Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FIFTH CIRCUIT RULES JUDICIAL ESTOPPEL BARS CHEVRON’S CHALLENGE TO ECUADOR’S REQUEST FOR DISCOVERY

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Chevron Corporation and the Republic of Ecuador have been engaged in contentious litigation for nearly two decades in various courts over alleged environmental contamination of oil fields in Ecuador. An Ecuadorian court finally issued a multi-billion dollar judgment against Chevron, prompting Chevron to file for arbitration under the rules of the U.S.-Ecuador Bilateral Investment Treaty (“BIT”). For use in the BIT arbitration, Ecuador applied for ancillary discovery from an individual, John Connor, and his company, GSI Environmental, in the Southern District of Texas pursuant to 28 U.S.C.A. § 1782. Section 1782 authorizes district courts to assist discovery efforts of litigants before foreign and international tribunals, and includes private international arbitration.

The Fifth Circuit has previously held, in Republic of Kazakhstan v. Biedermann Int’l, 168 F.3d 880 (5th Cir. 1999), that an international arbitration tribunal is not a “foreign or international tribunal” under § 1782. The district court, compelled by this precedent, denied the discovery request. Ecuador appealed, arguing that Chevron was judicially estopped to contend that the BIT arbitration was not an “international tribunal.” The Fifth Circuit agreed after finding that Chevron had deliberately taken inconsistent positions on the availability of § 1782 discovery” and that “if Chevron is permitted to shield itself under Biedermann against Ecuador’s current discovery request, it will have gained an unfair advantage over its adversary.” The Court thus concluded that Chevron was judicially estopped from asserting its legally contrary position and stated, “we need not and do not opine on whether the BIT arbitration is in an ‘international tribunal.’” Republic of Ecuador v. Connor, Nos. 12-20122, 12-20123, 2013 WL 539011 (5th Cir. Feb. 13, 2013).

This post written by Brian Perryman.

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MOTIONS TO DISMISS CAPTIVE REINSURANCE LAWSUIT DENIED

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A federal district court granted in part and denied in part various motions to dismiss filed by defendants HSBC and private insurers Genworth, Republic, and Mortgage Guaranty. Plaintiffs alleged that HSBC Mortgage, through HSBC Reinsurance, conspired with various private mortgage insurers to create a captive reinsurance scheme. The scheme, which involved private insurers paying HSBC reinsurance premiums for little, if any, assumption of risk allegedly circumvented the kickback prohibitions of the Real Estate Settlement Procedures Act. Plaintiffs further alleged that the premium payments were made by the private insurers for business referrals. Though the RESPA allegations would otherwise be barred by the statute of limitations, the court declined to dismiss those claims, citing the doctrine of equitable tolling. The court also declined to dismiss plaintiffs’ additional claim for unjust enrichment. Only United Guaranty’s motion to dismiss was granted, as plaintiffs failed to show that United Guaranty actually insured the mortgages in question. Moriba BA v. HSBC USA, Inc., Case No. 2:13-cv-00072-PD (USDC E.D. Pa. June 27, 2013).

This post written by Brian Perryman.

See our disclaimer.

ARBITRATION AWARD CONFIRMATION ROUNDUP

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Disagreement over result

Bailey Brake Farms, Inc. v. Trout, No. 2011-CA-00610 (Ms. S.C. May 23, 2013) (mere disagreement with the result of arbitration is not a ground for vacating an arbitration award)

Leeward Constr. Co. v. American Univ. of Antigua College of Medicine, Case No. 12-6280 (USDC S.D.N.Y. Mar. 26, 2013) (mere disagreement with the result of arbitration is not a ground for vacating an arbitration award)

Evident partiality

Bain Cotton Co. v. Chestnutt Cotton Co., No. 12-11138 (5th Cir. Je. 24, 2013) (dewnial of discovery by arbitrator did not amount to evident partiality)

Antietam Industries, Inc. v. Morgan & Keegan Co., Case No. 12-1250 (USDC M.D. Fl. Mar, 25, 2013) (lack of disclosure by arbitrator did not amount to evident partiality, nor was arbitrator misbehavior or exceeding powers demonstrated)

Exceeding authority

Donnelly v. Jewel of Kahana, LLC, Case No. 12-00347 (USDC D. Ha. Mar. 28, 2013)(using the completely irrational test, the arbitrator did not act in excess of authority; improper arbitrator bias was not shown; mere disagreement with arbitration result is not a basis for vacating an award)

E*Trade Securities, LLC v. Nash, Case No. 12-1766 (USDC M.D. FL. Mar. 12, 2013)(arbitrator did not exceed authority by deciding issue when the parties waived their right to have the issue determined by a court)

Jurisdiction

Liu v. Mar, Case No. 13-685 (USDC N.D. Ill. April 10, 2013) (motion to confirm arbitratin award dismissed for lack of subject matter jurisdiction because no basis for federal jurisdiction was articulated other than the Federal Arbitration Act, which does not provide a basis for the exercise of jurisdiction)

Manifest disregard

Bartlett Grain Co. v. Sunburst Farms Partnership, Case No. 13-1152 (USDC D. Ks. July 5, 2013)(avoids quesion of whether the doctrine of manifest disregard of law survives Superme Courtt’s Hall Street Associates opinion by finding that manifest disregard not demonstrated)

Stipulation

Berkley Ins. Co. v. Excalibur Reinsur. Corp., Case No. 13-2633 (USDC S.D. N.Y. May 15, 2013) (arbitration award concerning reinsurance dispute confirmed by stipulation)

Untimely request to vacate

Glaser v. Legg, Case No. 12-805 (USDC D. D.C. Mar. 11, 2013) (petition to vacate arbitration award denied as untimely under the Federal Arbitration Act; Petitioner barred from raising arguments in support of vacating award as affirmative defenses to cross-petition to confirm the award)

This post written by Rollie Goss.

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APPEALS COURT HOLDS REINSURER’S UNLAWFUL AGREEMENTS AND CONSPIRACIES ARE NOT CLAIM HANDLING ACTIVITIES

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Wellpoint, Inc. sued a number of defendants, chief among them reinsurers Continental Casualty Company and Twin City Fire Insurance Company, for denying coverage for Wellpoint’s defense and settlement of a number of medical reimbursement-related lawsuits against it. Wellpoint’s predecessor, Anthem, was the subject of a class action lawsuit in 1999 that alleged that Anthem’s subsidiary failed to timely and adequately reimburse for medical services. Beginning in 2001, Anthem became the subject to a series of over ten additional state and federal lawsuits alleging improper denial of reimbursement and other wrongful acts, including alleged violations of the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Racketeer Influenced and Corrupt Organizations Act (“RICO”). Anthem sought coverage from its insurers for defense and settlement of the CUTPA and RICO claims, and the reinsurers counterclaimed seeking declaration that these claims were not covered by the reinsurance agreement. The trial court granted the reinsurers’ motion for summary judgment on the issue.

The reinsurance agreement at issue covered claims against the insured for a wrongful act “only if such Wrongful Act . . . occurs solely in the rendering of or failure to render Professional Services.” (emphasis added) The reinsurance agreement states that “Professional Services” are “services rendered or required to be rendered solely in the conduct of the Insured’s claims handling or adjusting.” In a divided panel vote, the appeals court affirmed the lower court’s summary judgment ruling for the reinsurers finding professional services only included those rendered in the conduct of Wellpoint’s handling or adjusting of claims submitted on the policies that it had issued. Coverage was available only if the alleged wrongful acts that gave rise to the underlying litigation happened “solely” in the conduct of Wellpoint’s claims handling and adjusting. The court held the alleged acts did not, interpreting “solely” to mean “exclusively” or “entirely.” Thus, the alleged violations of CUTPA and RICO were not claims handling activities and could not be covered. Wellpoint, Inc. v. National Union Fire Insurance Co. of Pittsburgh, Case No. 49A05-1202-PL92 (Ind. Ct. App. June 19, 2013).

This post written by Brian Perryman.

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FURTHER DEVELOPMENT IN STATE CREDIT FOR REINSURANCE REQUIREMENTS

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As the legislative seasons comes to a close in many states, several states have enacted modifications to their credit for reinsurance requirements to move towards the revised Credit for Reinsurance Model Act. The Missouri legislature adopted HB 133 and the Rhode Island legislature adopted HB 5608. The Georgia Department of Insurance adopted regulations (120-2-78) designed to help implement the Georgia legislature’s earlier adoption of revised credit for reinsurance requirements.

This post written by Rollie Goss.

See our disclaimer.