Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

MICROSOFT TAKES HOME THE GOLD IN ARBITRATION AGAINST YAHOO!

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For the past several years, Yahoo! has been merging its search engine and search ads system, Panama, with Microsoft’s Bing search engine. Yahoo! “paused” its efforts to integrate with Microsoft in Taiwan and Hong Kong when Microsoft CEO Steve Ballmer announced that he plans to step down. Microsoft considered this “pause” a breach of their agreement with Yahoo! and initiated an emergency arbitration in which the arbitrator ordered Yahoo! to “use all efforts” to complete the Taiwan and Hong Kong transitions in 2013. Yahoo! moved to vacate the award in the S.D.N.Y. on the basis that the injunctive relief granted to Microsoft was not interim relief as authorized by the arbitration agreement, but was final. The court denied Yahoo!’s petition and confirmed the arbitration award because the arbitrator had a “colorable basis” for concluding that an injunction was necessary to restore the status quo. Yahoo!, Inc. v. Microsoft Corporation, Case No. 13-7237 (S.D.N.Y. Oct. 21, 2013).

This post written by Abigail Kortz.

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NO U.S. EXCISE TAXES ON FOREIGN RETROCESSIONS

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Foreign retrocession insurance transactions are beyond the reach of IRS excise taxes based on the plain language of 26 U.S.C. § 4371(3), which aims to tax insurance transactions involving policies issued by foreign insurers or reinsurers. The District Court for the District of Columbia recently granted summary judgment to a Bermuda reinsurer in its suit against the IRS for a refund of an excise tax extracted from the foreign reinsurer in connection with its ceding of risk to a retrocessionaire. The Government maintained that Congress intended to impose a tax on any and all successive levels of insurance or reinsurance obtained from a foreign insurer, but the court held that the statute had clear internal limitations on its application. Specifically, taxes could be levied on premiums paid on policies of reinsurance covering specific insurance contracts, including casualty insurance, indemnity bonds, life insurance, sickness or accident insurance, or annuity contracts. However, retrocession policies are reinsurance policies covering the risks of reinsurance policies, not one of the types of insurance contracts enumerated by Section 4371(3). Validus Reinsurance, Ltd. v. United States, Case No. 13-0109 (ABJ) (D.D.C. Feb. 5, 2014).

This post written by Kyle Whitehead.

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TENTH CIRCUIT HOLDS FAA PREEMPTS NEW MEXICO UNCONSCIONABILITY LAW

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New Mexico law considers arbitration provisions that apply primarily to the claims that one party to the contract is likely to bring to be unconscionable and unenforceable.  This law, the Tenth Circuit holds, is preempted by the Federal Arbitration Act because it is based on the underlying assumption that arbitration is inferior to litigation in court.  Supreme Court precedent is clear that arbitration provisions cannot be invalidated by generally applicable contract defenses, like unconscionability, “that derive their meaning from the fact that an agreement to arbitrate is at issue.”  Thus, an arbitration provision that permits a nursing home to litigate its most likely claims against its residents, but requires arbitration of the residents’ most likely claims against the nursing home, is enforceable.  THI of New Mexico at Hobbs Center, LLC v. Patton, No. 13-2012 (10th Cir. Jan. 28, 2014).

This post written by Abigail Kortz.

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COURT DECLINES TO SEAL CONFIDENTIAL REINSURANCE PROVISIONS

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A New York federal court declined to seal portions of a reinsurance agreement at the request of intervening reinsurer Battenkill Insurance Co., LLC (“Battenkill”). Battenkill intervened in an interpleader action brought by Wells Fargo Bank regarding the respective of rights of the various defendants to certain trust proceeds. Battenkill sought to introduce its reinsurance agreement with one of the defendants, and moved to have the agreement sealed due to, what the Court deemed to be “boilerplate” concerns about confidential, proprietary information. The Court held that redacting the agreement as requested would eliminate key, relevant terms pertinent to Battenkill’s substantive grounds for intervention, and might also preclude objecting parties from relying on further redacted portions in any response thereto. It therefore held that Battenkill had not met the high threshold necessary to sealing. Wells Fargo Bank, N.A. v. Wales LLC, No. 13-Civ-6781 (USDC S.D.N.Y. Jan. 27, 2014)

This post written by John Pitblado.

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JUDGE SURVIVES RECUSAL EFFORTS IN CASE AGAINST HANK GREENBERG ALLEGING FRAUDULENT REINSURANCE TRANSACTIONS

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A New York appellate court affirmed the denial of Maurice “Hank” Greenberg’s and former AIG CFO Howard Smith’s motion to recuse the trial judge in a case charging the two with fraudulent reinsurance transactions designed to conceal AIG’s negative financial results. The court found that the trial judge’s “comments at oral argument on the recusal motion and purported improprieties at various proceedings,” did not “demonstrate that the court improperly exercised its discretion in denying defendant’s motion for recusal.” The court explained that, while the judge “at times may have been irritated with defense counsel and the prolonged litigation, it cannot be said that his comments, alone or in the aggregate, caused his impartiality to be reasonably questioned.” The court further found to be persuasive the fact that “defendants did not move for recusal until recently, after the court had ruled against them on summary judgment motions, after years of litigation before it.” People v. Greenberg, Case No. 2014 NY Slip Op 00621 (N.Y. Ct. App. Feb. 4, 2014).

This post written by Michael Wolgin.

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