Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION AWARD ROUNDUP

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Following is a roundup of recent opinions on motions concerning the confirmation, vacation, and modification of arbitration awards, organized by the issues presented in the motions:

Public Policy

Potenciano L. Aggarao, Jr. v. Mol Ship Mgt. Co. Ltd., et al., Case No. 1:09-cv-3106-CCB (USDC D. Md. Aug. 7, 2014) (granting motion to vacate Philippine arbitration decision on the basis that it violated U.S. public policy because the foreign arbitrator improperly denied an injured seafarer the opportunity to pursue certain remedies to which he was entitled under U.S. general maritime law)

Jurisdiction

Ecopetrol S.A. et al. v. Offshore Exploration and Production, LLC, Case No. 1:14-cv-529-JGK (USDC S.D.N.Y. Sept. 10, 2014) (holding that an interim award was confirmable, that there was no manifest disregard of controlling law concerning the arbitrators’ jurisdiction, and that the arbitrators acted within the scope of their authority and in accordance with the rules governing the International Centre for Dispute Resolution)

Evident Partiality

Cellu-Beep, Inc. v. Telecorp Comm., Inc., Case No. 13-cv-7236-NRB (USDC S.D.N.Y. July 17, 2014) (finding no evident partiality where arbitrator suggested that a statute of limitations defense might apply where neither party had previously raised that issue)

Manifest Disregard

Gerald W. Hayden v. CISCO Sys., Inc., Case No. 3:12-cv-464-VLB (USDC D. Conn. Sep. 2, 2014) (denying motion to vacate, no manifest disregard in age discrimination case)

Galloway Construction, LLC v. Utilipath, LLC, et al., Case No. 3:13-CV-161-PLR-CCS (USDC E.D.Tenn. Oct. 21, 2014) (denying, on reconsideration, a motion to vacate an arbitration award based on alleged manifest disregard of the law)

Vito F. Cardinale, et al. v. 267 Sixth St., LLC, et al., Case No. 1:13-cv-4845 (USDC S.D.N.Y. Sep. 26, 2014) (no manifest disregard, arbitrator did not exceed his authority, award not “irrational”)

This post written by Catherine Acree.

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FOURTH CIRCUIT AFFIRMS ORDER DISMISSING CASE TO PERMIT ARBITRATION AGAINST NON-SIGNATORY TO ARBITRATION AGREEMENT

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An arbitration agreement was contained in a retail installment contract. The Fourth Circuit affirmed the lower court’s dismissal of the case pending arbitration against a non-signatory to the arbitration agreement on two grounds: (1) the dispute, which involved the parties’ obligations under the retail installment contract, had a “significant relationship” to the contract; and (2) the plaintiff’s claims relied on the contract and the plaintiff was therefore “equitably estopped from disclaiming the contract’s arbitration provision.” Lomax v. Weinstock, Friedman & Friedman, P.A., No. 14-1130 (4th Cir. Sept. 4, 2014).

This post written by Michael Wolgin.

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EXPENSES ONCE AGAIN FOUND TO BE PART OF COVERAGE LIMIT IN BATTLE AGAINST REINSURER

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In November, an Illinois appellate court affirmed an order granting defendant MidStates Reinsurance Corporation’s (“MidStates”) motion for judgment on the pleadings because the reinsurer had fulfilled its obligation to pay up to the policy limits of various unambiguous facultative contracts.

Continental Casualty Company (“Continental”) sought reinsurance coverage for excess third-party liability and commercial casualty policies issued for RSR Corporation and Borg-Warner Corporation. In the 1990s and early 2000s, environmental claims arose from injuries linked to asbestos and hazardous waste at these insured facilities. MidStates alleged that subsequent remittances to Continental were in line with the limits provided in the reinsurance certificates. Continental alleged that MidStates breached their contract as the reinsurance certificates did not include limits on expenses.

Relying on Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., 903 F.2d 910 (2d Cir. 1990) and its progeny, the court found that the reinsurance certificates placed a limit on indemnity costs and expenses. Looking at the four corners of the contracts, the court found no indication that expenses were removed from the liability limit. The court found that even though only two of the five certificates included the language “inclusive of expenses,” this did not create an ambiguity. Instead, “this inclusion clearly appears to be an abundance of caution rather than an intention to exclude expenses from the liability cap.” Continental Cas. Co. v. MidStates Reinsurance Corp., No. 1-13-3090 (Ill. App. Ct. Nov. 4, 2014).

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

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SPECIAL FOCUS: DISCLOSURE OF REINSURANCE AGREEMENTS UNDER FEDERAL RULE OF CIVIL PROCEDURE 26

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Federal Rule of Civil Procedure 26(a)(1)(A)(iv) requires the disclosure of certain insurance agreements as part of the obligations of a party to make required initial disclosures. Under what circumstances might that provision require the disclosure of reinsurance agreements? John Camp discusses that issue in a Special Focus feature.

This post written by Rollie Goss.

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FIRST CIRCUIT CONCLUDES PLAINTIFF’S DELAY WAIVED ARBITRATION CLAUSE

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Joca-Roca Real Estate, LLC sued Robert T. Brennan asserting claims of fraud and breach of contract arising out of an agreement between the two parties which contained an arbitration clause. Although Brennan raised the failure to arbitrate as an affirmative defense, it never pursued arbitration. Instead, the parties engaged in significant discovery. On the eve of trial, Joca-Roca moved to stay the proceedings pending arbitration. Both the magistrate judge and the district court denied the motion to stay, finding that Joca-Roca waived its arbitral rights.

On appeal, the First Circuit noted that, while federal law favors agreements to arbitrate, arbitration clauses can be waived expressly or through conduct. In determining whether a conduct-based waiver occurred, a court must ascertain whether there has been undue delay in the assertion of arbitral rights and whether, if arbitration supplanted litigation, the other party would suffer unfair prejudice. The longer the delay and the more extensive the litigation-related activities that have taken place, the stronger the inference of prejudice. Joca-Roca’s attempt to invoke the arbitration was deemed not only untimely, but unsupported by an explanation for the belated request. Moreover, during this time, Brennan was prejudiced because he was forced to engage in discovery which would not have been required in arbitration. The prejudice to Brennan was even greater given the looming trial date. On this basis, the First Circuit affirmed the lower court’s ruling denying Joca-Roca’s motion to stay the proceedings pending arbitration. Joca-Roca Real Estate, LLC v. Brennan, No. 14-1353 (1st Cir. Dec. 1, 2014).

This post written by Leonor Lagomasino.

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