Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DEFERS RULING ON APPOINTMENT OF UMPIRE PENDING DISCLOSURES TO DETERMINE NEUTRALITY

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We previously reported on December 17, 2013, about a dispute in federal court between Nationwide Mutual Insurance Company, National Casualty Company, and Employers Insurance Company of Wausau (collectively, “Nationwide”) and Arrowood Indemnity Company. The dispute concerned the process for appointing a “tie-breaking” umpire in a series of reinsurance coverage arbitrations. Most of the reinsurance agreements contained express provisions regarding the steps to be taken to select the umpire, including the “drawing of lots.” However, certain of the treaties – referred to as the 1967 Treaties – did not provide a clear process for what to do if the two party-appointed arbitrators failed to agree on the selection of the umpire. The court instructed the parties to follow the procedure set forth in the other treaties, and then report back regarding how to handle the appointment under the 1967 Treaties. Once an umpire had been validly appointed pursuant to the terms of the other treaties, the same umpire would be “presumptively appropriate for appointment by the Court” for the remaining disputes under the 1967 Treaties.

After the court issued those instructions, Joseph Goldberg was selected as the umpire pursuant to the terms of the other treaties. Thereafter, Nationwide moved the court to appoint Goldberg as the umpire for the remaining disputes regarding the 1967 Treaties. Arrowood objected, arguing that the decision about Goldberg’s appointment under the 1967 Treaties was premature because the parties had not yet had an opportunity to obtain disclosures from Goldberg in connection with organizational meetings to determine whether he could be neutral. On April 9, 2014, the court agreed with Arrowood and deferred ruling until after the organizational meetings have been held and the parties have had sufficient opportunity to consider the resulting disclosures. Employers Insurance Co. of Wausau v. Arrowood Indemnity Co., Case No. 12-cv-08005-LLS (USDC S.D.N.Y April 9, 2014).

This post written by Catherine Acree.

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FURTHER DEVELOPMENTS IN ONGOING REINSURANCE DISPUTE

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A reinsurance dispute between Guarantee Trust and American Medical has been ongoing for some time; we posted prior updates in March 2011 and July 2013. Most recently, Guarantee Trust filed motions seeking to file a second amended complaint to add a request for specific performance and seeking a preliminary injunction requiring American Medical to post a bond to prevent a potential insolvency from impeding Guarantee Trust’s collection of any future judgment. The court denied both motions. No amended complaint would be allowed because Guarantee Trust could not show “excusable neglect” for having waited so long after its “need” for the equitable remedy first arose – months after the deteriorated financial strength of American Medical was publicized. Because Guarantee Trust had no equitable relief in its complaint and only a claim for money damages, the court ruled that it had no power to enjoin American Medical’s use of its property by requiring it to post a bond. Guarantee Trust Life Insurance Co. v. American Medical & Life Insurance Co., Case No. 10 C 2125 (USDCN.D. Ill. May 5, 2014).

This post written by Kyle Whitehead.

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COURT CONSTRUES PARTIES’ AGREEMENT TO ALLOW NEW YORK STATE COURTS TO RULE ON STATUTE OF LIMITATIONS DEFENSE

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The issue confronting the court in In re ROM Reinsurance Management Co. v. Continental Insurance Company was whether the timeliness of a demand for arbitration was a determination for the Court or for the arbitrators. The parties agreed that the “arbitration laws of New York State” shall govern the parties’ arbitration. Under New York’s arbitration laws, in contrast to the Federal Arbitration Act, resolution of a statute of limitations defense can be raised as a threshold issue in the courts. In contrast, under the FAA, the limitations defense is presumptively reserved to the arbitrator, not a court, except where the parties agree to leave timeliness issues to the court. The parties’ intent to have New York state law govern enforcement of the agreement, which includes the statute of limitation defense, must be stated with “critical language concerning enforcement.” Otherwise, all controversies, including issues of timeliness, are subjects for arbitration. The ROM court found that the provision at issue was sufficient. The court further reasoned that its ruling was consistent with the FAA’s goals because it enforced the agreement under the terms agreed upon by the parties, even if the result would be that the arbitration is stayed whereas it would have gone forward under the FAA. In re ROM Reinsurance Management Co. v. Continental Insurance Co., No. 11809 654480/12 (N.Y. App. Div. Mar. 11, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

PARTIES AGREE TO DISMISSAL WITH PREJUDICE OF REINSURANCE DISPUTE PENDING IN ILLINOIS FEDERAL COURT

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A dispute over two facultative reinsurance certificates pending in the United States District Court for the Northern District of Illinois was voluntarily dismissed on March 26, 2014. The parties, R&Q Reinsurance Company, as plaintiff, and Sentry Insurance, as defendant, stipulated to the dismissal of that case with prejudice. We previously reported on this case in a February 22, 2013 post, discussing a December 12, 2012 ruling on this matter ordering R&Q to provide copies of the certificates at issue. R&Q Reinsurance Co. v. Sentry Insurance, Case No. 12 C 9788 (USDC N.D. Ill. Mar. 26, 2014).

This post written by Leonor Lagomasino.

See our disclaimer.

BANKRUPTCY TRUSTEE’S ACTION FOR CROP REINSURANCE PROCEEDS IS TIME-BARRED

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A federal district court has held that a bankruptcy trustee’s action to compel payment of crop insurance proceeds is time-barred by virtue of the Federal Crop Insurance Act (FCIA) and the insurance policies’ arbitration provisions. The trustee brought the action against the Federal Crop Insurance Corporation (FCIC), as reinsurer, and the U.S. Department of Agriculture’s Risk Management Agency (RMA) seeking payment of policy proceeds for the benefit of the debtor’s estate. The court held that the trustee was precluded from asserting claims against the FCIC and RMA because the trustee failed to commence arbitration or take any legal action to contest the now-insolvent insurer’s claims decision within the one-year limitations period set out in the FCIA and in the policies themselves. The court rejected the trustee’s argument that the automatic stay triggered by the bankruptcy case affected the limitations period, reasoning that the stay applied only to actions against the debtor, not to prevent a debtor from offensively asserting a claim. The court also rejected the trustee’s arguments that the arbitration provisions of the policies were “core” bankruptcy issues that could only be addressed by the bankruptcy court; that the limitations period was excused or waived; and that the doctrine of estoppel prevented enforcement of that limitations period. The court granted the FCIC’s and RMA’s motion to dismiss or in the alternative for summary judgment and denied the trustee’s motion for partial summary judgment. Van Curen v. Federal Crop Insurance Corp., Case No. 13-04601 (USDC N.D. Cal. Apr. 21, 2014).