Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DISMISSES ALL CLAIMS BROUGHT BY INSURED AGAINST REINSURANCE INTERMEDIARY AND AGENT IN CONNECTION WITH FRAUDULENT SCHEME AND ILLUSORY AGREEMENT

by

A federal district court has dismissed all claims brought against American Special Risk (ASR), a reinsurance intermediary and agent for insurer Signet, by insured Car Sense. Car Sense sued Signet and ASR in connection with a Buy Back Guarantee program that Signet offered as a way to increase customer participation in certain incentive programs offered by Car Sense. Signet represented that the BBG program was 100% secured via a reinsurance agreement with Hannover Re. ASR acted as Signet’s reinsurance intermediary and agent in negotiating and procuring the reinsurance agreement. As alleged, though Signet represented that the BBG was a legitimate insurance product, the BBG was in fact a fraudulent scheme engineered to generate one-time fees. Moreover, the reinsurance agreement did not provide for 100% security of the BBG as Signet represented but was, in fact, illusory. Car Sense sued Signet and ASR for various claims ranging from breach of contract to fraud.

The court dismissed all claims against ASR finding, in large part, that ASR did not owe any duty, and had not made any misrepresentations, to Car Sense. The court also gave notice of its intention to dismiss all claims against Signet for Car Sense’s failure to serve Signet within the time required by the Federal Rules of Civil Procedure. Car Sense, Inc. v. American Special Risk, LLC, No. 13-CV-5661 (USDC E.D. Pa. Oct. 24, 2014).

This post written by Renee Schimkat.

See our disclaimer.

NEW YORK APPELLATE COURT DISMISSES CLAIMS AGAINST REINSURER AND ITS CLAIMS ADMINISTRATOR

by

In what began as a dispute between OneBeacon America Insurance Company and its insured, Colgate, over OneBeacon’s asserted right to control the defense of claims against Colgate in connection with numerous personal injury suits, Colgate sued OneBeacon’s reinsurer, National Indemnity Company (“NICO), and its affiliated claims adjuster, Resolute Management. Colgate alleged that OneBeacon’s contractual relationship with NICO and Resolute created a conflict of interest because they served a dual role as both OneBeacon’s reinsurer and the claims adjuster under those policies. Colgate wanted to defend the actions against it, while NICO and Resolute wanted to settle the cases to minimize the legal expenses.

Colgate sued NICO and Resolute under several theories, including declaratory relief, breach of contract, tortious interference, breach of the implied covenant of fair dealing, and a statutory claim under Massachusetts law for unfair deceptive conduct. After the lower court only partially dismissed these claims, NICO and Resolute appealed. The appellate court dismissed all claims against NICO and Resolute. Central to the court’s ruling was the absence of a contract between Colgate and NICO or between Colgate and Resolute. Moreover, the agreement between NICO and Resolute provided that the agreement could not be assigned and that it did not confer any rights on third parties. Absent contractual privity or an assigment, Colgate could not assert any claims against NICO or Resolute despite their dual roles as OneBeacon’s reinsurer and Colgate’s claims administrator. OneBeacon America Insurance Co. v. Colgate-Palmolive, Index No. 651193/11 (N.Y. App. Div. Oct. 28, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

THE SEVENTH CIRCUIT REFERS ISSUE OF SCOPE OF ARBITRATION TO ARBITRATORS

by

The Seventh Circuit Court of Appeals held that it lacked jurisdiction over an interlocutory appeal of an order that would direct the arbitrator to include year 2008 in a pending arbitration proceeding brought under the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA). Central States assessed liability against US foods in 2008 and 2009 because US foods withdrew in part from an underfunded multiemployer pension plan. US Foods requested arbitration pursuant to the MPPAA for the year 2009, but failed to do so for year 2008. In return, Central States sued US Foods to collect the 2008 assessment. US Foods requested that the district court order the arbitrator in the pending arbitration regarding the 2009 assessment to consider also the amount owed for 2008, but the district court refused.

While section 16(a)(1)(B) of the Federal Arbitration Act (FAA) allows interlocutory appeals from orders denying requests for arbitration under section 4 of the FAA, US Funds could not rely on the FAA to establish appellate jurisdiction to review the district court’s denial because section 4 pertains only to arbitration requests contained in written agreements. This arbitration did not concern any written agreement. Furthermore, the Seventh Circuit noted, because arbitration regarding year 2009 was ongoing, the issue as to whether year 2008 should be included in said arbitration must first be decided by the arbitrator, not the court. Central States, Southeast and Southwest Areas Pension Fund v. US Foods, Inc., No. 13-1566 (7th Cir. July 30, 2014).

This post written by Whitney Fore.

See our disclaimer.

ARBITRATION DENIED IN MORTGAGE LIFE INSURANCE DISPUTE WHERE NEITHER NOTE NOR POLICY REFERENCED ARBITRATION AGREEMENT

by

A court refused to compel arbitration in a dispute surrounding the cancellation of and failure to pay life insurance benefits under a debtor group life insurance policy. The relevant note and insurance policy did not contain an arbitration agreement. The defendants, however, attempted to compel arbitration based on arbitration agreements formed in connection with three other loans made to the plaintiff. The court was not persuaded as none of the three transactions was directly connected with the mortgage and life insurance policy that formed the basis of the plaintiff’s claims. The arbitration agreements did not reference the relevant note and lender, but instead referenced the other notes and lenders not at issue in the dispute. The court therefore concluded that there was “no evidence that Plaintiff agreed to arbitrate disputes arising out of the” mortgage, note, or insurance policy. Bucher v. American Health & Life Insurance Co., Case No. 2:14-cv-659 (USDC W.D. Pa. Aug. 28, 2014).

This post written by Michael Wolgin.

See our disclaimer.

COURT OF APPEAL COMPELS ARBITRATION BASED UPON RELATED DOCUMENTS

by

On August 29, 2014, the United States Court of Appeals for the Eleventh Circuit, in reversing the district court on interlocutory appeal, found that an indemnification agreement, performance bonds, and a subcontract between different parties formed a single transaction, therefore allowing indemnitors to compel arbitration.

The University of Alabama hired Brice Building Company (“Brice”), a general contractor, to develop a student housing complex. Brice then entered into a subcontract and arbitration agreement with Atlantis Drywall and Framing (“Atlantis”). Atlantis secured performance bonds through Hanover Insurance Company (“Hanover”), a condition necessary to work on the project. The subcontract contained an arbitration provision, but the bond did not. However, the bond incorporated the subcontract by reference. When Atlantis defaulted on its work, Hanover sought indemnification.

At issue before the district court was whether the arbitration clause in the subcontract between Brice and Atlantis required a signatory to arbitrate with a non-signatory in a related dispute. The circuit court found that the agreements entered into were all part of the same subject matter despite being signed by different parties. For that reason, the court noted that these documents should be viewed as a single transaction. The court further reasoned that, contrary to Hanover’s assertion, the bond does relate to the subcontract since it incorporated the subcontract between Brice and Atlantis. The district court therefore erred when it declined to read the three documents as a single transaction, denying arbitration. Hanover Ins. Co. V. Atlantis Drywall & Framing LLC, No. 13-14482 (11th Cir. Aug. 29 2014).

This post written by Matthew Burrows.

See our disclaimer.