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The court confirmed an arbitration decision awarding damages in favor of workers compensation insurers against various insured employee-staffing companies. One of the defendant companies contended that it never executed the underlying agreement with the insurers, that the panel thus exceeded their powers in entering the award, and that the award should be vacated. The court rejected this argument, agreeing with the panel’s determination that the company waived its non-signatory defense. The court examined the procedural history of the arbitration and held that the arbitration proceeding continued for twenty-six months before the defendant asserted its defense. The court found that the company was “represented by legal counsel throughout the dispute resolution process,” that as “a matter of law, litigants are bound by the acts and omissions of their chosen agents, including lawyers,” and that “legal bungling” did “not justify reopening a judgment.” The court was further persuaded by the fact that the company first raised the defense only after a partial final award was entered, ordering the company to post a bond. While the court noted that it did “not take lightly” the company’s sworn statement that it did not authorize its purported attorney to represent that it approved or ratified the underlying arbitration agreement, the court explained that this was an alleged legal malpractice matter and not a basis to vacate the arbitration award. Zurich American Insurance Co., et al. v. Staffing Concepts International, Inc., et al., Case No. 1:14-cv-03454 (USDC N.D. Ill. July 23, 2015).

This post written by Michael Wolgin.

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