Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DECLINES TO APPOINT UMPIRE OR ORDER SEPARATE ARBITRATIONS IN REINSURANCE DISPUTE

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When a reinsurer refused to reimburse two AIG insurance companies for the insurers’ losses arising out of asbestos litigation, the AIG companies made a demand for a single arbitration under three reinsurance agreements between the parties. The reinsurer delayed the process of appointing an arbitration panel by asserting that differences between the contracts warranted three separate arbitrations. The insurers petitioned the court to appoint an umpire – two other arbitrators having already been appointed by the parties – under Section 5 of the Federal Arbitration and the reinsurer petitioned the court to order separate arbitrations under Section 4 of the Act. The court refused both parties’ demands, concluding that both issues would require the court to decide the core dispute: whether the insurers’ demand for a single arbitration was improper. The court ordered the parties to proceed with the agreed upon arbitrator selection process, so that the single arbitration panel could address the issue of whether the demand for a single arbitration was improper. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. C 13-2924 (USDC N.D. Cal. Aug. 19, 2013).

This post written by Abigail Kortz.

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FOLLOWING VACATUR OF ARBITRATION AWARD IN REINSURANCE DISPUTE AS “COMPLETELY IRRATIONAL,” COURT CONFIRMS NEW AWARD

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On September 29, 2009 and November 22, 2010, respectively, we reported on a court’s vacatur of an arbitration award related to a “deficit carry forward” provision in a reinsurance agreement, and the Third Circuit’s subsequent affirmance of that order. The dispute surrounded the manner in which deficits in a reinsurer’s “experience account” under a reinsurance agreement for one year, applies to distribution of account funds under a separate reinsurance agreement for a subsequent year. The court previously vacated an arbitration award that awarded the reinsurer $6 million and failed to apply the “deficit carry forward” provision, which the court found to be unsupported by the contract and therefore “completely irrational” (notwithstanding a broad “Honorable Engagement Clause”). In a recent opinion and order, the court affirmed the award of a new arbitration panel, which interpreted the agreements and found that the “deficit carry forward” provision applied to permit the reinsurer to retain its portion of the account deficits prior to distribution to the reinsured of the funds of the account for the subsequent year. Because the panel “grounded its decision on the language” of the relevant reinsurance agreement, the court found that the panel’s decision properly “draws its essence” from the contract. Platinum Underwriters Bermuda, Ltd. v. Excalibur Reinsurance Corp., Case No. 2:12-mc-00070 (USDC E.D. Pa. July 15, 2013), and corresponding judgment entered July 18, 2013.

This post written by Michael Wolgin.

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STATE COURT HOLDS THAT INSURED IS ENTITLED TO DISCOVERY OF REINSURANCE AGREEMENTS IN DISPUTE WITH INSURERS

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Plaintiff Mine Safety Appliances (“MSA”) moved to compel discovery from defendant insurers on coal-dust-related claims submitted to the insurers by other, non-party, policyholders as well as the insurers’ agreements and communications with non-party reinsurers about the insurance policies issued to MSA. A special master denied the motion to compel regarding information related to other policyholders’ claims but ordered the production of the reinsurance agreements as to those insurers from whom money damages were sought. The master also ordered that, insofar as any insurer had asserted a late notice defense, it must produce all communications relating to when notice of a claim by MSA was received or communicated to its reinsurers. The Delaware state court rejected arguments from MSA and defendant insurers regarding the propriety of the special master’s ruling and approved it in all respects. Mine Safety Appliances Co. v. AIU Ins. Co., Case No. 10C-07-241 (Del. Super. Ct. June 6, 2013).

This post written by Ben Seessel.

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CIRCUIT COURTS ADDRESS RES JUDICATA CLAIMS IN ARBITRATION CONTEXT

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The Second and Eighth Circuit Courts of Appeal have both issued recent opinions regarding res judicata issues in the context of arbitrations. In Lobaito v. Chase Bank, No. 12-3492 (2d Cir. July 16, 2013), the Court affirmed a district court’s dismissal under Rule 12(b)(6) of a complaint alleging the same claims as had been arbitrated to conclusion in a FINRA arbitration, in favor of the defendant bank, and against a pro se former employee of the bank. The Court held that the district court properly found res judicata applied to the claims – which were identical to the claims in the FINRA arbitration and between the same parties – and, even if res judicata did not apply, construing the pro se plaintiff’s claim as a motion to vacate the FINRA award, the Court found the plaintiff’s motion to vacate was untimely and futile anyway.

The Eight Circuit Court of Appeals reviewed a district court’s grant of summary judgment in favor of an employer in a dispute with an employee, who was represented by his Union. Previous litigation between the parties as to the arbitrability of the employment dispute resulted in a district court decision in favor of the Union, which referred the parties to arbitration. However, before the arbitration commenced, the employer filed a new declaratory judgment action, arguing that the dispute was not arbitrable under the contract alleged by the Union in its arbitration claim, and sought an order precluding arbitration of the issue. The Court granted the employer’s motion for summary judgment on its declaratory claim, finding the dispute as framed outside the purview of the contract alleged. However, the Eight Circuit Court reversed, finding that the district court failed to properly apply res judicata to the employer’s claim, because it could have been raised in the prior proceeding, which was decided in favor of the Union. Carlisle Power Transmission Products, Inc. v. U.S. Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers Int’l Union, Local No. 662, No. 12-2986 (8th Cir. Aug. 5, 2013).

This post written by John Pitblado.

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COURT ADDRESSES PROCEDURAL ISSUES IN CONTENTIOUS REINSURANCE BATTLE OVER REINSURER’S CLAIMS PRACTICES

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Travelers brought a breach of contract action against reinsurer Excalibur, alleging breach of contract due to Excalibur’s alleged failure to pay $1,573,189.58 in claims under a reinsurance contract between the parties’ respective predecessors in interest. In the course of briefing a dispositive motion, Travelers introduced an affidavit on reply, which addressed arguments made by Excalibur in its opposition. Travelers also moved to amend its complaint to add a Connecticut Unfair Trade Practices Act claim. Excalibur objected to the proposed amendment, moved to strike the affidavit, and, in the alternative, moved for permission to file a counter-affidavit. The Court granted leave to amend, and denied Excalibur’s motion to strike the Travelers affidavit, but granted Excalibur’s motion for leave to file a counter-affidavit, finding both affidavits are properly admitted, and could bear on the parties’ claims as the litigation proceeded. Travelers Indemnity Co. v. Excalibur Reinsurance Corp., No. 3:11-cv-1209 (USDC D. Conn. Aug. 5, 2013)

This post written by John Pitblado.

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