Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT CONFIRMS REINSURANCE ARBITRATION ORDERS OVER TIMELINESS AND FINALITY CONCERNS; REFUSES TO STRIKE CONFIDENTIAL FACTS IN PETITION

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A court has granted two unopposed petitions to confirm two arbitration orders under the New York Convention, in what was a dispute over documentation requirements of a forty-year old asbestos claims reinsurance agreement between Century Indemnity Company and certain London market reinsurers (LMRs). The first arbitration order required one of the LMRs to post letters of credit to secure Century’s then-outstanding claims. While the panel initially entered the order in 2006, the letters of credit were subsequently addressed in another order by the panel in 2008. The second order, entered in 2007 and made final in 2009, related to the panel’s findings on the merits of the reinsurance agreement’s documentation requirements. The court found that both orders were “necessarily incorporated” in the respective 2008 and 2009 orders, and were thus timely under the New York Convention’s three-year statute of limitations. In confirming the first order, the court explained that although it technically was not a final award (which is a requirement for jurisdiction under the Federal Arbitration Act), it was “sufficiently separate and final for federal court review and confirmation.”

Also noteworthy was the court’s denial of Century’s motion to strike, which argued that portions of the LMR’s petition contained gratuitous assertions that violated the parties’ confidentiality agreement and were intended to be a “press release for use in other matters.” The court found that the language at issue was related to the underlying controversy, that the panel’s orders were made public in the court record, and that “the mere fact that the parties ha[d] designated certain documents as confidential among themselves is insufficient to rebut the ‘strong presumption of public access to court records’ that exists in federal courts.” Century Indemnity Co. v. Certain Underwriters at Lloyd’s London, Case No. 1:11-cv-01040 (USDC S.D.N.Y. Jan. 10, 2012).

This post written by Michael Wolgin.

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NEW YORK APPELLATE COURT AFFIRMS SUMMARY JUDGMENT TO USF&G IN ASBESTOS REINSURANCE CASE

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In a dispute arising out of reinsurance coverage regarding asbestos litigation spanning several decades, the New York Supreme Court Appellate Division reviewed a decision granting summary judgment to USF&G against reinsurers American Re and Excess Casualty Reinsurance Association. American Re and ECRA argued that USF&G’s bad faith, including an initial denial of its duty to indemnify and defend the asbestos producer tainted the entire case and warranted summary judgment. They further argued that USF&G’s bad faith breached its duty of utmost good faith to them as reinsurers. The court distilled these contentions into a basic issue of fact and a basic issue of law. The question of fact concerned the increase in the retention of the reinsurance treaties to $3 million, which ECRA alleged was agreed to by all parties. The issue of law concerned the application of the follow the fortunes doctrine. As to the issue of fact, the court found that the facts demonstrated that USF&G only increased the retention for certain years, rather than all claims post-1981, as argued by ECRA. On the question of law, the court concluded that the follow the fortunes doctrine required defendants to accept the reinsurance presentation made by USF&G on the asbestos claims. Accordingly, the motion for summary judgment in favor of USF&G was affirmed. One judge dissented, arguing that a triable issue of fact existed regarding USF&G’s alleged bad faith. United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 5205 (N.Y. App. Div. Jan. 24, 2012).

This post written by John Black.

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INTERNATIONAL ARBITRATION RULES AMENDED

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The International Chamber of Commerce has amended its rules for the arbitration of international disputes involving commercial disputes, effective January 1, 2012. Two principal areas of amendment are: (1) to provide for the appointment of an emergency arbitrator to order pre-arbitration relief, usually to preserve assets and the status quo; and (2) to facilitate the consolidation of disputes involving multiple contracts, multiple parties and claims between multiple parties. Among the many other amendments are provisions governing disclosures by arbitrators and updated case management procedures. The amendments are found in the ICC’s Arbitration and ADR Rules.

This post written by Rollie Goss.

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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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