Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT VACATES JURY VERDICT RENDERED IN FAVOR OF INSURER AGAINST REINSURANCE BROKER

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Alabama Municipal Insurance Corporation (“AMIC”) purchased reinsurance though broker Alliant Insurance Services (“Alliant”) that was underwritten by various reinsurers including Lloyd’s of London (“Lloyds”). According to AMIC, its contract with Alliant required Alliant to timely transmit claims to Lloyds and other reinsurers. AMIC alleged that Alliant breached the contract by failing to timely transmit claims to Lloyds for an 18-month period in 2000-2001. AMIC, however, had agreed with Alliant in an unwritten “gentlemen’s agreement” that it would not submit notices of loss for this period; AMIC thus did not submit notices of loss for 2000-2001 to Alliant until 2005, after the parties’ relationship had soured. Lloyds denied AMIC’s claims for the 2000-2001 period, not because they were untimely, but because of unreported growth of total insured values during the period.

A jury concluded that AMIC and Alliant had entered into a contract whereby Alliant agreed to serve as AMIC’s Managing General Agent (“MGA”) and that Alliant had breached its contract. The district court vacated the jury’s verdict on Alliant’s post trial motion on several bases. First, the court found that Alliant never agreed to serve as AMIC’s MGA and, furthermore, that there was no definite contractual term requiring Alliant to timely submit claims to Lloyds. The court also cited AMIC’s failure to perform under the contract by not timely submitting notices of loss to Alliant, and AMIC’s failure to prove damages because Lloyds denied the claims for reasons entirely unrelated to timeliness. It further held that AMIC was estopped from arguing that Alliant untimely submitted claims because Alliant was acting in reliance on representations AMIC made in the “gentlemen’s agreement” regarding not submitting claims for the 2000-2001 time period. Alabama Municipal Ins. Corp. v. Alliant Ins. Servs., Case No. 2:09-928 (USDC M.D. Ala. Jan. 10, 2012).

This post written by Ben Seessel.

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THIRD CIRCUIT HOLDS THAT DISTRICT COURT ERRED IN REFUSING TO APPOINT SUBSTITUTE ARBITRATOR UNDER FAA SECTION 5

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Plaintiff Khan filed a putative class action lawsuit against Dell alleging, among other claims, violations of a state consumer protection statute and common law fraud. The arbitration clause at issue provided that disputes: “SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF). . . .” At the time Dell filed its motion to compel arbitration, however, NAF had been barred from conducting consumer arbitrations pursuant to the terms of a consent decree with the Minnesota Attorney General that NAF had entered into after being investigated for allegedly engaging in deceptive practices disadvantaging consumers.

The district court held that NAF’s designation was “integral” to the arbitration provision such that it could not be enforced without using NAF and denied Dell’s motion to compel arbitration. The Third Circuit reversed. It determined that the arbitration clause was ambiguous because “EXCLUSIVELY” could refer either to “BINDING ARBITRATION,” to “NAF,” or to both and that the provision thus did not indicate the parties’ “unambiguous intent not to arbitrate their disputes if NAF is unavailable.” The Third Circuit held that the district court, accordingly, should have appointed a substitute arbitrator under FAA Section 5 and remanded the case for further proceedings consistent with its opinion. Khan v. Dell Inc., No. 10-3655 (3rd Cir. Jan. 20, 2012).

This post written by Ben Seessel.

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ARBITRATION AWARD IN FAVOR OF PROGRESSIVE AFFIRMED

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Recently, the Minnesota Court of Appeals affirmed the entry of an arbitration award against North Star Taxi. North Star and Progressive were parties to a voluntary arbitration agreement for all property damage and business-interruption-loss claims through intercompany arbitration before Arbitration Forums, Inc. After a dispute arose regarding an auto accident between one of Progressive’s insureds and one of North Star’s bailee-independent contractors, an arbitrator ruled that each of the two drivers were 50% responsible for the accident and reduced North Star’s undisputed damages by 50% based upon that negligence. North Star moved to vacate the award, and the Minnesota state district court ruled that North Star had waived its right to seek vacation of the award by entering into the arbitration award. North Star appealed (now also seeking attorneys’ fees), and the Court of Appeals concluded that under the Minnesota Uniform Arbitration Act, North Star had contractually waived its right to judicial review of the award. Accordingly, the award was confirmed and North Star’s motions were denied. North Star Taxi v. Progressive American Insurance Co., No. 11-757 (Minn. Ct. App. Jan. 30, 2012).

This post written by John Black.

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COURT COMPELS ARBITRATION OF MULTIPLE PLAINTIFFS NOTWITHSTANDING “NARROW” ARBITRATION AGREEMENT

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A court compelled arbitration of a dispute between an insurer and an affiliated group of multinational companies, despite the fact that the agreement to arbitrate was “narrow,” signed by only one of the plaintiff companies, and subject to a statute of limitations defense that state law permitted to be addressed in court. The contract governed certain obligations under separate insurance agreements, including premium obligations and reimbursement of specified expenses incurred in settling claims. The contract contained an arbitration agreement, which provided for arbitration of “[a]ll disputes or differences arising out of [the contract’s] interpretation.” When a dispute arose regarding the insureds’ failure to reimburse the insurer for certain expenses, the insurer demanded arbitration and the insureds sued for a declaration that the claims were not arbitrable, and were barred by state statute of limitations.

Plaintiffs argued that the arbitration agreement was “narrow” and did not apply to the parties’ dispute, which they alleged related to matters collateral to the contract’s terms. While the court agreed that the agreement was narrow and that some record evidence supported their description of the dispute, the court found that there was sufficient evidence to find that the dispute “might” involve interpretation of the contract’s reimbursement calculation terms. The court also rejected plaintiffs’ argument that the non-signatories were not bound, holding that the non-signatories were estopped from excluding themselves because they effectively conceded receiving a “direct benefit” from the contract. Regarding the plaintiffs’ statute of limitations argument, the court held that despite the fact that the parties agreed to a choice of state law that provides for a limitations defense to arbitration to be made in court, the limitations issue was for the arbitration panel. Alfa Luval U.S. Treasury Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, Case No. 1:11-cv-01872 (USDC S.D.N.Y. Jan. 26, 2012).

This post written by Michael Wolgin.

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WHITE MOUNTAIN RE VOLUNTARILY DISMISSES ASBESTOS REINSURANCE ACTION AGAINST TRAVELERS CASUALTY

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We last posted on a reinsurance dispute between White Mountains Re and Travelers Casualty on May 18, 2011. Since then, White Mountain Re agreed to voluntarily dismiss its claims with prejudice. The dispute arose out of several reinsurance agreements between the parties, notably regarding a series of blanket excess of loss reinsurance contracts entered into in the 1980s covering asbestos installations. White Mountains Re alleged claims for declaratory relief and breach of contract in New York state court. Travelers successfully removed the claims to federal court prior to the voluntary dismissal. White Mountains Reinsurance Co. of America v. Travelers Casualty and Surety Co., Case No. 11-390 (USDC S.D.N.Y. Jan. 3, 2012).

This post written by John Black.

See our disclaimer.