Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Virginia Supreme Court Declines to Enforce Arbitration Clause in a Trust, Agrees Trusts Aren’t “Contracts” Under FAA and Virginia Law

by

Linda Anderson sued Sarah Boyle alleging that Boyle breached her duties as trustee of an irrevocable trust to which Anderson and Boyle were beneficiaries. Boyle moved to compel arbitration, citing an arbitration clause in the trust. The lower court denied the motion and Boyle appealed.

The Virginia Supreme Court granted the appeal solely to decide whether the Virginia Uniform Arbitration Act (VUAA) or the Federal Arbitration Act (FAA), each of which requires arbitration for “contracts,” compels enforcement of an arbitration provision in a trust. The court explained that a trust is, in general, a “donative instrument,” not an “agreement between two or more persons which creates an obligation to do or not to do a particular thing.” As such, the court held that a trust is not a “contract,” as required to fall within the ambit of both the VUAA and the FAA. While the VUAA also compels arbitration for certain “written agreements,” the court disagreed with Boyle that a trust qualifies as an “agreement.” Further, even if it did, the court noted that an arbitration clause would not be enforceable under the VUAA as it relates to claims between a trustee and a beneficiary, the latter of whom is not a party to any “written agreement to submit any existing controversy to arbitration.” The court therefore affirmed the lower court order denying Boyle’s motion, agreeing that neither the VUAA nor the FAA compels arbitration.

Boyle v. Anderson, No. 210382 (Va. Apr. 14, 2022).

District Court’s Order Details 28 USC § 1782 Requirements for Granting Ex Parte Petition for Discovery of Documents in Foreign Proceeding

by

The U.S. District Court for the Southern District of New York granted an ex parte petition under 28 U.S.C. § 1782(a) for the discovery of documents held by Aimbridge Hospitality, Norton Rose Fulbright, and White & Case for use in a proceeding in the British Virgin Islands. In so doing, the court noted that such ex parte petitions are “routinely grant[ed].”

A district court has the authority to grant a section 1782 petition where:

  1. The person from whom discovery is sought resides or is found in the district of the district court to which the application is made;
  2. The discovery is for use in a foreign proceeding before a foreign or international tribunal; and;
  3. The application is made by a foreign or international tribunal or any interested person.

The court also described the following discretionary factors that the court may consider:

  1. Whether the person from whom discovery is sought is a participant in the foreign proceeding, in which case the need for section 1782(a) aid generally is not as apparent;
  2. The nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign court or agency abroad to U.S. federal court judicial assistance;
  3. Whether the section 1782(a) request conceals an attempt to circumvent foreign proof-gathering restrictions; and
  4. Whether the request is unduly intrusive or burdensome.

The petition, supported by declarations and memoranda of law, satisfied the required section 1782 criteria, where the petitioner averred that the respondents all resided in or were found in the Southern District, and the documents would be used to “strengthen [the petitioner’s] position” in ongoing litigation in the British Virgin Islands, which the petitioner had initiated, making it an “interested party.” In addition, each of the discretionary factors, including the fact that courts in the Southern District “routinely grant § 1782 applications for discovery for use in the BVI,” also weighed in favor of granting the petition.

In re Application of Tethyan Copper Co. Pty. Ltd., No. 1:21-mc-00377 (S.D.N.Y. Apr. 28, 2022).

Southern District of New York Concludes That Equitable Tolling Does Not Save Untimely Petition to Confirm Foreign Arbitration Award

by

The Southern District of New York has held that a petitioner did not show that it diligently pursued its rights or that extraordinary circumstances existed to equitably toll the three-year statute of limitation to confirm a foreign arbitration award. The court therefore dismissed the petition to confirm the award on the ground that it was time-barred.

PT Rahajasa Media Internet entered into contracts with a branch of the Indonesian government to provide internet access to various locations in Indonesia. PT Rahajasa completed certain work on the projects before the Indonesian government apparently decided not to proceed with the projects. In early 2017, PT Rahajasa and the Indonesian government arbitrated how much the Indonesian government owed PT Rahajasa. On July 27, 2017, the Indonesian National Board of Arbitration awarded PT Rahajasa approximately $17 million. PT Rahajasa registered the award in an Indonesian court in August 2017, and the award became final and binding in September 2017.

On March 26, 2018, PT Rahajasa made a formal application for an order of execution in the Indonesian court, which PT Rahajasa claimed the Indonesian court was required to issue within 30 days of PT Rahajasa’s request. The Indonesian court never issued the order, despite PT Rahajasa apparently following up on its application several times.

On December 30, 2020, PT Rahajasa petitioned the Southern District to confirm the award. The Southern District issued an order to show cause as to why the petition should not be dismissed on the ground that it was filed more than three years after the arbitration award was entered.

In response, PT Rahajasa argued that the three-year statute of limitation should be equitably tolled. It claimed, among other things, that the Indonesian government had colluded to preclude it from enforcing the award in Indonesia and that the COVID-19 pandemic and other issues had hampered its attempts to enforce the award in Indonesian courts in a timely fashion.

The district court concluded that equitable tolling did not apply because PT Rahajasa had not established that it had been diligent in pursuing its rights or that extraordinary circumstances stood in its way and prevented its timely filing. The court noted that PT Rahajasa had not explained why it waited six months after the award became final to seek an order of execution or what, specifically, it did in the years thereafter to follow up on its application or what happened when it did follow up. The court also noted that the COVID-19 pandemic did not arise until years after PT Rahajasa obtained its award. Nor did PT Rahajasa explain what efforts it made to pursue its award when the pandemic required Indonesian courts to begin virtual proceedings. PT Rahajasa also did not explain why it waited until December 2020 to file its petition. With respect to extraordinary circumstances, the court explained that PT Rahajasa’s claims of collusion were “conclusory and speculative” and that PT Rahajasa had not established a causal relationship between these alleged extraordinary circumstances and an inability to petition the Southern District to confirm its award in a timely fashion. The court therefore dismissed the petition.

PT Rahajasa Media Internet v. Telecommunication and Informatics Financing Provider and Management Centre, No. 1:20-cv-11035 (Mar. 31, 2022).

New York Federal Court Denies Reinsurer’s Motions for New Trial and Judgment as a Matter of Law, Modifies Accrual Date for Prejudgment Interest

by

In a matter previously covered in this blog, the Northern District of New York was asked to determine whether Clearwater Insurance Co. (the reinsurer) was entitled to a new trial, a judgment as a matter of law, or an amendment to the judgment rendered in favor of Utica Mutual Insurance Co. (the cedent).

At trial, the jury agreed with Utica’s interpretation of the parties’ reinsurance contract and found that an underlying settlement between Utica and insured Gould’s Pumps was negotiated in good faith. As a result, the jury awarded Utica $10 million in damages under the reinsurance treaty, and a judgment was entered consistent with this verdict.

Among several post-trial motions filed by the parties, Clearwater moved for a new trial or judgment as a matter of law, arguing that the verdict was not supported by sufficient evidence, that there were errors in the jury instructions and verdict form, and that a recent Second Circuit decision nullified the jury’s verdict as a matter of law. Clearwater also moved to amend the judgment, arguing that Utica was not entitled to prejudgment interest or, in the alternative, that prejudgment interest should accrue from a later date. The court denied Clearwater’s motion for a new trial, finding the jury’s verdict to be adequately supported and upholding the jury instructions used at trial. The court also denied Clearwater’s motion for a judgment as a matter of law, finding that the cited Second Circuit decision did not nullify the jury’s verdict.

However, the court granted Clearwater’s motion to amend the judgment in part, finding that the court’s calculation of prejudgment interest from the date Utica submitted its first unpaid reinsurance billing would result in a windfall for Utica. The court determined that the reasonable accrual date for prejudgment interest was the midpoint of the unpaid reinsured billings and modified its judgment accordingly.

Utica Mutual Insurance Co. v. Clearwater Insurance Co., No. 6:13-cv-01178 (N.D.N.Y. Mar. 18, 2022).

State Court Disregards State Law Authorizing Award of Attorneys’ Fees in Arbitration Dispute Governed by FAA

by

The Nevada Supreme Court affirmed the denial of attorneys’ fees pursuant to section 38.243, N.R.S. and in association with the confirmation of an arbitration award. The Nevada statute provides “on application of a prevailing party to a contested judicial proceeding under [Nevada laws seeking confirmation, vacatur, or modification of an arbitration award], the court may add reasonable attorney’s fees and other reasonable expenses of litigation incurred.”

The Nevada Supreme Court first affirmed the lower court’s confirmation of the arbitration award, finding that the arbitrator had not exceeded its authority in rendering the award. The court then recognized that a court may not award attorneys’ fees “absent authority under a statute, rule, or contract.” Despite Nevada law authorizing such an award, the Nevada Supreme Court noted that the parties both agreed that the FAA governed judicial review of this particular arbitration award, and because neither the FAA nor the arbitration agreement itself authorized an award of post-arbitration attorneys’ fees or costs, the lower state court was correct in denying fees, contrary Nevada law notwithstanding.

In re Petition of CLA Properties LLC, No. 80427 (Nev. Mar. 17, 2022).