Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DEFAMATION ACTION REGARDING FRAUDULENT ACCOUNTING CLAIM WITHSTANDS MOTION TO DISMISS

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Action by Greenberg against Spitzer for defamation based on public statements by Spitzer about Greenberg’s stewardship of AIG regarding, among other things, Spitzer’s assertion that Greenberg engaged in fraudulent accounting. Spitzer’s motion to dismiss as to those statements was denied. The court found no documentary evidence sufficient under New York procedural rules to conclude on motion to dismiss that Spitzer’s statements were substantially true as a matter of law. Greenberg v. Spitzer, 44 Misc. 3d 1202 (N.Y.S.C., June 24, 2014).

This post written by Kelly A. Cruz-Brown.

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THIRD CIRCUIT: FEDERAL COURT SHOULD DECIDE WHETHER AN ARBITRATION CLAUSE AUTHORIZES CLASSWIDE ARBITRATION – NOT THE ARBITRATOR

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The Third Circuit recently was presented with the question of whether, in the context of an otherwise silent contract, the availability of classwide arbitration is to be decided by a court rather than an arbitrator. The underlying dispute involved a putative class action brought under the Fair Labor Standards Act concerning an employer’s classification of its workers as overtime-exempt employees. The two named plaintiffs each had signed an employment agreement requiring that any dispute relating to their employment be submitted to arbitration, but the agreements did not mention classwide arbitration. A New Jersey federal court granted the employer’s motion to compel arbitration, but held that the arbitrator would have to decide whether the arbitration could include classwide claims. The arbitrator issued a partial award, and addressed the “who decides” issue, ruling that the employment agreements permitted classwide arbitration. The employer then returned to federal court and filed a motion to vacate the arbitrator’s award, and the district court denied the motion. On appeal, the Third Circuit reversed, concluding that the issue of the availability of classwide arbitration should be decided by a court, not an arbitrator.

In reaching its conclusion, the Third Circuit noted that “questions of arbitrability,” such as whether the parties are bound by a given arbitration clause or whether an arbitration clause in a concededly binding contract applies to a particular type of controversy – are “gateway issues” to be resolved by a court. This is in contrast to “procedural” questions that are resolved by arbitrators. The Third Circuit ruled that the permissibility of classwide arbitration is not solely a question of procedure or contract interpretation (which would be decided by an arbitrator) but rather involves a “substantive gateway dispute qualitatively separate from deciding an individual quarrel” (which would be decided by a court). In reaching this conclusion, the Third Circuit followed the Sixth Circuit holding in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), which is the only other circuit court opinion to have squarely addressed the “who decides” issue.

David Opalinski v. Robert Half Int’l Inc., No. 12-4444 (3rd Cir. July 30, 2014).

This post written by Catherine Acree.

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COURT DENIES MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

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In prior proceedings, Glory Wealth obtained an England arbitration award against Industrial Carriers, Inc. (ICI) and a confirmation of the award in the United States District Court for the Southern District of New York.

Glory Wealth instituted an admiralty case in the Eastern District of Virginia to attach a vessel to satisfy the confirmed arbitration award, naming ICE and Freight Bulk PTE, Inc. (FBP) as defendants. FBP moved to vacate the arbitration confirmation judgment of the Southern District of New York, relying on Rule 60(b)(4), Fed.R.Civ.P., contending the New York judgment was void for lack of jurisdiction. The Virginia district court held that FBP could not collaterally attach the New York confirmation judgment, since FBP was not a party to the New York proceeding. Strong elements of judicial estoppel appear to have influenced the Virginia district court’s decision, since the court noted that FBP had repeatedly denied any status as ICI’s alter ego, yet in the motion at bar to dismiss Glory Wealth’s action, FBP contended it had standing as a party to the New York case to move to vacate the New York judgment. Flame S.A and Glory Wealth Shipping PTE Ltd. v. Industrial Carriers, Inc., Vista Shipping, Inc. and Freight Bulk PTE, Inc., Case No. 2:13-cv-658 (U.S.D.C., E.D. Va., July 17, 2014).

This post written by Kelly A. Cruz-Brown.

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NEW JERSEY’S “DIRECT ACTION STATUTE” IS NOT A BAR TO JUDGMENT CREDITOR’S COVERAGE ACTION

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A New Jersey appellate court recently addressed that state’s “direct action statute,” concluding that it did not prevent judgment creditors from pursuing a coverage action arising out of an LMX reinsurance spiral. The plaintiffs in the underlying action were former shareholders of certain insurance companies, and they sued the insurers’ managing general agent for professional negligence. The MGA, now defunct, failed to answer. On the eve of the damages hearing, the MGA’s professional liability and excess carriers (Travelers and ERSIC) asserted a variety of coverage defenses, and denied the claim. The plaintiffs obtained a $92 million judgment against the MGA.

After obtaining their judgment, the plaintiffs filed suit in New Jersey against Travelers and ERSIC seeking coverage under the two policies. The trial court dismissed the coverage case due to lack of standing. The trial court based its decision, in part, on New Jersey’s so-called “direct action statute,” N.J.S.A 17:28-2. That statute requires that certain types of policies (those addressing injury to a person and certain loss or damage to property) contain a provision “that the insolvency or bankruptcy of the person insured shall not release the insurance carrier from the payment of damages for injury sustained or loss occasioned during the life of the policy, and stating that in case execution against the insured is returned unsatisfied in an action brought by the insured person because of the insolvency or bankruptcy, then an action may be maintained by the injured person against the [insurer] under the terms of the policy.” The trial court accepted the defendants’ argument that the statute authorizes a direct action against an insurer only for the particular personal injury and property damage risk specified in the statute.

The appellate court disagreed, first noting the general principle that after an injured plaintiff obtains a judgment against an insured tortfeasor that remains unsatisfied due to insolvency, the plaintiff “stands in the shoes” of the insured with respect to the insurance policy and thus acquires standing to pursue an action against the insurer. The court rejected the “direct action statute” argument, holding that just because the statute mandates that certain specifically identified types of policies must contractually provide for the right to a post-judgment action, it does not follow that no such right exists in connection with other types of policies. The appellate court noted that “direct action statute” is a misnomer because the statute does not actually authorize direct actions. Rather, it prohibits insurers from contractually disclaiming, in the specifically enumerated policy types, an injured party’s right to sue the insurer for an unsatisfied judgment. The statute does not provide that derivative or post-judgment actions are available only in regard to those certain types of policies. Accordingly, the plaintiffs had standing to pursue their coverage action. Ferguson v. Travelers Indem. Co., Case No. A-3530-12T3 (N.J. Super. Ct. App. Div. August 4, 2014).

This post written by Catherine Acree.

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ALASKA ISSUES BULLETIN ON REGULATIONS MODIFYING SURPLUS LINES REQUIREMENTS

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Alaska’s Division of Insurance has released a bulletin notifying licensees, surplus lines insurance companies in the State of Alaska, and other interested parties that it has adopted regulations modifying surplus lines requirements to conform to Alaska statutory changes due to the federal Nonadmitted and Reinsurance Reform Act of 2010. The regulations include modifications to diligent search requirements, additional requirements for the notice of nonrenewal and premium increases, and additional fees for certain licenses. All affected parties must comply with the new requirements as of September 4, 2014, the effective date of the regulations. Alaska Ins. Bulletin No. 14-05 (Aug. 13, 2014).

This post written by Renee Schimkat.

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