Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

AIG MIGHT GAIN ACCESS TO ELIOT SPITZER’S PERSONAL EMAILS IN CONNECTION WITH REINSURANCE ENFORCEMENT ACTION

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In 2005, former New York Attorney General Eliot Spitzer commenced a civil enforcement action against AIG, AIG’s former CEO, and AIG’s former CFO Howard Smith for allegedly engaging in fraudulent reinsurance transactions. In response, Smith submitted a Freedom of Information Law (“FOIL”) request seeking the disclosure of the AG’s communications with the press regarding the complaint. A New York Supreme Court held that the AG’s office has a responsibility and obligation to gain access to Spitzer’s personal email account to determine if it contains documents that should be disclosed in accordance with the FOIL request. The court, however, also allowed the AG’s office to appeal the issue. On appeal, the Appellate Division determined that Spitzer is a necessary party and remanded the case without deciding the issue so the Supreme Court can order Spitzer’s joinder. Smith v. New York State Office of the Attorney General, No. 515758 (N.Y. App. Div. Oct. 17, 2013).

This post written by Abigail Kortz.

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RISK OF UMPIRE BIAS HELD AN INSUFFICIENT BASIS TO ENJOIN REINSURANCE ARBITRATION

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In an ongoing reinsurance arbitration between Allstate Insurance Company and OneBeacon American Insurance Company, Allstate unsuccessfully sought to enjoin the arbitration because OneBeacon’s position statement informed the umpire of OneBeacon’s selection of him as umpire. Allstate alleged that this submission (1) violated the arbitration agreement’s umpire selection protocol, which, Allstate argued, implicitly prohibited communications that threatened umpire impartiality, and (2) violated the “reinsurance industry’s custom and practice.” Allstate could not make the requisite showing of “likelihood of success on the merits” to obtain injunctive relief because it misinterpreted the selection protocol, and because “[p]reaward challenges on the basis of bias” are not permitted. Allstate also failed to show “irreparable harm,” given Allstate’s ability to challenge the final award after the arbitration was completed. Concern over potential “lack of neutrality” did not tip the balance of equities in Allstate’s favor, nor did a “technical skirmish over arbitration procedure between two reinsurance companies” rank high in terms of the public’s interest. Allstate Insurance Co. v. OneBeacon American Insurance Co., Case No. 1:13-cv-12368 (USDC D. Mass. Oct. 8, 2013).

This post written by Michael Wolgin.

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REINSURER NOT OBLIGATED TO COVER D&O CEDANT

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An insurance company that provided directors and officers liability to a lottery corporation sought coverage from its reinsurer for an employment litigation judgment entered against the lottery corporation. The reinsurance certificate stated that coverage would not be provided until the insurer’s losses totaled $5 million. The final judgment at issue was $6.7 million, which included $2.4 million in interest. Thus, the issue was whether the $2.4 million in interest was considered a “loss,” which would trigger reinsurance coverage with a final judgment of $6.7 million, or “interest on a judgment,” which would result in a final of judgment of $4.3 million which falls just shy of the $5 million threshold. The court determined that the carefully worded conditions in the reinsurance certificate made it clear that the reinsurer’s obligation to cover a portion of “interest on any judgment” was separate and apart from its obligation to cover losses and granted summary judgment in favor of the reinsurer. Seneca Insurance Co. v. Everest Reinsurance Co., Case No. 11-7846 (USDC S.D.N.Y. Oct. 17, 2013).

This post written by Abigail Kortz.

See our disclaimer.

NON-SIGNATORIES AND THE POWER TO COMPEL ARBITRATION

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The District of Connecticut recently granted a motion to compel arbitration in a suit brought by Connecticut General Life Insurance Company (“CGLIC”) for a fraudulent overbilling scheme allegedly perpetrated by participating providers of outpatient medical imaging services. The court’s analysis hinged on (1) whether CGLIC’s claim fell within the scope of the arbitration clause at issue and (2) whether the defendants, neither of whom were signatories to the contracts containing the arbitration clause, may enforce the clause against CGLIC, who, though not a signatory either, conceded that it is an intended third-party beneficiary of the contracts.

With respect to scope, the court distinguished between “broad” and “narrow” clauses, relying on CardioNet, Inc. v. CIGNA Health Corp., Case No. 13-cv-191 (E.D. Pa. May 23, 2013), to conclude that the clause, which applied to “[d]isputes arising with respect to the performance or interpretation” of the contracts, was broad and thus deserving of a presumption of arbitrability. The court also invoked judicial estoppel, as a CGLIC affiliate had urged the broad construction in CardioNet, foreclosing CGLIC’s right to later argue for a narrow reading. With respect to the authority of non-signatories to enforce the clause, the court held that, because third-party beneficiaries are bound by the terms of the contracts that benefit them, CGLIC was bound to arbitration as if it were a signatory. The court also held that the non-signatory defendants could compel arbitration because (1) the factual issues of the dispute were intertwined with the contracts containing the arbitration clauses, (2) a parent-subsidiary-like relationship existed between the non-signatory defendants and the signatory imaging servicers, and (3) the conduct underlying the claim involved both signatory and non-signatory parties. Connecticut General Life Insurance Co. v. Houston Scheduling Services, Inc., Case No. 3:12-cv-01456 (D. Conn. Aug. 29, 2013).

This post written by Kyle Whitehead.

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POTENTIAL ARBITRATION AWARD SETOFF NOT JUSTIFICATION FOR A STAY

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Absent a “pressing need,” an arbitration action and related court case in one federal district do not justify an indefinite stay of a court case in a different federal district when different reinsurance contracts and different merits are at issue, regardless of whether the parties are the same. In Employers Insurance Company of Wausau v. OneBeacon Insurance Company, a garden-variety breach of contract claim, the Western District of Wisconsin recently entertained, and subsequently rejected, OneBeacon’s motion to stay arguments (1) that a Massachusetts arbitration award could eventually result in a setoff against an expected Wisconsin judgment and (2) that Employers Insurance Company of Wausau’s dawdling conduct in arbitration could be positively impacted by an indefinite stay in court. Holding that a potential setoff is not a “pressing need” and that concerns regarding party conduct should be raised in the forum in which that conduct occurs, the court ultimately granted summary judgment to Employers because OneBeacon had not disputed its liability under the Wisconsin contracts. It also awarded Employers prejudgment interest pursuant to Wisconsin law. Employers Insurance Co. of Wausau v. OneBeacon Insurance Co., Case No. 13-cv-85-bbc (W.D. Wis. July 8, 2013).

This post written by Kyle Whitehead.

See our disclaimer.