Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REJECTS INSURER’S ARGUMENT THAT IT CONTRACTED TO ITS REINSURER ALL OBLIGATIONS OWED UNDER A CEDED POLICY

by

A federal district court has denied an insurer’s motion for summary judgment on a breach of contract claim, rejecting Liberty National Life’s argument that it contracted to its reinsurer all obligations owed under a ceded policy. At issue was a reinsurance and assumption agreement where Liberty ceded to its reinsurer a number of policies. The reinsurer agreed to “assume and carry out all contractual terms, conditions and provisions” in the ceded policies and “assumed the obligations of the liabilities” for all losses and claims arising out of the ceded policies. Liberty argued that the terms of the agreement absolved it from all contractual liability owed to its policyholders. The court disagreed. Though the agreement was an assumption (as opposed to an indemnity) reinsurance agreement and the reinsurer therefore stepped into Liberty’s shoes with respect to the ceded policy, Liberty remained liable unless there was a novation of the ceded policy substituting the reinsurer for Liberty. Finding Liberty had not submitted sufficient evidence to show a novation, the court denied Liberty’s motion for summary judgment on the breach of contract claim. The court did grant Liberty summary judgment on the bad faith claim, finding the plaintiff had failed to show any tortious or unreasonable act on Liberty’s part. The court also rejected arguments as to the inadmissibility of Liberty’s summary judgment evidence, finding that Liberty’s admissions and the agreement itself were admissible and could be considered. Evans v. Liberty National Life Insurance Co., No. 13-CV-0390 (USDC N.D. Okla. Nov. 12, 2014).

This post written by Renee Schimkat.

See our disclaimer.

DISTRICT COURT GRANTS MOTION TO STAY PENDING ARBITRATION OVER NON-SIGNATORY’S OPPOSITION

by

In late August, a federal district court in Louisiana granted a group of defendants’ motion to stay pending arbitration. Plaintiff alleged breach of fiduciary duty, negligence, and fraud in connection with a trust account set up for plaintiff’s benefit. Benjamin Geller, a sports agent and financial adviser to former football player Frank Warren, recommended Mr. Warren purchase a $1,000,000 life insurance policy. Upon Mr. Warren’s death, those benefits were paid to an irrevocable insurance trust held by one of the defendants, Morgan Keegan & Co., with Geller acting as trustee. Plaintiff alleged that Geller conspired with Morgan Keegan employees to deplete this trust. The motion to stay centered on an arbitration clause in the client agreement that established the trust account. Defendants argued the doctrines of equitable estoppel, third-party beneficiary, and agency theory in support of arbitration. Plaintiff asserted that as the client agreement was induced by fraudulent representations and “never consummated,” arbitration was therefore inappropriate.

The court looked first to whether a valid agreement to arbitrate existed and then to whether the dispute fell within that agreement. Because the plaintiff never challenged the arbitration agreement, instead questioning the validity of the client agreement, the question must be heard before an arbiter. Furthermore, as a third-party beneficiary of the client agreement, plaintiff was bound by the arbitration agreement even though he was a non-signatory. Finally, as plaintiff had accepted benefits under the client agreement from Morgan Keegan, plaintiff was also bound to those terms on equitable estoppels grounds. Warren v. Geller, No. 11-2282 (USDC E.D. La., Aug. 22, 2014).

This post written by Matthew Burrows.

See our disclaimer.

COURT CONFIRMS AWARD OVER ARGUMENTS OF “MANIFEST DISREGARD,” “EVIDENT PARTIALITY,” AND “CORRUPTION”

by

A transported liquid chemical had been found degraded after shipping from Texas to South Korea. The chemical company contended that the shipper was responsible for the losses as samples taken from the chemical prior to its transport tested satisfactorily. The dispute went to arbitration where the panel determined that the company failed to show that the chemical was damaged aboard the ship, and denied the claim. The chemical company attempted to vacate the award but the court found there was no manifest disregard of the law, because the petitioners could not show error beyond a possible erroneous interpretation of the Carriage of Goods by Sea Act, and in any event, “there [was] no indication the majority [of the panel] knew that was not the law but chose to hold petitioners to a different standard.” The court also found there was no misconduct by one of the arbitrators who failed to disclose that he was suffering from a terminal brain tumor at the time of his service on the panel, notwithstanding potential arbitration rule or ethics code violations. The nondisclosure did not cause prejudice and did not rise to “evident partiality or corruption” or misconduct under the FAA, under which “an arbitrator is under no duty to disclose medical conditions.” Finding no reason to vacate the award, the court ordered the award confirmed and granted the respondents’ motion to award attorney’s fees and costs incurred in connection with the motion to vacate. Zurich American Insurance Co. v. Team Tankers A.S., Case No 13cv8404 (USDC S.D.N.Y. June 30, 2014).

This post written by Michael Wolgin.

See our disclaimer.

CEDENT LOSES MOTION FOR REINSURANCE PAYMENTS DUE TO LATE NOTICE AND “UNSATISFACTORY” PROOF OF LOSS, NOTWITHSTANDING “FOLLOW THE SETTLEMENTS” PROVISIONS

by

In a reinsurance coverage dispute involving coverage for an underlying settlement of asbestos liability, a New York court considered whether the defenses of failure to provide prompt notice and failure to provide satisfactory proof of loss precluded summary judgment in favor of the cedent. The cedent relied on “follow the settlements” provisions contained in each of the relevant four facultative reinsurance certificates. The court, however, was not convinced that these provisions entitled the cedent to coverage. One of the certificates, the court found, provided for prompt notice as a condition precedent to coverage. The court ruled that the cedent, which had submitted notice of claim to the reinsurer in 2010, had been required to provide notice of the asbestos settlement “in 2006 at the latest, when the settlement agreement was executed.” As a result, no prejudice from the late notice needed to be demonstrated, and the reinsurer was not obligated to indemnify the cedent for unpaid losses under that certificate. For the three other reinsurance certificates, which did not contain provisions deeming prompt notice a condition precedent to coverage, the court still denied the cedent summary judgment as premature, finding that the cedent failed to demonstrate that it had satisfied the certificates’ requirements to “provide[] proofs of loss in a form satisfactory to” the reinsurer. The court did rule in favor of the cedent, however, with respect to one of three reinsurance billings, where the reinsurer waived its defenses by making an initial payment without any reservation of rights. Lexington Insurance Co. v. Sirius America Insurance Co., Index No. 651208/2012 (N.Y. Sup. Ct. Sept. 18, 2014).

This post written by Michael Wolgin.

See our disclaimer.

APPEALS COURT VACATES ORDER GRANTING MOTION TO STOP ARBITRATION

by

In Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assur. Co., Inc., No. 14-5193 (6th Cir. Oct. 24, 2014), the Sixth Circuit Court of Appeals vacated the district court’s order granting plaintiff’s motion to stop arbitration.   The Sixth Circuit determined that the district court’s order determining that arbitrability of the dispute was within the court’s province, which was the basis for granting plaintiff’s motion to stop the arbitration, failed to identify what the district court found to be ambiguous about the parties’ manifest intent to submit all disputes, including disputes regarding the enforceability of any provision, exclusively to arbitration.  The Sixth Circuit, relying on Rent-A-Center, West, Inc. v. Jackson,561 U.S. 63, 67–70 (2010) and on a de novo review of the arbitration agreement, found that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court.

This post written by John Pitblado.

See our disclaimer.