Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

APPELLATE COURT AFFIRMS THAT INSURER’S SUIT AGAINST REINSURER IS TIME-BARRED

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Transport Insurance Company appealed the denial of a motion for a new trial in which a jury found that Transport’s breach of contract and declaratory judgment claims against reinsurers TIG and Seaton were time-barred. Transport asserted on appeal that the trial court’s jury instruction on accrual was erroneous and, further, that the trial court erred in not instructing the jury on equitable estoppel. The California trial court employed the following jury instruction on accrual, which, at Transport’s request, it derived from Second Circuit authority: the claim for breach of reinsurance contract accrued “either when [the reinsurer] definitively denied the claim; or when a reasonable period passed after submission of the final proofs of loss.” Transport argued on appeal that this instruction was contrary to California precedent, which would hold that a cause of action could not accrue before a claim is denied. The appellate court rejected this argument based on the “invited error doctrine” after determining that Transport had advocated for the very standard on accrual that it claimed was error. The appellate court also held that the trial court did not err in failing to instruct the jury on equitable estoppel because there was no evidence in the record indicating that Transport relied on either reinsurer’s conduct in failing to timely bring suit. Transport Ins. Co. v. TIG Ins. Co., No. A 122573 (Cal. Ct. App. Jan. 13, 2012).

This post written by Ben Seessel.

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TEXAS SUPREME COURT ISSUES TWIN DECISIONS ON ARBITRATOR APPOINTMENT DISPUTES

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The Texas Supreme Court issued two decisions on the same day pertaining to the issue of arbitrator selection where the parties disagree. In the first case, Americo Life Insurance Company sought vacatur of an arbitration award based on a decision by the American Arbitration Association (whose rules the parties agreed to follow) to remove Americo’s selected arbitrator from a tripartite panel because he was not “impartial and independent.” After completing the arbitration under protest, which it lost, Americo moved to vacate. The trial court granted Americo’s motion to vacate, but the intermediate appellate court reversed, finding that Americo’s claims had not been properly preserved. On Americo’s petition, the Supreme Court reversed the Appellate Court and remanded for further consideration by that court, finding that the issues had been adequately preserved, and strongly indicating that the award should be vacated, since Americo’s chosen arbitrator appeared on the face of the record to be “knowledgeable and independent” – the standard the Supreme Court identified as applicable, rather than the impartiality standard urged by the defendant. Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011).

In the other case, the Texas Supreme Court reversed a trial court’s decision appointing an arbitrator on motion of one of the parties, finding that the trial court acted prematurely, because the “impasse” on appointment was only two weeks old (the time when one of the parties filed a motion in court seeking appointment), and that short time frame meant that judicial intervention was not yet warranted (distinguishing it from other cases showing impasse of several months before resort to judicial intervention). In Re Service Corp. Int’l., No. 10-0155 (Tex. Dec. 16, 2011).

This post written by John Pitblado.

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COURT REACHES VARYING DECISIONS ON REQUESTS TO SEAL ARBITRATION RECORDS

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A federal district court refused a former employee’s request to seal records of an arbitration proceeding in which the arbitrator ordered that he was not entitled to severance pay. William Fine was terminated from his position at Alexandria Real Estate Equities for making disparaging statements about the company. Alexandria obtained an award holding that it did not owe Fine severance pay and moved to have the award confirmed. In the award, the arbitrator explained the reasons for Fine’s termination and quoted the statements that he had made about Alexandria. Fine did not oppose confirmation but moved to seal portions of the arbitration record, including the petition to confirm, a supporting declaration, and the award itself. The court rejected Fine’s request citing the First Amendment presumption in favor of access to judicial documents and proceedings. The court held that, in order to overcome this presumption, Fine had to show that the “requested sealing is narrowly tailored to preserve ‘higher values.’” Such values, according to case law cited by the court, include protecting: the attorney-client privilege, national security, the privacy of innocent third-parties, and the confidentiality of sensitive patient information. The court found that Fine’s purported reason—that if the records remain public, it will be more difficult for him to get hired by potential employers—did not rise to the level of a “higher value.” Alexandria Real Estate Equities, Inc. v. Fair, Case No. 11-3694 (USDC S.D.N.Y. Nov. 30, 2011).

A different judge in the same court granted Century Indemnity Company’s motion to seal portions of its petition to compel arbitration, memorandum of law, and affidavit in support. The court did not offer any reasoning for its decision and the motion to seal and memorandum themselves are sealed. It is not apparent, furthermore, whether the motion to seal was contested. Century Indem. Co. v. Everest Reinsurance Co., Case No. 11-8362 (USDC S.D.N.Y. Nov. 17, 2011).

This post written by Ben Seessel.

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CROSS MOTIONS TO COMPEL ARBITRATION AND APPOINT THIRD ARBITRATOR SPARK DISMISSAL OF TWO APPEALS

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Various BCBS healthcare plans and BCS Insurance Company became engaged in a coverage dispute pertaining to certain professional liability coverage issued by BCS to member plan administrators. As per applicable contracts containing arbitration provisions, the parties each named arbitrators. According to the contracts’ governing procedure, when those two arbitrators failed to reach agreement, some of the health plans brought an action in Illinois federal court seeking appointment of a neutral third arbitrator. In the course of that proceeding, BCS cross-moved for an order to compel individual arbitration, rather than class arbitration, which it styled as a motion to compel non-consolidated arbitration. The court ruled first on BCS’s cross-motion, finding that decision on that issue should be made by the arbitrator(s), not the court. BCS immediately appealed that decision. The court, finding BCS’s appeal an improper interlocutory appeal, thereafter appointed the neutral third arbitrator as requested by the plans and ordered the parties to continue the arbitration with the panel so constituted. BCS appealed that order as well, arguing that its previous interlocutory appeal deprived the district court of jurisdiction to enter its order. The Seventh Circuit held that the first appeal was an improper attempt to circumvent proper arbitration procedure under the FAA, and dismissed it as interlocutory. It then held that the dismissal of the first appeal mooted the basis for the second appeal, since the trial court had jurisdiction to enter its order appointing an arbitrator. Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., Nos. 11-2343 & 11-2757 (7th Cir. Dec. 16, 2011)

This post written by John Pitblado.

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COURT REJECTS JURY VERDICT TO GRANT JUDGMENT IN PUBLIC ENTITY REINSURANCE LAWSUIT

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A dispute arose between the Alabama Municipal Insurance Corporation and Alliant Insurance regarding the latter’s public entity reinsurance program. AMIC purchased $650 million in reinsurance, received a binder on the program, paid almost half a million dollars in premium, but did not receive a written policy until over a year later. According to AMIC, the two parties had agreed that AMIC must transmit timely loss notices to Alliant. Subsequently, during a round of golf between two senior executives from the parties, the two companies entered a “Gentlemen’s Agreement” that AMIC would not submit reinsurance claims for the 2000-01 treaty year. Five years later, AMIC submitted its 2000-01 claims which Alliant passed on to Lloyd’s, the reinsurance underwriter, which denied payment. At a trial of the dispute, a jury awarded AMIC just under $400,000 for breach of contract.

On Alliant’s motion for judgment as a matter of law, the federal district court found that the evidence so weighed in Alliant’s favor that no reasonable jury could find that AMIC had successfully proven a legally enforceable contract existed. AMIC could not demonstrate whether Alliant was acting as managing general agent for AMIC or for the reinsurance underwriters. Moreover, the claims had not properly been submitted in any case. The court further concluded that the equities barred recovery. Alabama Municipal Insurance Corp. v. Alliant Insurance Services, Inc., Case No. 09-928 (USDC M.D. Ala Jan. 10, 2012).

This post written by John Black.

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