Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT COURT REVERSES PARTIAL VACATUR OF ARBITRATION AWARD, WITH INSTRUCTIONS TO CONFIRM ON REMAND

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The Second Circuit Court of Appeals affirmed in part and vacated in part a district court’s ruling that an arbitrator committed misconduct by excluding certain evidence (as reported by ReinsuranceFocus in its March 29, 2012 Arbitration Roundup). The Second Circuit Court found that the arbitrator’s exclusion of certain evidence in a commercial property dispute was within the arbitrator’s authorized discretion, and thus remanded with instructions to confirm the arbitrator’s award in that regard. The Court also affirmed other issues appealed by both parties, finding the district court properly concluded that the arbitrator acted properly in refusing to determine a purchase price, and in dismissing the defendant’s breach of fiduciary duty and breach of the covenant of good faith and fair dealing claims. LJL 33rd Street Associates, LLC v. Pitcairn Properties, Inc., Nos. 11-5425 and 12-1382 (2d Cir. July 31, 2013).

This post written by John Pitblado.

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FEDERAL COURT ENJOINS ARBITRATION BETWEEN INSURERS AND REINSURER WHILE THE ARBITRATION PROCESS IS INVESTIGATED

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A federal district court has issued an order enjoining the arbitration of a dispute between several workers compensation insurers and reinsurer, National Union Fire Insurance Co. of Pittsburgh, while allegations of misconduct concerning the arbitration process are investigated. The parties’ reinsurance treaty requires disputes to be adjudicated by “disinterested officials” who are “not under the control of either party.” It also provides that each side will choose one arbitrator and that the two will select an umpire. The chosen two arbitrators in the matter could not agree on an umpire; thus, after casting lots, National Union selected an umpire who was a close friend of their chosen arbitrator. The panel issued an interim final award favorable to National Union that addressed liability but left damages issues open. Plaintiffs petitioned the court to stay the arbitration.

Plaintiffs argued that National Union breached the provision in the treaty requiring disputes to be decided by arbitrators not under either party’s control. In support of their motion, plaintiffs presented National Union’s attorneys’ bills (submitted in connection with its attorneys fee request during the arbitration), demonstrating that National Union’s counsel had repeatedly communicated with its arbitrator during the course of the arbitration proceeding in violation of the arbitration panel’s order. Additionally, plaintiffs showed that the arbitration panel had made decisions without the participation of the third arbitrator chosen by plaintiffs. The court issued a corrected preliminary injunction that precludes any further orders from the arbitrators and communications between the parties and the arbitrators pending subsequent order from the court. National Union has filed a notice of appeal in which it indicates it will argue to the Sixth Circuit, among other things, that the court lacked jurisdiction to enjoin an ongoing arbitration proceeding.

Star Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, Case No. 2:13-cv-13807 (USDC E.D. Mich. Sept. 12, 2013).

This post written by Ben Seessel.

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NAIC APPROVES PROCESS FOR DEVELOPING LIST OF QUALIFIED FOREIGN JURISDICTIONS IN SUPPORT OF COLLATERAL REFORM

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At its August 26, 2013 meeting, the National Association of Insurance Commissioners (NAIC) approved and adopted the Process for Developing and Maintaining the NAIC List of Qualified Jurisdictions, a process developed and approved by the Reinsurance (E) Task Force and the Financial Condition (E) Committee. The process now turns to the first four jurisdictions selected for expedited review: Bermuda, Germany, Switzerland, and the United Kingdom. If approved, these jurisdictions would constitute “qualified jurisdictions” within the meaning of NAIC’s Credit for Reinsurance Model Law that has been adopted by 18 states and is being considered by several more.

This post written by John Pitblado.

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TEXAS APPEALS COURT DISMISSES INTERLOCUTORY APPEAL OF ORDER COMPELLING ARBITRATION OF INSURANCE DISPUTE

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In a dispute between two insurance companies regarding an underwriting agreement, the arbitrator selection process broke down when the arbitrators could not agree on appointment of the umpire. Each party raised concerns about the qualifications of the other party’s umpire nominees and reached such an impasse that they resorted to the courts for declaratory relief. The trial court entered a temporary injunction ordering the plaintiff to desist from arbitrating or litigating until the umpire selection dispute could be resolved and entered an order compelling arbitration and plaintiff’s participation in the umpire selection process as provided by the arbitration clause in the underwriting agreement. Plaintiff challenged both orders in an interlocutory appeal. The appellate court lacked jurisdiction to review the order to compel arbitration in an interlocutory appeal because the Federal Arbitration Act prohibits such review, but did affirm the temporary injunction. Drobny v. American National Insurance Co., Case No. 01-12-01034-CV (Tex. App. Aug. 29, 2013).

This post written by Abigail Kortz.

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COURT HOLDS LIABILITY LIMITS IN REINSURANCE CERTIFICATES LIMITED AMOUNTS FOR COVERED EXPENSES AS WELL AS COVERED LOSSES

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In a litigation over the extent of liability covered by certain facultative excess general liability reinsurance certificates, a court recently granted a reinsurer’s motion for judgment on the pleadings, dismissing the case. The reinsured sought a declaration that the reinsurance certificates at issue did not contain limits on the reinsurer’s liability for the reinsured’s expenses, and that the reinsurer therefore breached its certificates by failing to pay the full amounts owed for covered expenses under the certificates. The reinsured argued that no limits on liability for expenses were expressly stated in the certificates, and that the certificates’ use of the phrase “in addition thereto” with respect to the reinsurer’s obligation to pay its proportion of expenses, insulated expenses from the certificates’ limits on covered losses. The court rejected the reinsured’s argument, holding there was “nothing in the language of the certificate[s] to suggest that the ‘reinsurance assumed’ amount did not encompass both the ‘reinsurance assumed’ for losses and the ‘reinsurance assumed’ for expenses,” and that this interpretation “is in accord with the majority of cases that have dealt with similar reinsurance certificates.” The court also rejected the reinsured’s alternative argument that the certificates were ambiguous. Continental Casualty Co. v. Midstates Reinsurance Co., Case No. 12 CH 42911 (Ill. Cir. Ct. Aug. 29, 2013).

This post written by Michael Wolgin.

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