Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CALIFORNIA COURT DISMISSES TOLLING SUBCLASS CLAIMS WITH PREJUDICE, FINDING ISSUES BARRED BY LAW OF THE CASE DOCTRINE

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We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. In this ruling, the court granted defendant’s partial motion to dismiss the plaintiff-intervenor’s amended complaint with prejudice and to strike certain allegations from the remaining pleading.

Previously, the court granted the plaintiff-intervenor leave to file an amended complaint to cure deficiencies identified in the court’s order for partial judgment on the pleadings against the plaintiff-intervenor for failure to plead sufficient facts. In that August 2014 order, the court found that PHH’s loan disclosure documents had adequately placed the tolling subclass on notice of their claims, and that no extraordinary circumstances justified the late filing. The court also found that the plaintiff-intervenor failed to sufficiently plead a claim of fraudulent concealment apart from the underlying RESPA claim.

The court found that the allegations in the amended complaint would involve the re-litigation of these previously resolved issues. It reasoned that the amended complaint’s equitable estoppel and tolling claims “merely cloak[ed] the same facts or irrelevant facts in new legal theory, one amenable to the same defenses that have already prevailed” and were therefore barred under the law of the case doctrine. The court dismissed with prejudice because its previous order granted the intervenor one opportunity to amend, and the intervenor failed to cure the complaint’s deficiencies. Because the court had dismissed the claims with prejudice, it struck certain pleadings filed after the date of the order permitting the filing of an amended complaint as immaterial. Munoz v. PHH Corp., Case No. 08-00759 (USDC E.D. Cal. May 21, 2015).

This post written by Brian Perryman.

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FOURTH CIRCUIT REJECTS CHARACTERIZATION OF MOTIONS “FOR RECONSIDERATION,” REMANDS TO DETERMINE WHETHER DISPUTE IS ARBITRABLE

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The Court of Appeals for the Fourth Circuit recently remanded a case to the district court for full consideration of a request to compel arbitration, finding the lower court’s order “inconsistent with the emphatic federal policy in favor of” arbitration. The plaintiff, Dillon, sued several banks which were allegedly “complicit” in effectuating illegal payday loans by processing transfers on behalf of the lenders (tribal and out-of-state). The district court denied the banks’ initial motion to enforce arbitration clauses contained in the original loan agreements because the banks failed to provide authenticating evidence. When the banks renewed their motions to cure that deficiency by providing such evidence, the district court construed the motions as reconsideration motions, and denied them.

On appeal, the court analyzed the lower court’s perfunctory reasoning in construing the renewed motions as seeking reconsideration. The court rejected the idea that the banks only had one opportunity to invoke the Federal Arbitration Act’s enforcement mechanisms. Only when the party “is in default in proceeding with” arbitration does the Act foreclose the chance of obtaining a stay under its mechanisms. The court also distinguished the underlying issues presented by the initial and renewed motions to reject the notion that the law of the case doctrine justified denial. The district court’s ruling on the initial motions spoke to whether the pleadings established arbitrability did not, as law of the case, determine the renewed motions’ issue of whether Dillon consented to arbitration in the first place. The district court was instructed to, on remand, determine whether the claims are within the scope of the original loan agreement’s arbitration clause, and whether the banks forfeited those rights because they are “in default in proceeding” with arbitration. Dillon v. BMO Harris Bank, N.A., No. 14-1728 (4th Cir. May 29, 2015).

This post written by Brian Perryman.

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COURT DENIES AS MOOT INSURER’S MOTION TO REVIEW DISCOVERY

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A district court in Kansas denied as moot defendant Liberty Mutual Fire Insurance Company’s motion to review a magistrate’s order granting plaintiff Great Plains Ventures, Inc.’s motion to compel reinsurance, reserves, and claims-related materials. The magistrate judge ruled in January that Liberty Mutual failed to establish why documents Great Plains had requested in a coverage dispute were irrelevant or privileged. Thus, the magistrate judge granted Great Plains’ motion to compel. Soon thereafter, Liberty Mutual requested that the magistrate judge stay his order in anticipation of its objection to the discovery order and its motion to review the order to compel. While the motion to review was pending, the magistrate judge denied the motion to stay and ordered Liberty Mutual to produce the documents. Liberty Mutual complied, and because it did so, the court ruled that its request for review was moot. Great Plains Ventures, Inc. v. Liberty Mutual Fire Insurance Co., No. 6:14-cv-01136 (USDC D. Kan. May 1, 2015).

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

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U.K. COURT DENIES REINSURER’S SUIT TO AVOID REINSURANCE AGREEMENTS

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The Commercial Court (a subdivision of the Queen’s Bench Division of the U.K.’s High Court of Justice), recently held that an underwriter could not avoid the reinsurance contracts it had underwritten because it failed to convince the court that it would not have underwritten those contracts. In a case involving nondisclosure of loss statistics, the court determined that plaintiff reinsurer, Axa, could not avoid two reinsurance agreements that it had entered into with defendant insured, Arab Insurance Group (ARIG). The court made this finding even though ARIG failed to disclose – and perhaps even misrepresented – the loss statistics associated with its existing book of internal risk that was subject to the reinsurance. The court agreed with Axa that the misrepresentation of ARIG’s loss statistics was a material fact that should have been disclosed. However, even if ARIG had disclosed this information prior to the completion of the underwriting process, Axa would still have entered into the reinsurance agreements. Axa failed to prove they were induced by ARIG’s misrepresentation into the reinsurance contracts; they were therefore bound to those contracts. Axa Versicherung AG v. Arab Insurance Group [2015] EWHC 1939 (Comm).

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

See our disclaimer.

COURT LIMITS DISCOVERY OF INSURER’S POLICIES WITH OTHER INSUREDS, COMPELS PRODUCTION OF PRIOR ARBITRATION TESTIMONY

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Utica Mutual Insurance Company (“Utica”) sued R&Q Reinsurance Company (“R&Q) in New York federal court for payment under reinsurance certificates R&Q issued to Utica covering umbrella policies Utica issued to its insured, Goulds Pumps, Inc. (“Goulds”) from 1979 to 1981. Some of the policies Utica issued to Goulds did not state the aggregate limits under the policies, but a settlement between Utica and Goulds in an earlier coverage dispute acknowledged that each of the primary policies at issue contained aggregate limits.

In connection with the reinsurance dispute, R&Q sought to compel the production of (1) documents concerning primary insurance policies issued by Utica to other insureds and correspondence reflecting the aggregate limits, and (2) deposition and hearing transcripts from a prior arbitration between Utica and R&Q.

The court declined to compel production of other insureds’ policies, noting that the aggregate limit issue had been litigated and resolved in prior litigation. However, it ordered that the transcripts be produced, but acknowledged that whether the testimony set forth in them would be admissible in the present Utica-R&Q dispute is a different issue. Utica Mut. Ins. Co. v. R & Q Reinsurance Co., Case No. 6:14-CV-00700 (USDC N.D.N.Y. June 2, 2015)

This post written by John A. Camp.

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