Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION AWARD ROUND-UP

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Arbitrator Exceeding Powers

Prime United Inc., v. Sears Holdings Management Corp., Case No. 12 C 5364 (N.D. Ill. July 16, 2013) (vacatur denied where arbitrator did not exceed powers in offsetting claimant’s damages by respondent’s counterclaim award)

Golden Temple of Oregon, LLC. v. Puri, Case No. 3:11-cv-01358 (D. Ore. Aug. 7, 2013) (vacatur granted, arbitrator exceeded powers or imperfectly executed them by failing to consider impact of license agreement in trademark dispute)

Manifest Disregard of Law

Physicians Insurance Capital, LLC v. Praesidium Alliance Group, LLC, Case No. 4:12-CV-1789 (N.D. Ohio July 18, 2013) (granting motion to confirm, denying vacatur, finding no manifest disregard of the law).

Arbitration Procedure

Bridgeport Ventures LLC v. PanAm Management Group, Inc., No. 11-13971 (11th Cir. July 30, 2013) (affirming decision confirming award, finding district court had diversity jurisdiction, and respondent’s petition to vacate untimely)

Pochat v. Merrill, Lynch, Pierce, Fenner & Smith, Inc., Case No. 12-22397 (S.D. Fla. Aug. 23, 2013) (granting motion to confirm, but modifying award to allow offset for counterclaim amount)

Evident Partiality

Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, Kochav S.A.R.L., No. 12-3247 (2d Cir. Aug. 30, 2013) (affirming decision to confirm award where no evident partiality, no refusal to consider material or pertinent evidence).

This post written by John Pitblado.

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MORE TRACTION FOR THE CREDIT FOR REINSURANCE MODELS

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In an effort to implement reduced collateral requirements for ceding insurers, New Hampshire and Delaware have both enacted legislation that conforms with the NAIC’s amendments to its Credit for Reinsurance Model Law and Regulations. New Hampshire’s amended Reinsurance law, introduced as House Bill 231 on January 1, 2013, took effect on September 13, 2013. N.H. Rev. Stat. Ann. § 405:45-:52-a. New Hampshire is also considering amending its related regulation, N.H. Code Admin. R. Ins. 600, as originally proposed on July 18, 2013. Delaware’s amended Credit for Reinsurance regulation was first published for comments on May 1, 2013, and became effective on August 15, 2013. 18 Del. Admin. Code § 1003. Though not a Model state, Hawaii also recently adopted amendments, effective July 1, 2013, relating to conditions under which risk retention captive insurers may qualify for reinsurance credits on risks ceded to a reinsurer. Haw. Rev. Stat. § 431:19-111.

This post written by Kyle Whitehead.

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ELEVENTH CIRCUIT AFFIRMS ARBITRATOR DECISION TO CERTIFY ARBITRATION CLASS

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The Eleventh Circuit heard an appeal from a district court’s decision denying vacatur of an arbitrator’s decision to certify an arbitration class against a telecommunications provider. The appellant, Southern Communications, was a respondent in an arbitration brought by a consumer who contested certain penalty fees. The arbitration agreement was silent as to class action arbitration. The consumer moved for certification of an arbitration class, and the arbitrator granted the motion, certifying a class. Southern Communications sought vacatur of the decision in federal court, but the court denied vacatur. Southern Communications appealed, but the Eleventh Circuit affirmed, pointing to the Supreme Court’s recent decision Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064 (2013) – which resolved a circuit split as to whether class arbitration was allowable where the arbitration agreement was silent – and the difficult burden for establishing grounds for vacatur under the Federal Arbitration Act. Southern Communications Services, Inc. v. Thomas, No. 11-15587 (11th Cir. July 12, 2013)

This post written by John Pitblado.

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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.

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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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