Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FEDERAL ARBITRATION ACT GOVERNS ARBITRATION BETWEEN INSURER AND AGENT, NOTWITHSTANDING INTRASTATE INSURANCE TRANSACTION

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A court compelled arbitration governed by the Federal Arbitration Act, rather than by state law, in a dispute related to insurance coverage for transported equipment that was damaged by a train derailment. When the insurer denied coverage for the equipment damage, the railway transport companies filed breach of contract and negligence claims against their insurer and the insurer’s agent, respectively. A dispute then arose between the insurer and its agent, in which both parties demanded indemnification from the other pursuant to their underlying agency agreement.

After the insurer demanded arbitration under the agency agreement with respect to the indemnification dispute, the agent objected to the FAA’s application, contending that the arbitration should be governed by New York law. The agent reasoned that the relevant transaction was the procurement of the insurance, which was completed entirely within New York, amongst New York parties. The court rejected the agent’s argument, finding that the FAA did apply because interstate commerce was, in fact, implicated. The relevant transaction was the (interstate) agency agreement between the New York agent and the California insurer, not the (intrastate) procurement of insurance. Even if procurement of the insurance policy was relevant, “insurance is not an entirely intrastate industry” and the FAA would still apply. The court also denied the agent’s request to stay the arbitration until the transport companies’ breach of contract and negligence claims were resolved, holding that the indemnification claims were not intertwined with the coverage dispute, that the potential for inefficiency is not a valid basis for stay under the FAA. Chartis Seguros Mexico, S.A. de C.V. v. HLI Rail & Rigging, LLC, Case No. 1:11-cv-03238 (USDC S.D.N.Y. Aug. 20, 2013).

This post written by Michael Wolgin.

See our disclaimer.

STATE COURT MAY NOT IGNORE FEDERALLY MANDATED ARBITRATION CLAUSE ON EQUITABLE GROUNDS

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After suffering loss from a drought, a farmer sued his insurance agent for negligent misrepresentation of the amount of crop insurance coverage available and the insurance company that issued his crop insurance policy. The insurance company moved to compel arbitration under the terms of the insurance policy, which is reinsured by the Federal Crop Insurance Corporation and subject to federal regulations requiring disagreements to be resolved by arbitration. The state superior court and court of appeals refused to compel arbitration on the grounds that arbitration would result in piecemeal litigation of the claims against the insurer and the insurance agent. On appeal, the state supreme court reversed, holding that the “Federal Arbitration Act prohibits a state court from ignoring a valid federally mandated arbitration clause on equitable grounds.” Weidert v. Hanson, No. 88293-2 (Wash. Sept. 12, 2013).

This post written by Abigail Kortz.

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COURT ORDERS UNSEALING OF CONFIDENTIAL REINSURANCE ARBITRATION INFORMATION

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A court recently unsealed certain record documents related to a reinsurance arbitration, at the request of interested nonparties. The documents were originally filed with the court in connection with a petition to confirm the arbitration award and a responsive motion to dismiss. The parties were permitted to file the documents under seal pursuant to an approved confidentiality agreement. In deciding to unseal, the court found that the documents were “judicial documents” relevant to the performance of the judicial function, and thus subject to a “presumption of access.” The weight of the presumption was “high,” in that the documents constituted the heart of the what the court was asked to act upon (notwithstanding that the case settled prior to the court’s consideration of the materials). Neither the existence of a confidentiality agreement, nor the fact that the movant nonparties were engaged in related reinsurance arbitration with one of the parties, could keep the documents protected from public access. Eagle Star Insurance Co. v. Arrowood Indemnity Co., Case No. 1:13-cv-03410 (USDC S.D.N.Y. Sept. 23, 2013).

This post written by Michael Wolgin.

See our disclaimer.

DUAL REINSURANCE LAWSUITS ALLOWED TO CONTINUE CONCURRENTLY IN DIFFERENT DISTRICTS

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As previously reported, Utica Mutual Insurance Company was successful in seeking transfer of its dispute against two reinsurers from the Southern District of New York to the Northern District of New York. The insurance company has again succeeded, defeating a motion to dismiss, and alternatively a motion to stay the proceeding in the Northern District of New York in favor of a suit initiated by one of the reinsurers against Utica in Wisconsin. Rejecting defendants’ contention that the “first-file rule” requires a stay of the New York lawsuit, the court determined that the New York suit can proceed along side the Wisconsin dispute because: a) the New York suit involves an additional defendant not present in the Wisconsin proceeding, b) the New York suit involves an additional claim under the Federal Arbitration Act, and c) Utica asserts it is not amenable to personal jurisdiction in Wisconsin. Utica Mutual Insurance Co. v. Employers Insurance Co. of Wausau, Case No. 6:12-CV-1293 (N.D.N.Y. Sept. 26, 2013).

This post written by Abigail Kortz.

See our disclaimer.

FIFTH CIRCUIT AFFIRMS DENIAL OF PETITION TO VACATE ARBITRATION AWARD

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An executive terminated by Doral Financial Corporation initiated an arbitration proceeding against Doral seeking severance compensation under contract. Doral counterclaimed, asserting that the former executive had breached a contractual non-competition clause by accepting employment at a competing bank. The arbitration panel decided both issues in the executive’s favor. Doral unsuccessfully petitioned the district court for vacatur. Doral appealed the denial of the petition to the Court of Appeals for the First Circuit. In support, Doral argued that he was denied a fair hearing in contravention of the FAA because the arbitrators had refused to issue pre-hearing and hearing subpoenas to the executive’s new employer and that the arbitrators lacked the authority to grant pre-award interest. The Fifth Circuit rejected both contentions and affirmed the denial of the petition to vacate. The appellate court held that Doral had a sufficient opportunity to present evidence at the hearing, argue for the issuance of subpoenas, and, furthermore, that the panel had the authority to award pre-hearing interest. Doral Fin. Corp. v. Garcia-Velez, No. 12-1519 (5th Cir. July 31, 2013).

This post written by Ben Seessel.

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