Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

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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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ELEVENTH CIRCUIT AFFIRMS CONFIRMATION OF AWARD IN INTERNATIONAL ARBITRATION

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The Eleventh Circuit Court of Appeals affirmed a Florida federal court’s confirmation of an award from an international arbitration, which was challenged by Triangula Pisos E Paineis, LTDA (“Triangulo”), the party against whom the award was made. Triangulo contended that the award should be vacated under a provision of the Federal Arbitration Act allowing vacatur based on an arbitrator’s refusal to hear evidence pertinent to the controversy. Without deciding whether the FAA even applied, as Triangulo had argued, the Court held that even if it did, Triangulo failed to make the requisite showing to demonstrate that the arbitrator had in fact refused to hear pertinent evidence. It affirmed the trial court’s denial of vacatur and confirmation of the award against Triangulo. Triangulo Pisos E Paineis, LTDA v. BR-111 Imports & Exports, Inc., No. 12-10776 (11th Cir. Aug. 24, 2012).

This post written by John Pitblado.

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VERMONT SUPREME COURT SENDS BANK BACK INTO CLASS ARBITRATION

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The Vermont Supreme Court reversed a trial court order that had the effect of precluding class arbitration where the parties’ agreement was silent on the issue. The trial court based its ruling on the then-recent U.S. Supreme Court decision in Stolt-Nielsen SA v. AnimalFeeds Int’l Corp. However, on appeal, the Vermont Supreme Court reversed, holding that the trial court’s involvement was premature, as it was not based on a timely vacatur or confirmation action, as required to invoke a court’s jurisdiction under the Vermont Arbitration Act. The defendant bank failed to timely challenge the arbitrator’s pre-Stolt-Nielsen decision allowing class arbitration, and failed to re-raise the issue of arbitrability with the arbitrator in light of Stolt-Nielsen. Bandler and Bandler & Co. v. Charter One Bank, No. 2011-249 (VT Oct. 5, 2012).

This post written by John Pitblado.

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