Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FOURTH CIRCUIT: STATE STATUTE DOES NOT REVERSE PREEMPT FEDERAL LAW

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The Fourth Circuit issued an opinion “preserving the United States’ ability to speak with one voice” in regulating foreign arbitrations. ESAB Group argued that a South Carolina statute “reverse preempts” federal law pursuant to the McCarran-Ferguson Act which is directed at protecting state insurance regulation by implied preemption by federal domestic commerce legislation. In particular, the Court of Appeals considered whether McCarran-Ferguson applied such that state law can reverse preempt federal law to invalidate a foreign arbitration agreement mandating dispute resolution before Swedish tribunals. The court concluded that the federal government articulated a uniform policy in favor of enforcing agreements to arbitrate internationally (through a treaty and its enacting regulations) even when a contrary result would be forthcoming in a domestic context. Thus, insurance disputes were not exempted from the treaty, which controlled. In addition, the Court of Appeals held that the district court properly exercised personal jurisdiction over Zurich Insurance, and that the court was within its rights to remand nonarbitrable claims to state court. ESAB Group, Inc. v. Zurich Insurance PLC, No. 11-1243 (4th Cir. July 9, 2012).

This post written by John Black.

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REINSURANCE ARTICLES OF INTEREST

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AM Best recently published its yearly financial review on the global reinsurance market. AM Best noted the resilience of reinsurers, pointing out that economic volatility and catastrophic loss events combined to create an approximate $110 billion loss for the reinsurance market in 2011. Nevertheless, the report noted that “reinsurance capacity remained ample despite the magnitude of losses and unrelenting headwinds.” In fact, reinsurers ended the year at approximately the same level of capital as they started.

In addition, the International Who’s Who of Insurance and Reinsurance Lawyers brought together two leading practitioners—Peter Mann of Clayton Utz, Australia and Laura Foggan of Wiley Rein LLP, Washington DC—for a roundtable to discuss key issues for the industry. In particular, the attorneys explained that recent legislative and regulatory changes in both Australia and the US have somewhat altered the playing field. The panel also discussed areas of possible growth for the industry as well as areas that have become hotbeds for litigation.

This post written by John Black.

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ARBITRATION AWARD ROUNDUP

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Following is a roundup of recent opinions on motions concerning the confirmation, vacation and modification of arbitration awards, organized by the issues presented in the motions:

Manifest Disregard

New York City Dist. Council of Carpenters v. Dufour Group, Inc., No. 12-Civ-00173 (USDC S.D.N.Y. April 19, 2012) (granting petition to confirm, no manifest disregard, no evident partiality, proceeding was not “fundamentally unfair”)

Hargrove v. Citigroup, Inc., No. 1:11-cv-07946 (USDC S.D.N.Y. May 9, 2012) (denying petition to vacate, no manifest disregard in age discrimination case)

Broadnax v. LVI Demolition Services, Inc., No. 2:11-cv-03084 (USDC D.N.J. May 31, 2012) (granting motion to confirm award, finding arbitrator’s award in labor dispute was rationally related to Collective Bargaining Agreement, no manifest disregard).

Gomez v. People’s United Bank, No. 3:10-cv-00904 (USDC D. Conn. June 13, 2012) (granting motion to confirm, no manifest disregard in compensatory damages, punitive damages, and attorneys fee award against car dealer)

Failure to Hear Pertinent Evidence

Ace American Ins. Co. v. Christiana Insurance, LLC, No. 11 Civ. 8862 (USDC S.D.N.Y. April 12, 2012) (granting petition to confirm, arbitrators did not fail to hear pertinent and material evidence, proceeding was not “fundamentally unfair,” arbitrators did not exceed the scope of the submission, and there was no manifest disregard of the law)

Scope of Arbitration

Homesite Ins. Inc. v. Dhaliwal, No. A131226 (Cal. App. Ct. April 19, 2012) (affirming confirmation of award, arbitrator did not exceed powers, and correctly decided question concerning scope of arbitration)

Harrell and Owens Farm v. Federal Crop Ins. Corp., No. 11-1360 (4th Cir. April 18, 2012) (affirming confirmation of award, arbitrator did not exceed powers in deciding scope of arbitration)

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 11-15430 (USDC E.D. Mich. May 31, 2012) (granting in part motion to vacate or modify, granting in part motion to confirm, vacating award against party who was not a party to the agreement to arbitrate, affirming award against affiliate that was party to the agreement)

Alliance Healthcare Services, Inc. v. Argonaut Private Equity, LLC, No. 11-C-3275 (USDC N.D. Ill. June 12, 2012) (granting motion to confirm in part, denying in part, finding arbitration panel did not exceed scope of submission, and confirming award on that basis, but denying moving party’s claim for post-award interest)

Evident Partiality

Chandler v. Journey Education Marketing, Inc., No. 2:10-cv-00839 (USDC S.D.W.Va May 15, 2012) (granting motion to confirm, no evident partiality)

Stone v. Bear, Stearns & Co., Inc., No. 2:11-cv-5118 (USDC E.D. Pa. May 29, 2012) (denying petition to vacate, denying attorneys fees to prevailing party, no evident partiality in FINRA arbitration where arbitrator failed to disclose husband’s ties to securities industry and insufficient challenge to such failure was made during the arbitration)

Jurisdiction/venue

Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, No. 11-Civ. 7707 (USDC S.D.N.Y. May 25, 2012) (denying motion to remand state court action seeking vacatur which was removed to federal court by prevailing party in arbitration, ordering petitioner to show cause why award should not be confirmed)

This post written by John Pitblado.

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FEDERAL INSURANCE OFFICE SEEKS COMMENTS ON GLOBAL REINSURANCE MARKET

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The Federal Insurance Office (“FIO”) has requested comments on the global reinsurance market to facilitate the preparation of a report that Dodd Frank requires it to submit to Congress on the impact of the global reinsurance market on insurance in the United States. It invites comments on the purpose of reinsurance, the breadth and scope of the global reinsurance market, the role that the global reinsurance market plays in supporting insurance in the United States, the effect of domestic and international regulation on reinsurance in the United States, the role and impact of government reinsurance programs, the coordination of reinsurance supervision nationally and internationally, and any other relevant topic. Comments are due by August 27, 2012 and the FIO’s report is due by September 30, 2012.

This post written by Ben Seessel.

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FIRST CIRCUIT HOLDS THAT STOLT-NIELSEN DOES NOT SET A BRIGHT LINE ON CLASS ARBITRATION

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An association of franchisees, Fantastic Sams Regional Owners Association (“FSRO”) made a demand for arbitration on behalf of its members against Fantastic Sams Franchise Corporation (“FSFC”). FSRO’s members have individual license agreements with FSFC and alleged breach of contract and related violations of the Massachusetts Consumer Protection Act. FSFC moved to stay arbitration and to compel that each member arbitrate its claims individually. The district court granted FSFC’s motion with respect to most of the agreements, which provided that “arbitration be of a licensee’s individual claim only,” but denied it as to ten other agreements that provided in broad terms that all disputes must be resolved by arbitration under AAA rules, but did not specifically preclude collective arbitration.

FSFC argued that collective arbitration of the remaining claims was foreclosed by the Supreme Court’s decision in Stolt-Nielsen, which FSFC contended holds that no class or collective arbitration can proceed unless “expressly authorized” by an arbitration agreement. The First Circuit held that FSFC was reading Stolt-Nielsen too broadly. According to the First Circuit, although the Supreme Court held that class arbitration may not be imposed “unless there is a contractual basis for concluding that the party agreed to” it, the Supreme Court had not decided what might constitute a contractual basis for class arbitration. The First Circuit rejected FSFC’s argument that Stolt-Nielsen requires “express contractual language evincing the parties’ intent to permit class or collective arbitration,” citing in support the Third Circuit’s decision in Sutter v. Oxford Health Plans LLC and the Second Circuit’s decision in Jock v. Sterling Jewelers, Inc. The court further distinguished Stolt-Nielsen on the basis that FSRO sought to arbitrate claims collectively on behalf of the individual members of its association, rather than to commence a class action arbitration. According to the First Circuit, the concerns regarding class action arbitrations raised by the Supreme Court in Stolt-Nielsen were thus inapplicable. The arbitrators will decide whether collective arbitration will be permitted with respect to the agreements that provide that all disputes will be arbitrated but do not specifically require arbitration on an individual basis. Fantastic Sams Franchise Corp. v. FSRO Ass’n Ltd., No. 11-2300 (1st Cir. Jun. 27, 2012).

This post written by Ben Seessel.

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