Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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FEDERAL COURTS DECIDE ARBITRATOR APPOINTMENT AND DISQUALIFICATION ISSUES

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In Adam Tech., the Court of Appeals for the Fifth Circuit affirmed the denial of a motion to appoint an arbitrator. The court held that there had been no “lapse in the naming of an arbitrator” under FAA Section 5, deciding rather that it was Adam’ Tech.’s failure to comply with the International Center for Dispute Resolution’s rules that prompted the ICDR to appoint an arbitrator against Adam Tech.’s objection. The court also held that the challenge to the ICDR’s rules was a procedural question left for the arbitrators to decide under the Supreme Court’s Howsam decision and that Adam Tech.’s challenge to the appointment was premature because it was filed before a final award had been rendered. Adam Tech. Int’l, S.A. v. Sutherland Global Servs., Inc., No. 12-10760 (5th Cir. Sept. 5, 2013).

Joyce Green had entered into an agreement in 2012 with U.S. Cash Advance Court requiring disputes to be resolved through arbitration under the Code of Procedure of the National Arbitration Forum. The NAF, however, has not been accepting new consumer cases since 2009, following a settlement with the Minnesota Attorney General. The district court refused to appoint an arbitrator under FAA Section 5, holding that the selection of NAF was “integral” to the agreement. The Court of Appeals for the Seventh Circuit disagreed. The appellate court first pointed out that the agreement did not require appointment of a NAF arbitrator but only the use of the NAF Code of Procedure. It further held that the identity of the arbitrator was not so important as to vitiate the whole contract and ordered the district court to appoint an arbitrator to adjudicate the dispute under the NAF Code of Procedure. A dissenting judge sharply disagreed, opining that the majority was re-writing the terms of the parties’ contract. Green v. U.S. Cash Advance Ill., LLC, No. 13-1262 (7th Cir. July 30, 2013).

In PK Time Group, LLC, a federal district court denied a petition to remove a panel of arbitrators. Petitioner PK Time sought removal of the arbitrators after liability had been decided in favor of the opposing party, Cinette Robert, but before the issue of damages had been decided. PK Time argued that the arbitrators had demonstrated bias and had committed misconduct by speaking at a conference at which Cinette Robert’s expert also spoke, and that was sponsored by the company that employed the expert, and by making improper discovery rulings. The court dismissed the petition as an improper pre-award challenge that also failed to demonstrate arbitrator bias. PK Time Group, LLC v. Cinette Robert, Case No. 1:12-cv-08200 (USDC S.D.N.Y. July 13 2013).

This post written by Ben Seessel.

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ROUND-UP OF DECISIONS ON MOTIONS TO COMPEL ARBITRATION

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Grosvenor v. Qwest Corp., No. 12-1095 (10th Cir. Aug. 14, 2013) (dismissing Qwest’s appeal of district court’s order granting partial summary judgment because Qwest did not seek to compel arbitration in its motion for summary judgment and therefore did not properly invoke appellate jurisdiction under the FAA).

PoolRe Insurance Corp. v. Organizational Strategies, Inc., No. H-13-1857 (S.D. Tex. Jul. 29, 2013) (denying plaintiff’s motion to compel first arbitration because same motion was pending in the Delaware federal district court; staying ongoing arbitration proceedings in a second arbitration between the same parties, having determined that the claims are clearly not arbitrable because they were carved out of the arbitration clause by a separate agreement).

Marsh & McLennan Cos. v. GIO Insurance Ltd., No. 11 Civ. 8391 (S.D.N.Y. Aug. 6, 2013) (staying action pending arbitration, rather than dismissing action, because dismissal is an appealable order that could further delay quick resolution through arbitration; denying defendant insurance company’s motion to release the $1.5 million security it was required to deposit with the court as an “unauthorized foreign insurer,” favoring New York’s public policy that a foreign insurer’s funds should be available in New York to satisfy any potential judgment).

Hirsch v. Amper Financial Services, Inc., No. 070751 (N.J. Aug. 7, 2013) (reversing Appellate Division’s affirmance of Law Divison’s grant of defendants’ motion to compel arbitration because intertwinement of claims and parties alone is insufficient to warrant application of equitable estoppel to compel arbitration).

McInnes v. LPL Financial, LLC, No. SJC-11356 (Mass. Aug. 12, 2013) (vacating order denying defendants’ motion to stay proceedings and compel arbitration and holding that claims alleging unfair and deceptive trade practices in violation of Gen. Law ch. 93A, § 9 must be referred to arbitration where the contract involves interstate commerce and the arbitration agreement is enforceable under the FAA).

Brown v. MHN Government Services, Inc., No. 87953-2 (Wash. Aug. 15, 2013) (affirming order denying appellant MHN’s motion to compel arbitration, applying California law according to choice of law provision in arbitration and agreement and finding provisions regarding arbitrator selection, statute of limitations, and fee shifting to be unconscionable, thereby rendering the entire arbitration agreement unenforceable).

This post written by Abigail Kortz.

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