Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

INSURER NOT REQUIRED TO PRODUCE COVERAGE MEMORANDA OR REINSURANCE INFORMATION IN DISCOVERY

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A federal district court in New York has held that the attorney-client and work-product privileges apply to coverage memoranda sought by an insured from AIG Specialty Insurance in an ongoing coverage and bad faith litigation where AIG declined coverage for claims brought under a pollution liability policy. The insured first sought production of a memorandum prepared by AIG’s own coverage counsel, which the court found “unquestionably” came within the attorney-client privilege. The insured then sought production of a memorandum prepared by coverage counsel for an additional insured named on the policy, who AIG had covered in the underlying lawsuit. The court found the memorandum was protected by the work-product privilege and because the insured neither demonstrated a “substantial need” for the document nor an “undue hardship” in obtaining equivalent information elsewhere, it was not discoverable. The court further held that certain “executive claim summaries” previously produced by AIG in redacted form were not discoverable. The redacted information concerned only reinsurance calculations and was therefore irrelevant. The court did, however, direct AIG to produce drafts of a coverage letter and any metadata pertaining to that letter, rejecting application of any privilege to that information. Broadrock Gas Services, LLC v. AIG Specialty Insurance Co., Case No. 1:14-cv-03927 (USDC S.D.N.Y. March 2, 2015).

This post written by Renee Schimkat.

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COURT ALLOWS PUTATIVE CLASS ACTION TO PROCEED WITH DISCOVERY REGARDING EQUITABLE TOLLING OF RESPA VIOLATIONS

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M&T Bank Corporation, M&T Bank, and M&T Mortgage Reinsurance Company unsuccessfully sought to stay all discovery in a suit brought against it in a putative class action involving allegations that M&T violated the federal Real Estate Settlement Procedures Act. The named plaintiffs were individual borrowers who entered into loan transactions with M&T and paid private mortgage insurance through M&T. M&T placed the private mortgage insurance with certain insurers who then reinsured the policies with M&T’s captive reinsurer. This scheme was allegedly an illegal sham because it did not create a bona fide reinsurance relationship. Moving to dismiss, M&T argued the entire case was barred under RESPA’s one-year limitations period. Plaintiffs countered that, under the doctrine of equitable tolling, M&T’s fraudulent conduct prevented them from discovering the RESPA violation within the one-year period.

The court allowed the plaintiffs to conduct limited discovery related to the equitable tolling argument. This ruling was in part informed by the ruling from a different judge in a companion case, Riddle v. Bank of America. The Riddle court subsequently entered an order in favor of the defendants which the plaintiffs in that case appealed. M&T thus moved for stay of all discovery pending the outcome of the appeal of the Riddle case. The motion was denied. Although some overlap existed, the court found that the Riddle court had too narrowly limited the issue as to whether plaintiffs in that case engaged in due diligence following execution of their mortgages. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-1238 (USDC M.D. Pa. Jan. 14, 2015).

This post written by Leonor Lagomasino.

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COURT AFFIRMS REINSURANCE ARBITRATION AWARD BUT DIRECTS FURTHER BRIEFING ON THE ISSUE OF SEALING DOCUMENTS

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A federal district court in New York confirmed an arbitration panel’s final award, but directed the parties to brief the issue of whether the continued sealing of supporting documents, filed in connection with the petition to confirm that award, was appropriate. Clearwater Insurance and the respondent insurance companies were parties to multiple reinsurance contracts and arbitrated their dispute concerning amounts billed under those contracts. Clearwater’s petition to confirm the arbitration award was unopposed and the court found no basis for vacating, modifying, or correcting it. The court did, however, question whether the continued sealing of documents, requested by both parties, was warranted. The documents were filed under seal because their public filing would allegedly violate a confidentiality agreement between the parties. This, the court found, did not justify the sealing nor overcome the strong presumption of public access to judicial documents. The parties were directed to submit additional briefing to the court on this issue. Clearwater Insurance Co. v. Granite State Insurance Co., No. 1:15-cv-00165 (USDC S.D.N.Y. Feb. 5, 2015).

This post written by Renee Schimkat.

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COURT REJECTS GENERAL UNCONSCIONABILITY ARGUMENT AND COMPELS ARBITRATION

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Late last year, a district court judge in Connecticut granted Defendant General Electric’s (“GE”) motion to compel arbitration based on Plaintiff’s signature to GE’s Acknowledgement Conditions of Employment Form. Ms. Pingel, plaintiff, was hired by GE in 2006. Four years later she brought a discrimination action against GE, which was later resolved. As part of that resolution, Ms. Pingel received a new position within GE. That employment was contingent on Ms. Pingel signing an employment contract containing agreed upon procedures for alternative dispute resolution. GE did not provide a hard copy of these procedures to Ms. Pingel, but did provide the location of these forms online. Both parties signed the agreement. Two and a half years later, Ms. Pingel was fired. She subsequently sued for discrimination, and GE moved to compel arbitration.

Ms. Pingel opposed the motion to compel arbitration alleging (1) the agreement to arbitrate was unconscionable and (2) the parties did not have a meeting of the minds when the contract was signed. The court did not find these arguments dispositive. First, to find an agreement to arbitrate unconscionable, the provision need be oppressive or particularly one sided. The court found that as “the delegation provision equally binds both parties [this] weighs heavily against such a conclusion.” The court further noted that general challenges to a contract, here unconscionability of the arbitration agreement, does not necessarily preclude the enforcement of said agreement. That issue is for the arbitrator to decide. Ms. Pingel did not allege any specific unconscionable provisions within the arbitration agreement; therefore the general allegations are better decided by an arbitrator. Finally, as Ms. Pingel signed the acknowledgment form, the court found this compelling evidence to show a meeting of the minds. The court noted that ignorance from failing to read a contract is not a winning argument.

The District court therefore granted GE’s motion to compel arbitration on all of Ms. Pingel’s claims. Pingle v. General Electric Company, Case No. 3:14– 00632 (CSH) (USDC D. Conn. Dec. 19, 2014).

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

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COMMUTATION, SETTLEMENT, AND RELEASE AGREEMENT OF LEGION INSURANCE COMPANY (IN LIQUIDATION) FILED UNDER SEAL AND APPROVED

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A Pennsylvania Court has approved the commutation, settlement and release agreement between Legion Insurance Company (In Liquidation) and Midwest Employers Casualty Company. Legion was judicially determined insolvent in 2003, and the Pennsylvania insurance commissioner was appointed as liquidator. Legion and Midwest previously litigated in separate proceedings coverage of over 43 separate reinsurance certificates issued by Midwest to Legion between 1994 and 2001. In approving the commutation, settlement and release agreement, the Pennsylvania court noted that no objections to approval had been presented. The court also granted leave for the liquidator to file the agreement and its supporting affidavit confidentially under seal. In re Legion Insurance Co. (In Liquidation), 1 LEG 2002 (Pa. Commw. Ct. Dec. 30, 2014) (order approving commutation & order granting leave to file under seal).

This post written by Michael Wolgin.

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