Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION AWARD ROUNDUP

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Following is a summary of selected court opinions addressing requests for confirmation and vacation of arbitration awards.

Manifest disregard

NYKCool A.B. v. Pacific Fruit, Inc., No. 11-4246 (2d Cir. Jan 16, 2013) (affirming judgment by S.D.N.Y. confirming an arbitration award based on finding that defendant did not establish a “manifest disregard of the law,” or that the panel exceeded its authority or that the panel denied defendant a fundamentally fair hearing)

Murray v. Citigroup Global Markets, Inc., No. 11-4355 (6th Cir. Jan. 10, 2013) (affirming district court’s denial of plaintiff’s motion to vacate or modify an arbitration award; court could not determine whether the panel acted in “manifest disregard of the law” because plaintiff did not request a reasoned award from the panel)

Swarm, LLC v. Cohen, Case No. 10-03188 (C.D. Cal. Dec. 7, 2012) (granting defendants’ motion to confirm final arbitration award based on finding that arbitrator’s application of the alter ego doctrine, finding of a written agreement, and reliance on the same evidence presented by plaintiff for two different claims is not a “manifest disregard of the law” under the FAA)

Ometto v. ASA Bioenergy Holding A.G., Case No. 12-1328 (S.D.N.Y. Jan. 9, 2013) (denying petitioners’ motion to vacate two arbitration awards and granting respondents’ motion to confirm the awards based on finding that petitioners’ grounds for vacatur were without merit, including allegations that the tribunal’s chairman was partial, the tribunal acted in manifest disregard of the law, and the awards were procured through fraud)

Budget Blinds Inc. v. LeClair, Case No. 12-1101 (C.D. Cal. Jan. 16, 2013) (denying petition to vacate arbitration award and granting cross-petition to confirm award, on grounds that petition to vacate did not establish “manifest disregard of the law” or that arbitrator exceeded her authority and was merely an attempt to re-litigate the arbitrator’s factual findings)

Fuchs & Associates, Inc. v. Lesso, No. B239246 (Cal. Ct. App. Jan. 8, 2013) (affirming trial court’s judgment confirming an arbitration award based on finding that the arbitrator did not exceed his authority and there was no “manifest disregard of the law”)

Exceeding authority

Brotherhood of Locomotive Engineers and Trainmen v. United Transportation Union, No. 11-4177 (6th Cir. Dec. 5, 2012) (affirming district court’s reinstatement of arbitration award following magistrate judge’s vacatur; arbitration board did not exceed its jurisdiction when it interpreted contractual provisions)

Zhao v. Ming Due International Trade, Inc., No. B236813 (Cal. Ct. App. Jan. 7, 2013) (affirming trial court’s judgment confirming an arbitration award based on finding that arbitrator did not exceed the scope of his power by denying plaintiff’s motion for an uncontested arbitration, especially since the parties stipulated to binding arbitration in which the arbitrator would control the proceedings in “his sole discretion”)

Disclosure inadequacy

Gray v. Chiu, No. B238304 (Cal. Ct. App. Jan. 22, 2013) (reversing trial court’s denial of appellant’s petition to vacate a medical malpractice arbitration award on grounds that the arbitrator violated the disclosure provisions of the California Arbitration Act and the California Ethics Standards for Neutral Arbitrators in Contractual Arbitrations by failing to disclose that counsel for the defendant was affiliated with the abritrator’s firm)

Re-litigating arbitrators’ decisions

Citigroup Global Markets, Inc. v. Bock, Case No. 10-24157 (S.D. Fla. Jan. 17, 2013) (confirming FINRA arbitration award and denying respondent’s motion to vacate the award as an attempt to “re-litigate discovery decisions that were properly before the arbitration panel”)

Untimely vacation request

Domnarski v. UBS Financial Services, Inc., Case No. 12-30139 (D. Mass. Jan. 23, 2013) (denying plaintiff’s motion to vacate a FINRA arbitration award and allowing defendant’s motion to confirm the award because plaintiff filed her motion outside the 3 month limitations period established by the FAA)

Foreign Arbitration Awards – jurisdiction

Covington Marine Corp. v. Xiamen Shipbuilding Industry Co., No. 12-30383 (5th Cir. Dec. 21, 2012) (affirming district court’s decision to deny confirmation of a foreign arbitral award under the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards against a Chinese shipbuilding company and the People’s Republic of China due to lack of personal and subject matter jurisdiction)

This post written by Abigail Kortz.

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TENNESSEE OVERHAULS ITS CAPTIVE INSURER REGULATIONS

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In December 2012, the Tennessee Department of Commerce and Insurance revamped its regulations concerning captive insurers by repealing a law regarding letters of credit used by captive insurance companies and replacing it with a more extensive regulatory scheme. The new regulatory scheme requires annual reports of a captive insurance company’s financial condition and examinations by the insurance commissioner every three to five years. The five year cycle for examinations is only available for captive insurers that submit to annual audits conducted by independent certified public accountants authorized by the commissioner. The annual audits consist of an examination of financial statements by the independent CPA according to GAAP, an evaluation of internal controls, and certification as to the adequacy of the captive insurer’s loss reserves. Tenn. Comp. R. & Regs. tit. 0780, Ch. 01-41 (effective February 28, 2013).

This post written by Abigail Kortz.

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DECLARATORY RELIEF ACTION REJECTED AS A MEANS TO CHALLENGE INTERLOCUTORY ARBITRATION ORDERS FOR LACK OF “RIPENESS”

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In an arbitration related to an uninsured motorist insurance claim, the insured twice challenged the arbitrators’ discovery rulings by filing declaratory relief actions in state court. The first time, the appellate court affirmed the lower court’s dismissal of the action for failure to first challenge the subject order with the arbitrators. The second time, after the appellant unsuccessfully challenged the orders with the arbitrators, the lower court dismissed the suit for lack of subject matter jurisdiction over interlocutory arbitration orders. On appeal, the appellate court affirmed the result, but disagreed with the lower court’s reasoning. The court held that a declaratory relief action is indeed a “justiciable” matter under state law, notwithstanding that the underlying issue involved interlocutory arbitration orders. The court ultimately concluded, however, that based on the legislative history of the Uniform Arbitration Act, the action still should have been dismissed for lack of ripeness. The court explained, “The meaning of [the legislative history] could not be clearer: if there is a dispute about an issue that is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling on that issue until after the arbitration process is complete.” Klehr v. Illinois Farmers Insurance Co., Case No. 1-12-1843 (Ill. Ct. App. Jan. 22, 2013).

This post written by Michael Wolgin.

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Court Sua Sponte Orders Reinsurer to Submit Copies of Contracts to Prove Proper Forum

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An Illinois federal court sua sponte ordered R&Q Reinsurance Co., the plaintiff in a newly filed case, to provide copies of the contracts at issue, based on the complaint reflected that neither party resided in Illinois for jurisdictional purposes, although the complaint alleged that the contracts were negotiated and would be administered in Illinois. The Court ordered production of the contracts under the suspicion that they contained forum selection or choice-of-law clauses. R&Q Reinsurance Co. v. Sentry Insurance, No. 12 C 9788 (USDC N.D. Ill. Dec. 12, 2012).

This post written by John Pitblado.

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COVERAGE DISPUTE BETWEEN INSURED AND INSURER HELD NOT A FORESEEABLE CONSEQUENCE OF ATTORNEY MALPRACTICE

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A minor injured in a softball game obtained a verdict exceeding the $2 million limit on a policy issued to the United States Sports Specialty Association by United States Fidelity and Guarantee Co. and reinsured by Lloyds of London. The reinsurers, USF&G’s behalf, paid a settlement amount also significantly exceeding the policy limits. USF&G filed suit seeking reimbursement from USSSA for amounts paid beyond policy limits. The state supreme court rejected the claim, holding there was no extracontractual right to restitution between an insurer and its insured. The reinsurers, as subrogees of USF&G and the insured, added malpractice claims against the law firm that had been appointed to represent the insured, seeking, among other damages, the litigation expenses incurred by the USF&G and USSSA in determining whether USF&G was entitled to reimbursement from USSSA for amounts spent beyond policy limits. The court granted partial summary judgment to the law firm on this theory, holding that the coverage dispute between USF&G and USSSA was not a foreseeable consequence of the law firm’s alleged malpractice. National Indemnity Co. v. Nelson, Chipman & Burt, Case No. 2:07-CV-996 TS (USDC D. Utah Jan. 18, 2013).

This post written by Ben Seessel.

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