Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO COMPEL NONSIGNATORY TO JOIN REINSURANCE ARBITRATION

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On April 8, 2014, we reported on National Indemnity Company’s (“NICO”) attempt in a Nebraska federal district court to enjoin Transatlantic Reinsurance Company from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York.

The Illinois district court recently refused to compel arbitration against NICO, finding that NICO was a not a signatory to the underlying reinsurance agreement containing the arbitration agreement between Transatlantic Re and the cedent, Continental Insurance Company. The court also found that the language of the arbitration clause was not broad enough to include nonsignatories, and further found that NICO, by its conduct, never assumed the obligation to arbitrate. The court also interpreted the agreements between Continental and NICO and determined that the Transatlantic Re’s arbitration provisions were never incorporated in those agreements by reference. Finally, the court held that NICO was not estopped from disclaiming an obligation to arbitrate because it never asserted any rights of its own for its direct benefit under Transatlantic Re’s reinsurance agreement, notwithstanding the fact that NICO did derive certain indirect benefits. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 1:14-cv-01535 (USDC N.D. Ill. June 24, 2014).

This post written by Michael Wolgin.

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U.K. COURT DISMISSES RETROCESSIONAIRE’S DEFENSE IN “FOLLOW THE SETTLEMENTS” DISPUTE

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A British retrocessionaire sued its retroceding reinsurer in a coverage dispute regarding the “follow the settlements” doctrine. The primary insurer at issue, ACE INA Overseas Insurance Company, insured Tesco, which operated 212 commercial premises in Thailand that were destroyed in a flood in late 2011. The loss was initially estimated by adjusters to result in £90-100 million ultimate loss payout. Tesco initially demanded and made claim for £125,300,000 in losses. After interposing coverage defenses, ACE ultimately settled the claim for £82,400,000.

Tokio Marine Europe Insurance participated in an excess of loss reinsurance treaty that was triggered by the claim, and had retroceded a portion of that risk to Novae Corporate Underwriting, Ltd. Novae challenged whether it was bound by the “follow the settlements” clause, which typically precludes challenges to the cedent’s settlement on reasonableness grounds. It refused Tokio’s claim and Tokio brought suit. Novae interposed a legal defense that the “follow the settlements” clause is understood to import both a “reasonableness” of the settlement component, and a “professionalism” in adjusting component. Novae’s defense was based on the latter. It alleged ACE had failed to have the underlying coverage issues properly vetted under Thai law. Tokio moved for summary judgment on the defense. The Court granted Tokio’s motion, finding that “notwithstanding that ACE did not further investigate the coverage afforded by the Local Policy, including the scope for deductibles, and did not delve more deeply into the question whether the high rain fall was the sole source or original cause of Tesco’s loss before concluding the settlement, Novae’s defence that ACE, in failing to take these steps, failed to act properly or in a businesslike manner has no prospect of success.” Tokio Marine Europe Insurance Ltd v. Novae Corporate Underwriting Ltd., [2014] EWHC 2105 (U.K..High Ct. Justice, Comm. Div., July 2, 2014)

This post written by John Pitblado.

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TENTH CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION BASED ON UNSIGNED AGREEMENT

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The Tenth Circuit recently affirmed a district court’s denial of a motion to compel arbitration in a securities fraud lawsuit brought by two investors in a company. The basis for the motion to compel was an arbitration provision contained in an unsigned copy of the company’s Operating Agreement that had been provided to the plaintiffs prior to them making their investment in the company. The Tenth Circuit ruled that the mere fact that the plaintiffs invested in the company following their receipt of an unsigned Operating Agreement did not establish that the plaintiffs agreed to, and accepted, the terms of the Operating Agreement, including its arbitration provision because under the controlling state law, a contact between the parties had not been formed. The Tenth Circuit also agreed with the district court that the plaintiffs were not equitably estopped from asserting their lack of signature on the Operating Agreement as a basis for avoiding arbitration. The Tenth Circuit acknowledged the legal principle that a party may be bound by an arbitration agreement in a contract he did not sign, if that party is seeking to enforce rights under that contract. But the court found no evidence that the plaintiffs in the instant case were seeking to enforce rights under the Operating Agreement. Bellman v. I3Carbon, LLC, No. 12-1275 (10th Cir. May 29, 2014).

This post written by Catherine Acree.

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DODD-FRANK DOES NOT BAR ARBITRATION OF CLAIMS IF ARBITRATION AGREEMENT DOES NOT EXEMPT DODD-FRANK WHISTLEBLOWER CLAIMS

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The Fourth Circuit affirmed order from the United States District Court for the Eastern District of Virginia compelling arbitration of former employee’s federal claims under the Age Discrimination in Employment Act (ADEA), the Family and Medical Leave Act (FMLA), and the Employee Retirement Income Security Act (ERISA). The Court held that where a plaintiff is not pursuing Dodd-Frank whistleblower claims, neither 7 U.S.C. § 26(n)(2), nor 18 U.S.C. § 1514A(e)(2) of Dodd-Frank overrides the Federal Arbitration Act’s mandate that arbitration agreements are enforceable. The Court examined the interplay between the Federal Arbitration Act and Dodd-Frank and determined that while Dodd-Frank created causes of action for whistleblowers and then protected those causes of action by barring their waiver in “predispute arbitration agreements” nothing in Dodd-Frank suggests that Congress sought to bar arbitration of every claim if the arbitration agreement in question did not exempt Dodd-Frank claims. Santoro v. Accenture Federal Services, LLC et. al., No. 12-2561 (4th Cir. May 5, 2014).

This post written by Kelly A. Cruz-Brown.

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COURT DENIES RENEWED ATTEMPT TO DISMISS DEFENSES IN REINSURANCE DISPUTE ASSOCIATED WITH ASBESTOS-RELATED LIABILITIES

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In this case, plaintiffs sought leave to renew their motion to dismiss certain retention-related and assignment affirmative defenses based on provisions of certain Loss Portfolio Transfer (LPT) agreements, and to re-argue the motion to dismiss based on their contention that the court: (1) overlooked arguments raised by the parties; (2) determined issues sua sponte without factual and legal support; and (3) misapplied precedent to the undisputed facts at issue.  The court denied plaintiffs’ motions.  The court determined that plaintiffs had failed to refute defendant’s assertion that the LPT may have transferred all of the plaintiffs’ relevant interests and constituted an impermissible assignment because plaintiffs failed to provide documentation showing that the cap in the LPT agreements could be exceeded.  The court also decided that plaintiffs failed to meet their burden of showing that the defendant’s retention defenses were without merit as a matter of law.  The court determined that the LPT did not satisfy the definition of treaty insurance because it was not obtained in advance of coverage. Furthermore, the court determined that the parties’ statements concerning the extent of plaintiffs’ assignment of their interests in the insurance certificates in question were not fatal to defendant’s assignment defenses as a whole.  Granite State Ins. Co. v. Transatlantic Reinsurance Co., Index No. 652506/2012 (Sup. Ct of N.Y., County of N.Y. June 18, 2014).

This post written by Kelly A. Cruz-Brown.

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