Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

RHODE ISLAND SUPREME COURT REVERSES TRIAL COURT ORDER VACATING ARBITRATION AWARD

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In an uninsured/underinsured motorists coverage case, the plaintiff, an injured party in a collision with an underinsured driver, sued her insurer for underinsured motoriests benefits under her policy, which carried limits of $100,000. She was awarded $120,000 by the arbitrator, and the plaintiff then moved to comfirm in court. The insurer objected, based on the fact that there was no basis for any award beyond the policy’s limits. The trial court agreed with the insurer, and vacated that portion of the award in excess of $100,000, and otherwise confirmed the award as modified. However, on appeal, the Supreme Court of Rhode Island reversed, noting:

In modifying this award, the trial justice accepted defendant‘s contention that, . . . arbitrators may not award prejudgment interest above policy limits. . . . In effect, then, the trial justice modified the award based on his belief that the arbitrators had made an error of law. However, it is settled beyond a hint of contradiction that a mistake of law is not grounds for upsetting an arbitration award.

Wheeler v. Encompass Insurance Co., No. 2011-313 (R.I. May 24, 2013).

This post written by John Pitblado.

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FEDERAL DISTRICT COURT DENIES INSURER’S MOTION TO COMPEL ARBITRATION CITING NARROW ARBITRATION CLAUSE

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UPS sued Lexington Insurance Company seeking a declaratory judgment that Lexington was obligated to defend and indemnify UPS in an underlying personal injury action and for breach of contract for failing to defend. UPS had entered into a guard services agreement with Lexington’s insured Adelis. The agreement required Adelis to indemnify UPS for liabilities UPS might incur from any injury to an Adelis employee, unless the injury was cased solely by UPS’s negligence. Adelis’s Lexington policy contained an additional insured endorsement that would cover UPS for personal injury caused by Adelis’s employees or Adelis. The policy also contained an arbitration clause providing that “in the event of a disagreement as to the interpretation of this policy, it is mutually agreed that such dispute shall be submitted to binding arbitration.”

Lexington moved to compel arbitration, arguing that the dispositive issue of whether the injury was entirely the result of UPS’s negligence was a matter of policy interpretation that should be arbitrated. The court disagreed and denied Lexington’s motion, reasoning that the arbitration clause was narrow and the issue of UPS’s degree of negligence involved application of the facts to the policy language and not policy interpretation. Thus, the court held, the dispute was not within the purview of the narrow arbitration clause. United Parcel Service v. Lexington Insurance Co., Case No. 12 Civ. 7961 (USDC S.D.N.Y. May 7, 2013).

This post written by Ben Seessel.

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FEDERAL LEGISLATION REINTRODUCED AIMED AT TAXING FOREIGN REINSURANCE AFFILATE INCOME

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H. R. 2054 was introduced on May 20, 2013, and referred to the Ways and Means Committee. The bill would disallow the deduction for excess non-taxed reinsurance premiums with respect to United States risks paid to affiliates “to prevent the avoidance of tax by insurance companies through reinsurance with non-taxed affiliates.” Co-sponsored by Representatives Neal and Pascrell, the bill would amend the Internal Revenue Code of 1986. There are a number of excepted risks, but generally, the bill states that such “income shall be subject to tax under this subchapter to the same extent and in the same manner as if such income were the income of a domestic insurance company.” The amendment to the IRC would apply to taxable years beginning after December 31, 2013. Similar bills have been introduced in the past, but did not find their way to passage. See, for example, our previous posts concerning a prior versions of this proposal in 2009 and 2008.

This post written by John Pitblado.

See our disclaimer.

SECOND CIRCUIT VACATES ORDER DENYING PETITION TO CONFIRM INTERNATIONAL ARBITRATION AWARD

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VRG Linhas Aereas, a subsidiary of GOL Linhas Aereas, initiated an arbitration administered by the International Court of Arbitration for the International Chamber of Commerce (ICC) against MatlinPatterson, a New York private equity firm. The dispute concerned the calculation of the price for VRG in VRG’s purchase from two of MatlinPatterson’s affiliates. MattlinPatterson argued before the ICC arbitration panel that it was not a party to any arbitration agreement because it had not signed the purchase agreement—it had only signed an addendum. The arbitral tribunal disagreed, holding that MatlinPatterson was bound to arbirate and, furthermore, sided with VRG on the merits of the dispute.

VRG petitioned to confirm the award in federal district court. The district court denied the petition on the basis that, even if MatlinPatterson had agreed to arbitrate certain disputes, the arbitration agreement clearly did not extend to VRG’s purchase price. The Second Circuit vacated the district court’s order. It held the district court erred by failing to make the threshold determination whether the arbitrators or the court should decide the issue of arbitrability before interpreting the arbitration clause. The court held that, under Supreme Court precedent, if the parties clearly and unmistakably had agreed to arbitrate, then the decision as to arbitrability was properly for the arbitrators and the award should be confirmed. VRG Aeras S.A. v. Matlin Patterson Global Opportunities Partners II L.P., No. 12-593-cv (2d Cir. June 3, 2013).

This post written by Ben Seessel.

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INSURER’S MOTION TO DISMISS DENIED DUE TO EQUITABLE TOLLING

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United Guaranty sought reconsideration of its motion to dismiss, which the Court denied in part due to Plaintiffs’ successful equitable tolling argument. United Guaranty again argued that equitable tolling was inappropriate as Plaintiffs “did not sufficiently allege that United Guaranty committed an act of fraudulent concealment that prevented him from discovering his claim during the limitation period.” Broome, one of the original plaintiffs, obtained a mortgage from First Horizon. First Horizon then selected United Guaranty to act as Broome’s insurer. United Guaranty in turn then selected FT Reinsurance, a subsidiary of First Horizon, to provide reinsurance. Broome alleges this relationship represented a “captive reinsurance scheme,” with referral payments used to circumvent the kickback prohibitions of the Real Estate Settlement Procedures Act (“RESPA.”)

Once again, the Court found that Broome’s allegations were sufficient under the doctrine of equitable tolling, and therefore, the one-year statute of limitations did not bar his claim. The Court noted that the extent of cooperation between the bank, insurer, and reinsurance companies, while currently unknown, are better left to discovery. The Court also denied United Guaranty’s motion to certify the February 27, 2013 Order for immediate appeal as the previous court order did not represent a controlling question of law. Barlee v. First Horizon National Corp., Case No. 12-3045 (USDC E.D. Pa. April 4, 2013).

This post written by Rollie Goss.

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