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SECOND CIRCUIT HOLDS THAT FEDERAL COMMON LAW DEFINES WHAT “ARBITRATION” MEANS UNDER THE FAA

February 6, 2013 by Carlton Fields

Recently, the Second Circuit definitively held that federal common law, not state law, provides the meaning of “arbitration” under the Federal Arbitration Act. In the case, Bakoss and Lloyds entered into a disability insurance certificate which constituted a contract. The contract provided that each party would select its own physician to determine whether the insured was totally disabled and, in the case, the two physicians disagreed; a third physician chosen by the two would make a binding determination as to disability. After coverage was denied, Bakoss filed suit in state court. Lloyds removed the case asserting federal jurisdiction under the FAA and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which, unlike the FAA, provides an independent basis for federal jurisdiction.

The trial court looked to federal case law in determining that the dispute resolution provision regarding total disability constituted an arbitration agreement and thus held that it had jurisdiction to adjudicate the dispute over coverage under the Convention and FAA. The trial court also granted summary judgment on the merits to Lloyds. Bakoss appealed, arguing that the dispute resolution procedure was not an arbitration agreement under state law. The Second Circuit affirmed, holding that “arbitration” under the FAA is defined by federal common law; it also affirmed the grant of summary judgment to Lloyds on the merits. As discussed in the opinion, some federal courts of appeal have held that state law supplies the definition of “arbitration” and others apply federal law. Bakoss v. Certain Underwriters at Lloyds of London, No. 11-4371 (2d. Cir. Jan. 23, 2013).

This post written by Ben Seessel.

See our disclaimer.

Filed Under: Arbitration Process Issues

COURT DENIES MOTION TO DISMISS WHERE DEFENDANT RETROCEDED RESERVES HELD ON VEHICLE SERVICE CONTRACTS

February 5, 2013 by Carlton Fields

Operators of vehicle dealerships filed suit alleging breach of contract, conversion, breach of fiduciary duty, and money had and received against an administrator of vehicle service contracts that the plaintiff dealerships had sold to customers in connection with vehicle sales. Plaintiffs complained that defendants had improperly retroceded funds that had been reserved as reinsurance for payments to be made under the vehicle services contracts. The court denied defendant’s motion to dismiss, holding that plaintiffs had stated a plausible claim for relief that the administrator had breached reinsurance agreements that were neither attached to the complaint nor to defendant’s motion to dismiss. The court also held that the economic loss rule did not bar plaintiffs’ conversion and breach of fiduciary duty claim because there was a possibility that plaintiffs could establish with certain (undescribed) facts that a fiduciary relationship existed between the parties. Hoffpauir v. Interstate National Dealer Services, Inc., Case No. A-12-CA-263 LY (USDC W.D. Tex. Jan. 24, 2013).

This post written by Ben Seessel.

See our disclaimer.

Filed Under: Brokers / Underwriters, Contract Interpretation, Week's Best Posts

REINSURER WINS $16.5 MILLION VERDICT ON TORTIOUS INTERFERENCE CLAIMS AGAINST AUTO INSURER AND AGENTS

February 4, 2013 by Carlton Fields

Lincoln General Insurance Company entered into certain quota share reinsurance agreements with U.S. Auto Insurance Services. It brought suit in 2007 for alleged unpaid premium. The parties entered into a settlement agreement, requiring the parties to enter new reinsurance agreements, provide partial security for the risks defendant sought to transfer, fund costs of investigations of underlying claims, and pay $1.5 million to Lincoln General. In 2010, Lincoln General again brought suit, against U.S. Auto and its agents/guarantors, alleging that the defendants breached the settlement agreement. The latter suit alleged, among other things, that the defendants tortiously interfered with, and aided and abetted the breach of, the reinsurance agreements and other related agreements, by submitting fraudulent claims and making misrepresentations. After a four-day bench trial in early January 2013, the Court found for Lincoln, and ordered the defendants, jointly and severally, to pay Lincoln $16.5 million on the tortious interference claim. The Court also found in Lincoln’s favor on the defendants’ counterclaims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 3:10-cv-2307 (N.D. Tex. Jan. 25, 2013).

This post written by John Pitblado.

See our disclaimer.

Filed Under: Contract Interpretation, Week's Best Posts

CLASS SETTLEMENT AND ATTORNEYS’ FEES APPROVED IN ACTION INVOLVING CAPTIVE REINSURANCE

January 31, 2013 by Carlton Fields

After more than four years of litigation, a class action suit brought against Washington Mutual comes to a close with an unopposed class settlement in the amount of $4 million, which includes $1.2 million for attorneys’ fees and litigation costs. The class action involved allegations that defendants received kickbacks from private mortgage insurers to whom they referred borrowers that exceeded the value of reinsurance services provided by defendants to those insurers. The Eastern District of Pennsylvania determined that class settlement was fair and reasonable because continued litigation would be complex, expensive, and lengthy since formal discovery would still need to be completed. The court also concluded that plaintiffs ran the risk of losing on summary judgment or at trial because resolving the issue of whether the reinsurance agreements adequately transferred risk to the defendants would depend on a battle of the experts. Finally, the court reasoned that there was a strong likelihood a class would not be certified outside of settlement because the defendants had potentially viable defenses that could not adequately be litigated on a class-wide basis. The court approved the class settlement and the award of attorney’s fees and costs in separate orders. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (E.D. Pa. Dec. 4, 2012).

This post written by Abigail Kortz.

See our disclaimer.

Filed Under: Accounting for Reinsurance, Contract Interpretation, Reinsurance Regulation, Reinsurance Transactions

ARBITRATION PROCESS ROUNDUP

January 30, 2013 by Carlton Fields

Recent decisions on arbitration process issues:

Motion to Compel Arbitration Appeals

Saleemi v. Doctor’s Associates, Inc., No. 87062-4 (Wash. Jan. 17, 2013) (affirming trial court’s order compelling arbitration in Washington, notwithstanding forum selection clause providing for Connecticut arbitration; appellant failed to seek discretionary appeal, and instant appeal, which came after the arbitration award, required appellant to show prejudice; distinguishing Concepcion in cases not dealing with class arbitration waivers)

13 Parcels v. Laquer, No. 3D12-608 (Fla. Ct. App. Dec. 26, 2012) (reversing denial of motion to compel arbitration; appellants did not waive arbitration, notwithstanding limited motion practice in underlying action and in a prior litigation between the parties)

Marsden v. Blue Cross & Blue Shield of Montana, Inc., No. DA 12-0341 (Mont. Dec. 28, 2012) (affirming granting of motion to compel arbitration; where disputed employment agreement provided for arbitration of “any dispute” arising therefrom, issue for arbitration whether agreement was valid in the first instance)

Agency/Estoppel

James T. Scatuorchio Racing Stable, LLC v. Walmac Stud Management, LLC, Case No. 5:11-cv-00374 (USDC E.D. Ky. Jan. 2, 2013) (denying motion to dismiss where only one out of multiple agreements between parties contained arbitration clause, and only a portion of the claims would thus be submitted to arbitration; certain non-signatories to arbitration agreement who undertook burdens and received benefits under the agreement were bound to arbitrate under estoppel; one-sided arbitration clause not unconscionable where parties at time of contract were represented by counsel)

East Texas Medical Center Regional Healthcare System v. Slack, Case No. 2:12-cv-00307 (USDC E.D. Tex. Jan. 3, 2013) (denying motions to compel arbitration; corporate non-signatory not bound to arbitrate under agency theory merely based on corporate relationship; denying stay of litigation with non-signatory where claims subject to arbitration were not “inherently inseparable” from claims subject to litigation)

This post written by Michael Wolgin.

See our disclaimer.

Filed Under: Arbitration Process Issues

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