Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION AWARD ROUNDUP

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Following is a selection of some of the recent decisions concerning requests to confirm, vacate or modify arbitration awards:

Evident Partiality / Fraud

Mohammad Z. Alim v. KBR, Inc., Case No. 13-11094 (5th Cir. June 5, 2014) (affirming district court’s denial of motion to vacate arbitration award, finding plaintiff had waived his partiality argument by failing to raise the known information prior to the arbitration hearing; summarily rejecting all claims that award was procured through fraud or undue means; and affirming district court’s decision to compel arbitration in the first instance);

Tenaska Energy, Inc., et al. v. Ponderosa Pine Energy, LLC, Case No. 12-0789 (Tex. Jan. 7, 2014) (reinstating trial court’s order vacating arbitration award because of arbitrator’s evident partiality and failure to disclose relevant information; rejecting claim of waiver as to partiality issue as information was never disclosed and therefore not known prior to arbitration; and ordering a new arbitration).

Exceeding Authority / Failure to Consider Evidence

Hungry Horse, LLC v. E Light Electric Services, Inc., Case No. 13-1425 (10th Cir. June 19, 2014) (affirming district court’s denial of motion to vacate, concluding arbitration panel had acted within its broad authority afforded under the parties’ arbitration agreement when issuing its award);

American Postal Workers Union, AFL-CIO v. U.S. Postal Service, Case No. 13-2579 (2d Cir. June 6, 2014) (reversing district court’s decision which had granted motion to vacate arbitral award on the basis that arbitrator exceeded his powers by applying the doctrine of collateral estoppel; holding that arbitrator’s decision to use collateral estoppel based on a prior administrative decision was not in excess of his powers; and remanding with instructions to confirm award);

Why Nada Cruz, L.L.C. v. Ace American Ins. Co., Case No. 13-20644 (5th Cir. June 3, 2014) (affirming district court’s confirmation of award which had dismissed arbitration due to untimeliness, finding arbitrator did not exceed his powers by concluding that the request for arbitration was dilatory under the parties’ agreement, and rejecting argument that arbitrator failed to hear pertinent evidence);

Seed Holdings, Inc. v. Jiffy Int’l As, et al., Case Nos. 13-CV-2284 and 13-CV-2755 (USDC S.D.N.Y. March 24, 2014) (denying motion to vacate award, and granting motion to confirm award, finding no evidence that arbitrators exceeded their authority; rejecting arguments that arbitrators failed to consider certain evidence and that arbitrators manifestly disregarded the law; and denying motions to remand or stay court actions based on jurisdictional grounds);

West Liberty Foods, L.L.C. v. Moroni Feed Co., Case No. 4:10-CV-00146 (USDC S.D. Iowa March 6, 2014) (denying plaintiff’s motion to vacate prejudgment interest awarded to defendant in arbitration, finding award to be a “reasoned award” and within arbitrator’s authority; denying defendant’s request to reimburse attorney’s fees incurred in response to plaintiffs’ alleged “bad faith” actions in filing and arguing its motion to vacate; and confirming remainder of arbitration award).

Manifest Disregard

Berkshire Wilton Partners, LLC v. Bilray Demolition Co., Inc., Case No. 2013-191 (R.I. June 9, 2014) (vacating lower court’s judgment which had vacated an arbitration award; rejecting arguments that arbitrator had manifestly disregarded both the law and the plain language of the parties’ release; and remanding with instructions to enter judgment in favor of party who had been awarded damages in arbitration);

Aerotel, Ltd. v. IDT Corp., Case No. 13-3085 (2d Cir. June 3, 2014) (affirming district court’s declination to vacate arbitration award where panel had awarded plaintiff some, but not all, lost profits sought and had declined to order specific performance under the parties’ contract; finding panel “was unquestionably applying the governing law” and therefore there were no grounds to vacate);

A&G Coal Corp., et al. v. Integrity Coal Sales, Inc., Case No. 13-2411 (2d Cir. May 9, 2014) (affirming district court’s confirmation of arbitration award, finding no support that the arbitrator manifestly disregarded the law or the parties’ agreements to justify vacatur).

This post written by Renee Schimkat.

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TEXAS SUPREME COURT VACATES $26 MILLION ARBITRATION AWARD AND REVERSES COURT OF APPEAL’S DECISION IMPOSING REQUIREMENT FOR SELECTION OF ARBITRATORS

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Nearly ten years after arbitration proceedings commenced involving a claim arising from the purchase and sale of various insurance companies, the Texas Supreme Court vacated the $26 million arbitration award entered against Americo Life, Inc. et. al. (“Americo”) in favor of Robert L. Myer and Strider Marketing Group, Inc. (“Myer”) and reversed the Court of Appeal’s judgment, finding that the arbitration panel exceeded its authority because the panel was formed contrary to the express terms of the arbitration agreement. The arbitration clause contained in the agreement between Americo and Myers provided for a tripartite arbitration, where each party appointed an arbitrator and the two arbitrators would select a third. Each arbitrator was to be a “knowledgeable, independent business person or professional.” The arbitration clause also provided that the arbitration proceedings “shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”). At the time the agreement was executed, AAA rules did not require arbitrator impartiality, but by the time the arbitration was invoked, AAA rules required by default that any arbitrator shall be “impartial and independent…”

The issue in this case centered around the AAA striking the arbitrator selected by Americo on the basis the arbitrator was not impartial. America moved to vacate the award and argued that in disqualifying the arbitrator, the AAA failed to follow the arbitrator-selection process specified in the parties’ agreement because the parties never agreed that the arbitrators must be “impartial.” The Texas Supreme Court agreed.

First, the Texas Supreme Court rejected Myer’s argument that the term “independent”, which was contained in the parties’ agreement, was the same as the term “impartial.” The Court then turned to the question of whether the incorporation by reference of the AAA Rules also incorporated the impartiality requirement even though the requirement did not exist at the time the agreement was signed. The Americo Court held the impartiality requirement was not incorporated because it conflicted with the terms of the parties’ agreement. The parties agreed to arbitrators who were “knowledgeable” and “independent,” but not impartial. Thus, because the AAA impartiality rules conflicted with the parties’ agreement, the agreement controls over the AAA rules. Therefore, the AAA should not have disqualified Americo’s arbitrator on the grounds of impartiality and the arbitration panel exceeded its authority, requiring that the award be vacated. Americo Life, Inc. v. Myer, No. 12-0739 (Texas June 20, 2014).

This post written by Leonor Lagomasino.

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FEDERAL DISTRICT COURT UPHOLDS FOREIGN REINSURER’S RIGHT TO REMOVE ACTION TO FEDERAL COURT

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The Court for the Middle District of Louisiana upheld a magistrate’s ruling denying a motion to remand filed by the Louisiana Commerce and Trade Association of Self Insurer’s Fund (“LCTA”), holding that the defendant foreign reinsurers (“Reinsurers”) properly removed the state court action under the Convention of the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”) which Congress implemented under the Convention Act, 9 U.S.C. §§201-208. In so holding, the Court first found it had subject matter jurisdiction under the Convention Act and rejected LTCA’s argument that, because the issue of arbitrability was not raised below, the state court action did not “relate to” an arbitration as required by the New York Convention. Noting the extraordinary breadth of the New York Convention, the Court found that because LTCA’s claim against the Reinsurers arose under the Reinsurance Contract which included an arbitration clause, the state court action thus related to the arbitration clause. The Court also noted that a party is not required to first move to compel arbitration before it is permitted to remove the action and, in any case, the Reinsurers in this case had advised the state court that they intended to remove the action.

The Court then turned to LTCA’s contractual argument that the Reinsurers waived their right to remove under the Service-of-Suit Clause in the Reinsurance Contract. In this case, the Service-of-Suit clause provided that the Reinsurers agreed to submit to the jurisdiction of a court of competent jurisdiction within the United States in the event they failed to pay any amount claimed under the Reinsurance Contract. The Service-of-Suit Clause, however, further provided that nothing contained in that provision constituted a waiver of the Reinsurer’s right to remove the action to a United States District Court. The Court found that this provision was not an explicit, clear, and unequivocal waiver of the right to remove, as required under applicable law, and further found it expressly and sufficiently reserved the Reinsurer’s right to removal. Louisiana Commerce and Trade Association Self-Insurers Fund v. Certain Underwriters at Lloyd’s London Subscribing to Contract Number A1430B600/A2430B600, No 13-700-JJB-RLB (M.D. La. July 15, 2014), affirming and adopting Magistrate Judge’s Report and Recommendations dated May 6, 2014.

This post written by Leonor Lagomasino.

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NORTH CAROLINA AMENDS ITS CAPTIVE INSURER LAW

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In October 2013, North Carolina enacted the North Carolina Captive Insurance Act, joining 30 other states with captive-enabling legislation. On July 7, 2014, North Carolina enacted House Bill 267, which amends the Act. The North Carolina Department of Insurance described the amendments as improving the Act to be “more competitive with other captive states, provide additional flexibility to the insurance commissioner in the regulation of captives, and allow for the formation of additional types of captives in North Carolina.” A copy of North Carolina House Bill 267 is available here.

This post written by Michael Wolgin.

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DEFENDANTS GRANTED LIMITATIONS-BASED SUMMARY JUDGMENT IN CAPTIVE REINSURANCE CLASS ACTION

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A putative class of mortgage consumers sued Flagstar Bank and its captive reinsurer alleging that they engaged in an illegal “kickback” scheme with private mortgage insurers, which scheme artificially inflated the price of such insurance for the plaintiffs, in violation of the Real Estate Settlement Procedures Act (“RESPA”). The defendants claimed plaintiffs failed to file suit within RESPA’s one year statute of limitations. Plaintiffs claimed the statute was equitably tolled because defendants actively concealed the “scheme.”

After declining to grant a motion to dismiss on the pleadings, and allowing the parties to make an adequate factual record on the statute of limitation issue for summary judgment, the court granted the defendants’ summary judgment motion. The statute ran “from the date of the occurrence of the violation,” which commences upon the closing of the loan, and that each of the plaintiffs’ claims were filed in excess of a year from closing. The court rejected the plaintiffs’ equitable tolling argument, noting that in RESPA cases, “silence is insufficient to toll the statute of limitations; the defendant must have performed an independent act of concealment upon which the plaintiff justifiably relied.” The record included no evidence of active concealment on the defendants’ part. Hill v. Flagstar Bank, Case No. 12-2770 (USDC E.D. Pa. June 26, 2014).

This post written by John Pitblado.

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