Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO SEAL FROM PUBLIC RECORD ARBITRATION AWARD RELATED TO REINSURANCE OF AIRLINES INVOLVED IN 9/11 ATTACKS

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The court granted an unopposed petition to confirm an arbitration award that found that the 9/11 attacks on the World Trade center should be deemed one “event” for purposes of liability under aviation reinsurance contracts. In doing so, the court denied the reinsureds’ motion to seal the arbitration award from public records, which the reinsurer filed over the reinsureds’ objection that the award was confidential “arbitration information” under a confidentiality agreement between the parties. The court explained that “while enforcement of contracts is undeniably an important role for a court, it does not constitute a ‘higher value’ that would outweigh the presumption of public access to judicial documents.” The court did note, however, that the reinsureds “may have an action for breach of contract,” although the court would make “no finding whatsoever on that question.” Aioi Nissay Dowa Insurance Co. v. Prosight Specialty Management Co., Case No. 12-3274 (USDC S.D.N.Y. Aug. 21, 2012).

This post written by Michael Wolgin.

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CALIFORNIA COURT OF APPEAL APPLIES CONCEPCION AND COMPELS INDIVIDUAL ARBITRATION

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Plaintiff filed a class action complaint alleging wage and hour violations. He had signed an arbitration agreement which did not contain a class arbitration waiver. The trial court denied a motion to compel arbitration on the basis that the employer had waived arbitration by failing to properly and timely demand arbitration. The court of appeal reversed, ordering individual arbitration, holding that: 1) the defendant did not waive its right to arbitration even though it waited 14 months to move to compel arbitration; and 2) Section 7 of the National Labor Relations Act did not bar enforcement of the arbitration agreement at issue. The Supreme Court’s decision in AT&T Mobility v. Concepcion prompted the defendant’s delayed motion to compel. Concepcion held that the Federal Arbitration Act preempts California’s Discover Bank rule, which invalidates class arbitration waivers in consumer contracts of adhesion based on a finding of unconscionability. The court of appeal found that prior to Concepcion, the defendant reasonably perceived it would be futile to seek to compel arbitration in light of the Gentry test, which extended the Discover Bank rule to the employment context. The court reasoned that the risk of invalidation “diminished substantially” after Concepcion, but declined to explicitly “decide whether Gentry remains good law after Concepcion.” The employee contended that an order requiring individual arbitration would deprive him of the right to engage in collective legal action as protected by section 7 of the NLRA. This argument was accepted by National Labor Relation Board in D. R. Horton. The court of appeals followed other California court decisions which found Horton inapplicable in California courts. Reyes v. Liberman Broadcasting, Inc., No. B232511 (Cal. Ct. App. August 31, 2012).

This post written by Abigail Kortz.

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EU-U.S. DIALOGUE PROJECT REQUESTS PUBLIC COMMENT ON DRAFT REPORTS COMPARING INSURANCE REGIMES IN THE EU AND THE U.S.

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On September 27, 2012, the Steering Committee of the EU-U.S. Dialogue Project, a collaboration among the European Commission, European Insurance and Occupational Pensions Authority, the NAIC, and the Federal Insurance Office of the U.S. Department of the Treasury, invited public comment on the reports of seven technical committees comparing certain aspects of the insurance supervisory regimes in the European Union and the United States. The draft report and invitation for comments includes a copy of the seven reports. The seven reports are based on topics deemed to be “fundamentally important to a sound regulatory regime and to the protection of policyholders and financial stability,” namely: (1) professional secrecy and confidentiality, (2) group supervision, (3) solvency and capital requirements, (4) reinsurance and collateral requirements, (5) supervisory reporting, data collection and analysis and disclosure, (6) supervisory peer reviews, and (7) independent third party review and supervisory on-site inspections. The technical committees that prepared the reports were comprised of “experienced professionals from both the European Union as well as the United States, specifically, from FIO, the EC, the NAIC, and EIOPA, as well as representatives from state insurance regulatory agencies in the United States and competent authorities of EU Member States.” Hearings were scheduled for October 12 and 16, 2012 in Washington D.C. and Brussels, respectively, and the deadline for written submissions is October 28, 2012.

This post written by Michael Wolgin.

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BRITISH COURT DISAGREES WITH PENNSYLVANIA COURT ON JURISDICTION AND FORUM, KEEPING ALIVE SEPARATE CASES PROCEEDING ON THE SAME INSURANCE POLICIES IN BRITISH AND U.S. COURTS

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Howden North America, Inc., a subsidiary of the Howden Group, Ltd. (“HNA”), manufactures equipment for the petrochemical, steel, mining, and cement production industries. HNA faces liability for asbestos exposure which allegedly caused personal injuries, from the 1960s through the 1990s. HNA looked to its insurers, which resulted in dispute with certain of its excess liability carriers. In 2009, HNA brought suit in Pennsylvania federal district court, seeking declaration as to the construction of the insurance policies at issue. In 2011, HNA joined a separate coverage action also pending in Pennsylvania and implicating some of the same policies and coverage layers, brought by a different primary policy holder. Meanwhile, in 2010, one of the excess carriers brought suit in the London High Court of Justice, seeking declarations involving some of the same policies at issue in the two Pennsylvania actions. In June 2012, the Pennsylvania court held, among other things, that English law does not apply, and denied motions to dismiss by the foreign defendants under the premise of forum non conveniens.

The British court has now held that English law governs with respect to one subset of the policies at issue, and that it is the appropriate court to hear those claims. It noted that because the British case is further along in terms of discovery, that it could be tried sooner and more efficiently. The British court also considered the problem of inconsistent judgments in the parallel proceedings, but held that “this is a position which the court in each country must accept.” As to the other subset of policies, the British Court declined to exercise jurisdiction, based on a lack of justiciability. Ace European, Ltd. v. Howden Group. Ltd., [2012] EWHC 2427 (High Court of Justice, Queen’s Bench Division, Commercial Court Sept. 17, 2012).

This post written by John Pitblado.

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CITING FOLLOW-THE-FORTUNES CLAUSE, COURT ORDERS REINSURER TO PAY FOR SETTLEMENT OF INSURED’S BAD FAITH CASE

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Arrowood issued a liability policy insuring Greenwood Terrace, a nursing home and rehab center which was sued following the death of one of its residents, Joseph Mark. Under the parties’ reinsurance treaty, defendant Assurecare was responsible for the first $250,000 of Arrowood’s net liability and a percentage of loss adjustment expenses. Arrowood contributed $1,000,000, the policy limits, to a $1,750,000 settlement reached between Mark and its insured Greenwood Terrace. After the Mark settlement, Greenwood Terrace sued Arrowood for breach of contract, alleging that Arrowood should have paid a greater portion of the settlement because the Mark lawsuit involved more than one “medical incident” and that Arrowood had acted in bad faith. Arrowood settled with Greenwood Terrace for $325,000.

Assurecare paid Arrowood $250,000 plus a portion of loss adjustment expenses associated with the settlement of the Mark litigation. It refused, however, to pay for any portion of the settlement of the subsequent suit by Greenwood Terrace against Arrowood. Arrowood sued Assurecare, alleging breach of contract and seeking a declaratory judgment that it was entitled to payment for the Greenwood Terrace settlement, including the first $250,000 of net liability. The district court granted Arrowood’s motion for summary judgment holding that the Greenwood Terrace settlement constituted a covered “loss settlement” under the parties’ treaty, an interpretation that the court stated was supported by the treaty’s follow-the-fortunes clause. Arrowood Indemnity Co. v. Assurecare Corp., Case No. 11 CV 5206 (USDC N.D. Ill. Sept. 19, 2012).

This post written by Ben Seessel.

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