Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER OBTAINS AWARD OF ATTORNEY’S FEES AGAINST CEDENT THAT FAILED TO TIMELY PRODUCE ELECTRONICALLY STORED INFORMATION

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This case was brought by the cedent, Michigan Millers Mutual Insurance Co., seeking indemnity and expense payments arising from various underlying lawsuits, under a Casualty Excess Reinsurance Agreement. A discovery dispute arose when Michigan Millers failed to comply with its repeated promises to produce a substantial amount of electronically stored material. In an order awarding attorney’s fees to the defendant, reinsurer Westport Insurance Corp., the court found that Michigan Millers delayed for months, and then, “compliance was obtained only after Westport filed its motion to compel” on the eve of the scheduled hearing. Michigan Millers Mutual Insurance Co. v. Westport Insurance Corp., Case No. 1:14-cv-00151 (USDC W.D. Mich. Nov. 7, 2014).

This post written by Michael Wolgin.

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THE IMPORTANCE OF SELECTING AN AVAILABLE ARBITRATION FORUM

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The Eleventh Circuit affirmed a Florida district court’s denial of Cashcall’s motion to compel arbitration, as the forum selected in the parties’ loan agreement was not available.  Appellee Abraham Inetianbor initially borrowed $2,600 from Western Sky Financial LLC. He subsequently repaid $3,252.65 to the servicer of the loan, CashCall, over twelve months. Mr. Inetianbor refused to pay a subsequent bill from Cashcall because he believed his financial obligations had been fulfilled. CashCall disagreed, and reported Mr. Inetianbor’s purported default to credit agencies. Mr. Inetianbor then sued, inter alia, for defamation and usury violations.

The loan agreement mandated any dispute be arbitrated by the Cheyenne River Sioux Tribal Nation (the “Tribe”). Despite attempts to comply with arbitration, the Tribe explained to Mr. Inetianbor and the district court on multiple occasions that the Tribe does not authorize arbitration.  CashCall argued that the specified arbitral forum was not integral to the agreement, and therefore its unavailability should not cause the court to deny its motion to compel. The Court looked to “how important the term was to one or both of the parties at the time they entered into the agreement” – to determine whether the arbitration agreement is integral. In this case, the agreement made multiple references to the Tribe. In nine paragraphs regarding arbitration in the contract, the Tribe was specifically mentioned in five of them. The Court concluded that the contract’s use of “shall” and “is required to” was sufficient evidence of the intent to make the Tribal arbitral forum the exclusive forum.  Since that arbitral forum was unavailable, Appellant’s motion to compel arbitration was denied.  Inetianbor v. Cashcall, Inc., No. 13-cv-60066-JIC (11th Cir. 2014).

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

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FIO ISSUES REPORT ON GLOBAL REINSURANCE MARKET AND ITS IMPORTANCE TO THE U.S. INSURANCE INDUSTRY

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On December 31, 2014, the Federal Insurance Office (FIO) issued a report entitled “The Breadth and Scope of the Global Reinsurance Market and the Critical Role Such Market Plays in Supporting Insurance in the United States.”  The report was prepared pursuant to the Dodd-Frank Act.  It provides an overview of the history, forms, and purposes of reinsurance, the U.S. regulatory framework governing reinsurance, and the global reinsurance market.  The report analyzes the important role that global reinsurers play to U.S. insurance industry generally.  It does not, however, purport “to analyze the extent to which reinsurance or any particular reinsurer could be systemically important.”

The report discussed two roles of the federal government in the reinsurance market.  First, it mentions that the Dodd-Frank Act contains several provisions relating to the oversight of reinsurance.  It is noted that the approach of those provisions is “to enhance uniformity in the state-based insolvency regulation of insurers and reinsurers by increasing deference to the state in which the reinsurer is domiciled or licensed.”

Second, it discusses some of the history of credit for reinsurance collateral reform, and mentions that efforts by the NAIC to achieve uniformity with respect to this area through a Model Act have not been successful.  The report states that the Treasury Department and the United States Trade Representative are considering exercising their authority to enter into an international agreement  concerning this issue, which would preempt inconsistent state laws.

This post written by Michael Wolgin.

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ILLINOIS COURT ISSUES CORRECTED OPINION ON EXPENSES BEING INCLUDED IN REINSURANCE LIMIT

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As we previously reported, an Illinois appellate court recently concluded that the limit stated on certain reinsurance certificates applied to both indemnity expenses as well as defense expenses, relying on the often cited case from the Second Circuit, Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2nd Cir. 1990.) On December 16, 2014, the court issued a substituted opinion, making non-substantive changes to its prior opinion. Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Dec. 16, 2014.)

This post written by Catherine Acree.

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CALIFORNIA’S “THIRD PARTY LITIGATION EXCEPTION” NOT PREEMPTED BY THE FAA

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A California appellate court recently examined that state’s legislative response to the situation where a party moves to compel arbitration and some of the parties to the dispute are not parties to the arbitration agreement. In a situation including an arbitration provision of a reinsurance agreement, the court interpreted the so-called “third party litigation exception” to compelling arbitration, which according to the Court of Appeals addresses “the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate.” Section 1281.2(c) of the California Code of Civil Procedure provides that a court need not order arbitration if it determines that: (1) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party; (2) the dispute arises out of the same transaction or series of related transactions; and (3) there is a possibility of conflicting rulings on a common issue of law or fact.  The court concluded that the California statute was not preempted by the Federal Arbitration Act, relying on an opinion of the Untied States Supreme Court which held that the application of the third party litigation exception of section 1281.2(c) to stay the arbitration of a contract dispute involving interstate commerce did not undermine the goals and policies of the FAA, and was not preempted by the FAA.  Arrow Recycling Solutions, Inc. v. Applied Underwriters, Inc., No. B245379 (Cal. Ct. App. Jan. 8, 2015), modified (Cal. Ct. App. Jan. 12, 2015).

This post written by Catherine Acree.

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