Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DENIES INSURER’S REQUEST TO ARBITRATE

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In a case involving a dispute arising from a fire at the Wisconsin County Courthouse, a Wisconsin federal court issued an order denying Lexington Insurance Company’s motion to participate in an arbitration between the two insurers primarily responsible for the losses. Lexington argued it was an excess insurer (or reinsurer – the parties disagreed) for the policy issued by the State of Wisconsin Local Government Property Insurance Fund insuring the county. In addition to coverage afforded by the Fund, the county was also insured by Cincinnati Insurance Company for losses to cover machinery and equipment that might not otherwise be covered by the Fund’s policy.

The Fund and the Cincinnati policies included a joint loss agreement (“JLA”) which provided that in the event of a dispute, the insurers would pay half of the disputed amount to their insured, the county, and arbitrate the dispute thereafter. The county took advantage of this provision. Lexington then sought to intervene in the ensuing arbitration, arguing that while its policy did not include a joint loss agreement, it was a follow-form policy which included that provision. The court agreed with Lexington, finding that although the Lexington policy was “a little strange,” it expressly stated it was a follow-form policy to the Fund’s policy and, further, it did not expressly exclude or supersede the joint loss agreement. The court, however, disagreed with Lexington’s view that it was entitled to participate in the arbitration between the Fund and Cincinnati. The joint loss agreement did not apply in this case because it did not apply to Lexington or allow for Lexington’s participation in the arbitration. State of Wisconsin Local Government Property Insurance Fund v. Lexington Insurance Co., Case No. 15-CV-142-JPS (USDC E.D. Wis. Apr. 17, 2015).

This post written by Brian Perryman.

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ARBITRATION AWARD CONFIRMED IN QUOTA SHARE REINSURANCE DISPUTE

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An arbitration award to Petitioner, Employers Insurance of Wausau A Mural Company (“Wausau”), has been confirmed after Respondents withdrew their prior objections.  The dispute arose over payment obligations stemming from a Quota Share reinsurance agreement between the Respondents, Nutmeg Insurance Company and Twin City Fire Insurance Company (“Nutmeg/Twin”), and Wausau. The dispute went to arbitration where a panel, finding in favor of Wausau, directed Nutmeg/Twin to provide documentation relating to the claim of loss— including proof of payment and a narrative on the appropriateness of a loss settlement award.

Nutmeg/Twin subsequently objected to Wausau’s petition to confirm the award on jurisdictional grounds for “non-final issues,” specifically the parties’ obligations under various remaining claims. Wausau argued that Nutmeg/Twin’s objections were moot as the parties’ obligations had been performed. The court, however, did not need to resolve this question as Nutmeg/Twin withdrew their arbitration award objections as part of a settlement arrangement.  Employers Insurance of Wausau v. Nutmeg Insurance Company, Case No. 14-CV-9284 (USDC S.D.N.Y. Mar. 10, 2015).

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

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FIRST CIRCUIT REINSTATES ARBITRAL AWARD DESPITE ARBITRATION PANEL’S POTENTIALLY ERRONEOUS CONCLUSIONS

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The First Circuit Court of Appeals recently reversed the district court’s vacatur ruling and remanded the matter for entry of an order confirming an arbitration award. While the First Circuit found that several of the arbitration panel’s holdings may have been erroneous, the court held that “even serious error” by arbitrators will not invalidate an award and, further, “any error by the panel . . . does not rise to the level necessary to justify vacatur.”  Plaintiff Robert Fenyk filed a complaint in Vermont state court alleging Raymond James Financial Services (RJFS) fired him because of his sexual orientation and his status as a recovering alcoholic in violation of Vermont employment laws. RJFS countered that Fenyk should not be afforded the protections of Vermont employment law because Fenyk was not an employee. RJFS also moved to compel arbitration pursuant to a previously signed agreement between the parties. Fenyk dismissed the suit and submitted his claims to arbitration.

In arbitration, Fenyk sought to amend his proceeding to bring additional claims under federal, New York, and Florida law. The arbitral panel denied Fenyk’s motion to amend but did award him $600,000 in back pay and $36,042.03 in attorney’s fees and costs. RJFS challenged the award in the district court, arguing that the arbitration panel had misapplied Florida law, the state where Raymond James is based. RJFS further argued that Fenyk’s claims were made beyond the one-year statute of limitations for civil rights cases, and therefore barred. The district court agreed with these positions and vacated Fenyk’s previous award, finding that the arbitrators had exceeded their authority.

A panel of three First Circuit judges unanimously reversed, remanding for the entry of an order confirming the arbitration award.  The Court held that although there was uncertainty as to whether the arbitrators had correctly applied applicable law, even “serious error” of law is not a basis for invalidating an arbitration award, and the uncertainty did not establish that they had exceeded their authority under the arbitration provision.   Raymond James Fin. Servs., Inc. v. Fenyk, 780 F.3d 59 (1st Cir. 2015) (No. 14-1252).

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

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COURT PRECLUDES DISCOVERY OF REINSURANCE INFORMATION IN AIRPORT CONSTRUCTION INSURANCE COVERAGE DISPUTE

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In a construction loss coverage litigation brought by Indianapolis Airport Authority (IAA) against its builders risk insurer, Travelers Property Casualty Company, IAA unsuccessfully attempted to issue a subpoena to Travelers’s reinsurer. The subpoena sought various reinsurance agreements, premium and underwriting information, analysis, communications, and loss reports. Travelers moved for a protective order and to quash IAA’s subpoena on the grounds that the discovery of reinsurance information was overly broad, unduly burdensome and not discoverable. Travelers argued that the material requested contains “sensitive business information typically not relevant to coverage itself.” The court agreed that the discovery requested was overbroad in that “IAA requests reinsurance discovery from 2005 through July 10, 2013, despite the fact that the steel tower collapse at issue in this litigation occurred January 24, 2007.” The court further found that the communications requested were irrelevant because they did “not speak to Travelers’ intent and do not clarify any ambiguous terms of the policy.” The court quashed the subpoena and entered a protective order precluding IAA “from obtaining any discovery of reinsurance documentation.” Indianapolis Airport Authority v. Travelers Property Casualty Co. of America, Case No. 1:13-cv-01316 (USDC S.D. Ind. April 7, 2015).

This post written by Michael Wolgin.

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FIFTH CIRCUIT AFFIRMS VACATUR OF ARBITRATION AWARD WHERE ARBITRATOR FAILED TO FOLLOW PROVISIONS GOVERNING SELECTION OF ARBITRATOR AND FORUM

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Organizational Strategies Inc. (OSI) had entered into an agreement with Capstone Associated Services Ltd. for the latter to form three captive insurance companies for OSI. Included in the contract was an arbitration clause that required any disputes to be resolved under American Arbitration Association rules. PoolRe (a third-party insurer), and the three captive insurers separately entered into contracts that included different arbitration provisions requiring application of International Chamber of Commerce rules. Ultimately, all of the agreements were cancelled, and Capstone demanded arbitration for breach of contract against OSI under AAA rules. When PoolRe sought to compel a separate arbitration and was unable to appoint an Anguilla-based arbitrator through the mechanism envisioned under its contracts, PoolRe intervened in the OSI arbitration for the “limited purpose of having [the arbitrator] appoint an Anguilla-based arbitrator.” Instead of appointing an Anguilla arbitrator, however, the OSI arbitrator applied AAA rules and exercised jurisdiction over PoolRe’s claims, finding that PoolRe had waived its right to arbitration in Anguilla by intervening. An award later issued, finding that OSI had breached its contracts with Capstone, PoolRe, and a law firm involved with the captive insurance program. The arbitrator granted Capstone, PoolRe and the firm more than $450,000 in attorneys’ fees, expenses and costs.

OSI moved to vacate the entire award in Texas federal court on the grounds that the arbitrator exceeded his authority by including PoolRe in the arbitration; the arbitrator was not authorized under the contracts to appoint himself as the arbitrator of PoolRe’s claims nor to apply AAA rules instead of ICC rules. The court agreed and vacated the entire award, reasoning that PoolRe’s intervention had “tainted the entire process.” The Fifth Circuit affirmed, holding that because the arbitrator “acted contrary to the express arbitrator- and forum-selection clauses in the arbitration agreements to which PoolRe was a party” the district court’s holding that the arbitrator exceeded his authority would be affirmed. The Fifth Circuit further explained that a district court does not err “by failing to vacate in part, particularly where the arbitrator awarded a lump sum ‘to be divided among the parties as they see fit.’” PoolRe Insurance Corp. v. Organizational Strategies Inc., No. 14-20433 (5th Cir. April 7, 2015).

This post written by Michael Wolgin.

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