Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION THAT ARBITRAL PANEL WAS “FOREIGN” FOR PURPOSES OF DISCOVERY STATUTE

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On an appeal arising out of a foreign shipping contract billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. and Jet Air Service Equador S.A., the Eleventh Circuit held that the arbitral tribunal before which the dispute is pending is a foreign tribunal for purposes of 28 U.S.C. 1782’s discovery rules. Consorcio had applied in the Southern District of Florida to obtain discovery for use in proceedings in Ecuador. These proceedings included both a pending arbitration brought by Jet Air as well as possible other litigation. The district court granted the application and authorized Consorcio to issue a subpoena. Jet Air moved to quash the subpoena and vacate the order granting the application. Jet Air appealed the denial of its motions. The Eleventh Circuit affirmed, concluding that the arbitral panel acts as a first-instance decision maker and permits the gathering and submission of evidence. It resolves the dispute and issues a binding order which is subject to judicial review. Application of Consorcio Ecuatoriano de Telecomunicaciones S.A. v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. June 25, 2012).

This post written by John Black.

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RECENT DECISIONS ADDRESSING ENFORCEABILITY OF CLASS-WAIVER ARBITRATION CLAUSES UNDER CONCEPCION SUGGEST CONTINUED CONFLICT IN CALIFORNIA

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On June 25, 2012, we reported on Iskanian v. CLS Transportation Los Angeles, LLC, where a California appellate court, following the U.S. Supreme Court’s Concepcion decision, affirmed the enforcement of an arbitration clause waiving class claims, subsequent to the court’s pre-Concepcion suggestion that the waiver was unenforceable based on state precedent. In Samaniego v. Empire Today LLC, another California appellate court reached a different result in a similar context. There, the court found that a class action could proceed despite the existence of a class waiver arbitration clause, on the grounds that the entire agreement between the parties was unconscionable. The court construed Concepcion narrowly, noting Concepcion precluded only “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue,” but did not preclude “generally applicable contract defenses, such as fraud, duress, or unconscionability.” Samaniego v. Empire Today LLC, Case No. A132297 (Cal. Ct. App. April 5, 2012).

This post written by Michael Wolgin.

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PROSECUTORS TO DISMISS INDICTMENT AGAINST GEN RE AND AIG EXECUTIVES

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On August 2, 2011, we reported on a decision by the United States Court of Appeals for the Second Circuit to vacate the criminal convictions of Gen Re and AIG executives stemming from an allegedly fraudulent finite reinsurance transaction designed to improve AIG’s financial statements. On June 22, 2012, the defendants entered into agreements with prosecutors to defer prosecution and dismiss the indictments after passage of one year, subject to the defendants’ respective payment of fines ranging from $250,000 to $100,000, and compliance with other conditions. The agreements identified “relevant considerations” to their execution, namely, (a) the Second Circuit’s vacatur decision, (b) the 12 months time that has now elapsed since the defendants’ conduct, (c) the significant resources required to conduct a retrial, (d) the defendants’ payment of fines, (e) SEC penalties, and (f) defendants’ admission that certain “aspects” of the reinsurance transaction were fraudulent. United States v. Ferguson, Case No. 3:06CR137 (USDC D. Conn. June 22, 2012).

This post written by Michael Wolgin.

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APPEALS COURT AFFIRMS CONFIRMATION OF AWARD DETERMINING THAT UMBRELLA POLICY’S POLLUTION EXCLUSION APPLIES

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[National Union Fire Insurance Company of Pittsburgh issued an umbrella policy to Continental Carbon Company, a manufacturer of carbon-black used in tires and other rubber and plastic goods. Continental notified National Union of a federal lawsuit in which plaintiffs alleged that their property had been damaged by exposure to carbon-black dust pollution. Plaintiffs won a multi-million dollar judgment against Continental that was affirmed on appeal. National Union denied coverage under a pollution exclusion in the policy.

Continental commenced arbitration against National Union, arguing that the Products Completed Operations Hazard (“PCOH”) exception to the pollution exclusion in the policy applied. The arbitrators disagreed, determining that the carbon-black dust pollution at issue was not Continental’s “product” thereby taking it outside of the exception to the pollution exclusion. A Texas court confirmed the arbitration panel’s decision without reasoning. Continental appealed the decision. The appellate court affirmed, finding that Continental had failed to argue in its initial brief that its motion to vacate had been timely under the FAA. The court agreed with National Union that the FAA’s three-month limitations period was an independent ground supporting the judgment of the lower court and affirmed the confirmation of the award. Continental Carbon Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. 14-11-00162-CV (Tex. Ct. App. Apr. 17, 2012).

This post written by Ben Seessel.

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COURT DENIES DISMISSAL OF CLAIMS BY RISK MANAGEMENT ADMINISTRATOR AGAINST INSURER

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In 2006, the Plaintiff, Tethys Health Ventures, LLC (“Tethys”), an administrator of organ transplant risk management services, entered into an agreement with the defendant, Zurich, which provided that Zurich would pay Tethys commissions for producing insurance business. During the course of the agreement, Tethys earned commissions for its part in producing new excess insurance and reinsurance business for Zurich. In 2011, Zurich gave notice that it was terminating the agreement. Tethys sued, on a contract theory, as well as on an unjust enrichment theory. Zurich moved to dismiss the claims. The court denied Zurich’s motion, finding that the agreement was ambiguous as to the definition of “produce” and left unclear what the parties’ intent was with respect to the classification of Tethys’s producer commissions. For similar reasons, the court also declined to dismiss the unjust enrichment count. Tethys Health Ventures, LLC v. Zurich American Ins. Co., No. WDQ-11-2761 (USDC D. Md. May 31, 2012).

This post written by John Pitblado.

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