Reinsurance Focus Blog

U.S. SUPREME COURT SLAPS OKLAHOMA SUPREME COURT ON THE WRIST FOR DISREGARDING PRECEDENT ON THE FAA AND GRANTS CERT. IN YET ANOTHER ARBITRATION CASE

December 3, 2012 by Carlton Fields

In a recent per curiam opinion, the U.S. Supreme Court reminded state courts that the Federal Arbitration Act is “the supreme Law of the Land” and they must abide by the Supreme Court’s opinions interpreting that law. The Oklahoma Supreme Court ignored Supreme Court precedent, which holds that a court has authority to decide the validity of an arbitration clause, but that the validity of the contract is left to the arbitrator to decide once the arbitration clause is deemed valid. Improperly assuming the role of arbitrator, the Oklahoma Supreme Court declared a noncompetition agreement that included a valid arbitration clause to be “void and unenforceable against Oklahoma’s public policy,” elevating Oklahoma law over the FAA. Nitro-Lift Technologies, L.L.C. v. Howard, No. 11-1377, 586 U.S. __ (U.S. Nov. 26, 2012).

Accepting an opportunity to provide further guidance with respect to class arbitrations, the Supreme Court has also granted certiorari in an arbitration case decided by the Second Circuit to decide “[w]hether the Federal Arbitration Act permits courts, invoking the ‘federal substantive law of arbitrability,’ to invalidate arbitration agreements on the ground that they do not permit class arbitration of a federal law claim.” As profiled in a prior post, the Second Circuit held that arbitration agreements that do not provide for class arbitration are unenforceable if the claimant can demonstrate that “the cost of . . . individually arbitrating their dispute . . . would be prohibitive.” It will be intertesting to see whether the Court decides this case on a narrow statement of the issue or uses it to provide broader principled guidance for post-Concepcion cases. In re American Express Merchants’ Litigation, No. 12-133 (U.S. Nov. 9, 2012).

This post written by Abigail Kortz.

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SECOND CIRCUIT AFFIRMS DISMISSAL OF LAWSUIT BASED ON ARBITRATION PROVISIONS BUT REFUSES TO ORDER SANCTIONS

November 28, 2012 by Carlton Fields

Ipcon Collections sued Costco over a dispute regarding a series of agreements in which Costco agreed to sell karaoke systems on a consignment basis on behalf of Ipcon’s predecessor in interest. Costco initiated arbitration and moved to dismiss the lawsuit based on arbitration clauses in the agreements, and for sanctions. The lower court granted Costco’s motion to dismiss in favor of the pending arbitration proceedings and denied its motion for sanctions. The Second Circuit affirmed. The Court of Appeals held that Ipcon’s argument that Costco “never intended to honor” the contracts sounded in fraud in the inducement, and it was up to the arbitrators to decided the merits of such claim. The court also rejected Ipcon’s alternative argument that there had been no “meeting of the minds,” holding that the executed contracts constituted objective evidence of a meeting of the minds. Though finding that Ipcon’s argument was “weak,” the court affirmed the decision not to award Costco sanctions “given the confusing nature of the division of responsibility between courts and arbitrators as to contract formation.” Ipcon Collections, LLC v. Costco Wholesale Corp., No. 11-3944 (2d Cir. Oct. 9, 2012).

This post written by Ben Seessel.

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Florida Appellate Court Affirms Jurisdiction Over Foreign Entities IN DISPUTE OVER OFF-SHORE INVESTMENTS

November 27, 2012 by Carlton Fields

A Florida appellate court affirmed a ruling denying a motion to dismiss based on claims of improper forum. ABA Capital Markets Corporation, a foreign entity based in the British Virgin Islands, was sued in Florida state court by Venezuelan reinsurer Provincial De Reaseguros, in connection with payment disputes arising from the parties’ bond trades and other off-shore investment transactions. Addressing common law factors, the Court found that (1) Venezuela would have been an adequate alternative forum; but that (2) private, practical interests, including the residence of some key witnesses in Florida, militated against transfer to another forum or dismissal; (3) public interests, including ABA’s connection to the forum, militated against transfer or dismissal; and (4) inconvenience/prejudice to the parties were not factors. ABA Capital Markets Corp. v. Provincial De Reaseguros C.A., No. 3D12-130 (Fla. Ct. App. Nov. 7, 2012).

This post written by John Pitblado.

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THIRD CIRCUIT REFUSES TO RECONSIDER DECISION DENYING REINSURANCE COVERAGE DUE TO INSURER’S LATE NOTICE

November 26, 2012 by Carlton Fields

Pacific Employers Insurance Company petitioned for rehearing of a Third Circuit decision ordering that judgment of non-liability be entered in favor of Global Reinsurance Corporation of America regarding a coverage dispute under the parties’ facultative reinsurance contract. As we earlier reported, the Third Circuit reversed a lower court decision in favor of Pacific under Pennsylvania law. The Third Circuit reversed and, applying New York law, held that Pacific’s late notice of underlying asbestos-related litigation that would likely give rise to claims precluded coverage, even absent a showing of prejudice to Global.

Moving for rehearing, Pacific argued that the court misapprehended and overlooked three points of New York law. First, Pacific argued that the court misapprehended New York law on contract interpretation by, in effect, rewriting the parties’ reinsurance contract to require Pacific to submit a definitive statement of loss even where no liability for a claim had yet been incurred, which could not be read harmoniously with a provision requiring Global to promptly pay Pacific after receiving a definitive statement of loss. Pacific further argued that the court overlooked that there had been no determination that the asbestos-related lawsuits the court held should have been promptly reported by Pacific were claims or occurrences for which Pacific later sought indemnity. Finally, Pacific argued that Global waived its late notice defenses by failing to raise them in its initial brief on appeal. The court denied the petition for panel rehearing without opinion. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, No. 11-3234 (3d Cir. Oct. 3, 2012).

This post written by Ben Seessel.

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