Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION ROUND-UP

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Employment Disputes

Mesa Airlines, Inc. v. Air Line Pilots Association International, Case No. 2:11-cv-02106 (USDC D. Ariz. Sept. 14, 2012) (granting summary judgment upholding labor arbitration award; arbitrator’s reinstatement of airline pilot did not exceed jurisdiction by ignoring language of collective bargaining agreement, did not violate public policy, and did not exhibit bias by ignoring evidence).

Hamerslough v. Hipple, Case No. 1:10-cv-03056 (USDC S.D.N.Y. Oct. 25, 2012) (denying petition to vacate award; granting cross-petition to confirm award; award providing additional commissions to former salesperson, but only based on revenue collected prior to termination, was not based on arbitrator “exceeding their powers,” was not a “manifest disregard,” and was not contrary to public policy, including determination that salesperson was not “prevailing party” for purposes of awarding attorney’s fees).

Class Waiver

Webster v. Freedom Debt Relief, LLC, Case No. 1:12-cv-01654 (USDC N.D. Ohio Sept. 25, 2012) (denying petition to vacate award finding that underlying agreement precluded class arbitration; arbitrator did not commit “manifest disregard”).

Exceeding Authority/Manifest Disregard

Estate of Wildhaber v. Life Care Centers of America, Case No. 2:10-cv-00015 (USDC D. Nev. Oct. 23, 2012) (granting application for confirmation of award; denying motion to vacate and modify award; award for $1.5 million for pain and suffering and statutory double damages was not excessive for wrongful death, elder abuse, and elder neglect; no “manifest disregard” for award of prejudgment interest on attorney’s fees, statutory double damages, and grief and sorrow).

Day & Zimmerman, Inc. v. SOC-SMG, Inc., Case No. 2:11-cv-06008 (USDC E.D. Pa. Oct. 22, 2012) (granting motion to confirm award; denying motion to vacate award; rejecting argument that filing of “complaint” to vacate award instead of “motion” under FAA was grounds for dismissal of action, but confirming award because arbitrators did not exceed authority and other vacatur arguments were not viable under FAA).

Oehme, Van Sweden & Associates, Inc. v. Maypaul Trading & Services Ltd., Case No. 1:12-cv-00005 (USDC D.D.C. Nov. 6, 2012) (granting motion to confirm award; denying motion to vacate award; non-signatory bound to arbitration agreement under “apparent agency”; arbitrator did not commit “manifest disregard”).

CD&L Realty LLC v. Owens-Illinois, Inc., Case No. 1:11-cv-07248 (USDC D.N.J. Sept. 25, 2012) (granting motion to confirm award after removal; denying vacatur; arbitrator did not exceed authority, or violate public policy; plaintiff could not challenge arbitrator’s rejection of fraud and breach of contract claims for legal or factual error).

Procedural Issues

Degrate v. Broadcast Music Inc., Case No. 1:12-cv-01700 (USDC S.D.N.Y. Oct. 25, 2012) (dismissing sua sponte pro se petition to vacate award as untimely; deadlines for petition under state law and FAA would not be extended due to “unique circumstances” or “equitable tolling”).

Nuzzi v. Coachmen Industries, Inc., Case No. 3:09-cv-00116 (USDC N.D. Ind. Oct. 26, 2012) (denying motion to vacate award; action stayed against entities that filed Chapter 7 bankruptcy, but would proceed against viable defendant parent company; perceived “unfairness” of summary arbitration procedures not viable grounds for vacatur under FAA; arbitrator did not commit “manifest disregard”).

This post written by Michael Wolgin.

See our disclaimer.

ARBITRATION AWARD PLACING A PARTY AT RISK OF VIOLATING FEDERAL REGULATIONS FOUND NOT TO BE A MANIFEST DISREGARD OF THE LAW

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The First Circuit affirmed a district court’s denial of a motion to vacate an arbitration award issued in a dispute between Bangor Gas, a pipeline owner, and H.Q. Energy, a natural gas supplier, concerning responsibility for certain costs regulated by the Federal Energy Regulatory Commission. The arbitration panel designed a remedy consistent with the FERC’s shipper-must-have-title rule, but that placed Bangor at risk for violating a different FERC regulation. Following the arbitration award’s issuance, Bangor received guidance from the FERC staff that the panel’s remedy “would violate the Commission’s posting and bidding regulations.” While the First Circuit does not recognize “manifest disregard of the law” as a valid ground for vacating an arbitral award, it analyzed the award as if the doctrine applied since there is a circuit split on the issue. The court determined that the arbitrators did not disregard the law because the FERC’s intentions were not clear cut. The staff’s guidance is not binding on FERC and the arbitrators provided for the contingency of a violation in the award. Bangor Gas Co. v. H.Q. Energy Servs. (U.S.) Inc., No. 12-1386 (1st Cir. Sept. 26, 2012).

This post written by Abigail Kortz.

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PARTIES FILE STIPULATED FACTS AFTER DENIAL OF SUMMARY JUDGMENT IN INDEMNITY ACTION BY ACQUIRER OF 9/11 REINSURER

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On September 24, 2012, we reported on the denial of summary judgment in a lawsuit brought by an acquirer of a reinsurer against the former parent company of the reinsurer, for an alleged $13 million intentional understatement of case reserves in connection with reinsurance of airplanes involved in the 9/11 attacks. The dispute surrounded the reinsurer’s setting of its reserves based on one “terrorism” event, rather than a higher liability for two “hijacking” attacks, despite the fact that the cedents and brokers treated the loss as two attacks. The court denied the parties’ cross-motions for summary judgment, holding that factual questions existed as to whether the reinsurer’s alleged fraud constitutes a “loss” under the under the relevant stock purchase agreement and, if so, whether the “loss” was caused by the reinsurer’s misrepresentations. The parties recently filed a joint stipulation of undisputed facts wherein the parties set forth agreed facts relating to the reinsurance industry and details of their dispute, including that the reinsurer’s case reserves at the time of acquisition totaled over $12 million, and that the reinsurer has thus far received and paid claims totaling approximately $9.66 million. WT Holdings, Inc. v. Argonaut Group, Inc., Index No. 600925/2009 (N.Y. Sup. Ct. Oct. 26, 2012).

This post written by Michael Wolgin.

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U.S. INSURER AND BERMUDA CAPTIVE REINSURER NOT CONSIDERED ALTER EGOS

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In a dispute over a long-term care insurance contract, a court rejected the plaintiff’s allegation that five defendants “are an association of entities acting together for the purpose of providing long term care insurance under the name Ability Insurance and also act as the alter egos and/or agents of each other.” The defendants are Ability Reinsurance Holdings (a Bermuda-based holding company) and 4 subsidiaries, including Ability Resources Holdings, Ability Insurance (U.S. insurer), Ability Reinsurance (Bermuda-based captive reinsurer) and Ability Resources, Inc. The court granted a motion for judgment on the pleadings in favor of the Bermuda-based holding company, the Bermuda-based captive reinsurer, and Ability Resources Holdings for lack of personal jurisdiction based on the determination that they do not act as an alter ego for Ability Insurance. The court held that while regulators permitted Ability Insurance to purchase reinsurance from a member of the same corporate family, that fact “does not render the contractual relationship a ‘sham’ or otherwise make Ability Reinsurance (Bermuda) susceptible to suit in Iowa.” The court also dismissed the claims against Ability Resources, Inc., holding that simply alleging that Ability Resources is the alter ego of Ability Insurance, “without more,” failed to satisfy federal pleading requirements. Schultz v. Ability Insurance Co., Case No. 2:11-cv-01020-JSS (USDC N.D. Iowa Oct. 9, 2012).

This post written by Abigail Kortz.

See our disclaimer.

FEDERAL COURT DENIES MOTION TO VACATE ARBITRATION AWARD AND SANCTIONS PARTY SEEKING VACATUR

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Employer Southwestern Electric Cooperative entered into an agreement with the International Brotherhood of Electrical Workers, Local 702 regarding the number of union members’ sick days. The agreement included a grievance procedure and an arbitration process for grievances that could not be resolved internally. A union employee sought thirteen weeks of sick leave; Southwestern and the union deadlocked on whether the employees’ request should be granted. The dispute was submitted to arbitration and the arbitrator sided with the employee.

Southwestern moved to vacate, arguing that the arbitrator’s award did not draw its essence from the parties’ agreement and, further, that the arbitrator exceeded his authority in rendering the award. The court denied the motion to vacate, finding that the arbitrators’ decision “had a plausible foundation in the agreement.” The court further held that the challenge to the award was “substantially without merit” as the court could not “discern how [Southwestern] could logically believe that th[e] dispute was not subject to arbitration.” Accordingly, it granted the union’s motion for sanctions under Federal Rule of Civil Procedure 11, ordering Southwestern to pay the union’s fees and costs in defending the motion to vacate. Sw. Elec. Coop., Inc. v. Int’l Bhd. of Elec. Workers, Local 702, Case No. 11-1047 (USDC S.D. Ill. August 27, 2012).

This post written by Ben Seessel.

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