Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

MOTION TO COMPEL ARBITRATION GRANTED BASED ON ORIGINAL DRAFT OF ARBITRATION CLAUSE RATHER THAN ON FINAL VERSION INCLUDED IN WRITTEN CONTRACT

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In deciding a motion to compel arbitration in a dispute over insurance coverage to be provided after Hurricane Ike, a district court in Louisiana found that the parties intended for a draft version of an arbitration clause, rather than the final version of the clause contained in a written contract, to be in effect. Interpreting the draft version, the court found that the narrowly drafted clause that called for arbitration of disputes “as to the amount to be paid under this Policy” encompassed the dispute at issue. A non-signatory insurance adjustor was also allowed to compel arbitration because plaintiff’s claims against that particular defendant referenced or presumed the existence of the agreement and centered on the adjustor’s alleged misconduct in its role as an adjustor for the defendant insurers who were parties to the agreement containing the arbitration clause. Aker Kvaerner IHI v. National Union Fire Insurance Co. of Louisiana, Case No. 10-CV-00278 (W.D. La. Dec. 2, 2013).

This post written by Abigail Kortz.

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THE SCOPE OF DISCOVERY LIMITATIONS MAY AFFECT THE AVAILABILITY OF STAYS

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In a putative class action involving captive reinsurance “sham” contracts, and illegal kickbacks in the residential mortgage insurance industry in violation of the Real Estate Settlement Procedures Act, the Middle District of Pennsylvania denied Defendant-insurers’ motion to stay proceedings pending the resolution of a factually similar case, Riddle v. Bank of America Corp., pending in the Third Circuit Court of Appeals. A court may stay proceedings so as to abide by the outcome of another case that may substantially affect it or be dispositive of the issues, but the appropriateness of such a stay is conditioned on the claims from both proceedings being factually indistinguishable. In Riddle, the court imposed a narrow limitation on discovery, allowing discovery only on the issue of whether Plaintiffs engaged in due diligence following execution of their mortgages. The Cunningham court, however, determined that such a limitation was too narrow, ruling that the equitable tolling doctrine is an entangled, “two-pronged [inquiry] into both plaintiffs’ and defendants’ conduct,” the latter of which encompasses Defendants’ attempts to collectively and fraudulently conceal the improprieties of the reinsurance arrangements. The court found that whether the Third Circuit’s decision in Riddle will control or substantially inform the Cunningham court’s outcome is indeterminable, as Defendants’ contention that the record to be developed in discovery will be identical to the record in Riddle is entirely speculative and premature. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-01238-CCC-SES (M.D. Pa. Jan. 14, 2014).

This post written by Kyle Whitehead.

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POTENTIAL FOR FRUITS OF DISCOVERY FROM AN AMERICAN LITIGATION TO BE USED IN A FOREIGN ARBITRATION NOT THE BUSINESS OF AN AMERICAN COURT

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Creating an interesting procedural posture, a German engineering company, GEA Group AG, brought suit against Flex-N-Gate Corporation and its CEO, billionaire Shahid Khan, in federal district court after instituting arbitration proceedings against Flex-N-Gate in Germany. Immediately after filing suit, GEA sought a stay of all proceedings, including discovery, in the district court pending the outcome of the arbitration proceedings. Khan, not a party to the arbitration or to the contract authorizing arbitration, sought a limited lift of the stay in order to conduct enough discovery to defend himself, which the district court allowed. Over GEA’s objections that Khan would simply pass along the “fruits of his discovery” to Flex-N-Gate to use in the German arbitration, the Seventh Circuit affirmed the district court’s decision as “eminently sensible.” The Seventh Circuit wondered “[w]hat business is it of an American court” whether the German arbitration panel decides to allow in the evidence obtained through discovery in American litigation? GEA Group AG v. Flex-N-Gate Corporation, No. 13-2135 (7th Cir. Jan. 10, 2014).

This post written by Abigail Kortz.

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MISSOURI APPROVES FIRST FOREIGN REINSURERS UNDER ITS CREDIT FOR REINSURANCE LAW

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The Missouri Department of Insurance has announced its approval of two Swiss reinsurers, Swiss Reinsurance Co. Ltd. and Swiss Re Corporate Solutions Ltd., under Missouri’s “credit for reinsurance” law. This allows the two reinsurers to post reduced capital for Missouri transactions, based in part on their high credit rating from recognized rating agencies, and their respective capital surpluses, which far exceed the $250 million minimum under the law ($22.9 billion, and $2.65 billion, respectively).

This post written by John Pitblado.

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REINSURANCE “FOLLOW THE SETTLEMENTS” DISPUTE REFERRED TO MANDATORY MEDIATION

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Utica Mutual’s reinsurance lawsuit with Clearwater Insurance has been ordered to mediation. The reinsured (Utica) asserted claims for breach of contract and declaratory relief, alleging that the reinsurer (Clearwater) breached and is expected to continue breaching certain facultative reinsurance contracts covering a share of losses incurred by the reinsured under umbrella liability insurance policies. The reinsured contended that the reinsurer refused to pay a portion of asbestos claims arising out of a settlement the reinsured entered into with the underlying insured. The case was referred to mandatory confidential mediation on January 8, 2014, and is required to be completed within four months. Utica Mutual Insurance Co. v. Clearwater Insurance Co., Case No. 6:13-cv-01178 (USDC N.D.N.Y. Sept. 20, 2013 & Jan. 8, 2014) (Complaint & Order).

This post written by Michael Wolgin.

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