Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CLAIM BY CEDENT’S POLICYHOLDER AGAINST REINSURER DISMISSED

by

A court has granted a motion for judgment on the pleadings, under the theory that an underlying policyholder lacks a cause of action against its insurer’s reinsurer. National Indemnity Company (“NICO”) was brought in as a third party to insurance coverage litigation between Canal Insurance Company, its insured, Montello, Inc., and various other insurers in a declaratory coverage action pertaining to underlying asbestos litigation arising from Montello’s operations. Montello’s claim against NICO was unique, as it was the only reinsurer brought in to the action, and allegedly had in effect a reinsurance agreement with one of the defendants that purportedly had retroactive effect. NICO moved for judgment on the pleadings, arguing that an underlying policyholder has no direct cause of action against its insurer’s reinsurer. The court granted NICO’s motion, finding that the reinsurance agreement did not contain a cut-through provision enabling a direct action, and that neither of the exceptions permitting direct action were applicable. Canal Insurance Co. v. Montello, Inc., No. 10-CV-411 (USDC N.D. Okla. Sept. 26, 2011).

This post written by John Pitblado.

ARBITRATION ROUND-UP

by

Manifest Disregard:

Zimmerman Ag and Cattle Co. v. Agro National, LLC, No. CV-11-29 (USDC D. Mont. Nov. 7, 2011) (denying motion to vacate, finding “mere error of law” insufficient to satisfy manifest disregard standard).

Rite Aid New Jersey, Inc. v. United Food Commercial Workers Union, Local 1360, No. 10-3558 (3d Cir. Oct. 26, 2011) (affirming denial of motion to vacate award, no manifest disregard).

New York City Dist. Council of Carpenters Pension Fund v. Star Intercom & Construction, Inc., No. 11 Civ. 03015 (USDC S.D.N.Y. Oct. 27, 2011) (granting motion to confirm arbitrator decision of default judgment against respondent, where arbitrator did not “dispense his own brand of justice,” no basis for vacatur).

Activant Solutions, Inc. v. Notoco Industries, LLC, No. C-11-02436 (USDC N.D. Cal. Oct. 26, 2011) (granting petition to confirm, no manifest disregard for arbitrator’s refusal to modify award).

Conflict of Laws:

Southern Pioneer Life Insurance Co. v. Thomas, No. 11-426 (Ark. Nov. 17, 2011) (affirming denial of motion to compel arbitration, holding FAA preempted by McCarran-Ferguson Act vis-à-vis Arkansas statute precluding arbitration of claims under insurance contracts).

Evident Partiality:

In re Wal-Mart Wage and Hour Employment Practices Litigation, No. 2:06-CV-00225-PMP-PAL (USDC D. Nev. Oct. 11, 2011) (granting motion to confirm, finding no “evident partiality” where arbitrator raised ethical issues pertaining to respondent’s counsel).

Patrizzi & Co. Auctioneers SA v. SDG Corp., No. 11-C-3589 (USDC N.D. Ill. Oct. 25, 2011) (granting motion to confirm, no “evident partiality” in allowing one party to submit evidence not on pretrial list and not the other party).

Exceeding Arbitrator’s Authority:

Verve Communications Pvt Ltd. v. Software Int’l, Inc., No. 11-1280 (USDC D.N.J. Nov. 9, 2011) (denying motion to vacate, arbitrator did not exceed authority by closing discovery period over objection and making award).

Choice Hotels Int’l v. Savannah Shakti Corp., No. DKC-11-0438 (USDC D. Md. Oct. 25, 2011) (granting motion for default, arbitrator’s default award on contract claims did not exceed scope of submission).

Class Arbitration:

Southern Communications Services, Inc. v. Thomas, 1:10-CV-2975-AT (USDC N.D. Ga. Nov. 3, 2011) (denying motion to vacate award holding class arbitration allowable, and granting class certification).

Scope of Arbitration:

Shah v. Santander Consumer USA, Inc. d/b/a Drive Financial Services, LP, No. 3:11-CV-00096 (USDC D. Conn. Nov. 16, 2011) (motion to compel arbitration granted, finding statutory claims “collateral matters” that implicate rights created under the contract).

Stay Pending Appeal / Appellate Jurisdiction:

Weingarten Realty Investors v. Miller, No. 11-20676 (5th Cir. Nov. 1, 2011) (affirming district court ruling denying stay of proceedings during pendency of appeal of decision denying motion to compel arbitration).

TransAmerica Life Insurance Co. v. Rapid Settlements, Ltd., No. 01-11-00240-CV (Tex. Ct. App. Nov. 10, 2011) (dismissing appeal for lack of jurisdiction, trial court order regarding offset to previously entered judgment non-appealable).

This post written by John Pitblado.

ENGLISH COURT ORDERS SERVICE OF PROCESS AGAINST OUT-OF-JURISDICTION DEFENDANT IN INSURANCE DISPUTE

by

The Queen’s Bench Division of the Commercial Court affirmed an order permitting Faraday Reinsurance Co. to serve process out of the jurisdiction against defendant Howden North America. Howden had argued that service should not be permitted and that the parties’ quarrel should be resolved in litigation pending in Pennsylvania federal court. The underlying dispute relates to coverage for asbestos liabilities under three excess layer policies. The case implicates potential differences between English and American law on loss triggers, i.e., whether exposure to a hazardous substance itself constitutes a loss, or whether loss occurs at the time of manifestation or at some other incremental stage between exposure and manifestation. This determination can be dispositive in cases involving asbestos coverage because mesothelioma, which is caused by asbestos exposure, typically does not manifest for decades. Earlier this year, we reported on a decision by the U.K. Court of Appeals holding that the insurer on the risk at the time of exposure, not manifestation, is responsible for the liability. Faraday Reinsurance Co. v. Howden North America, Inc. [2011] EWHC 2837 (Q.B. Comm. Ct. Nov. 1, 2011).

This post written by Ben Seessel.

ENGLISH COURT UPHOLDS ENFORCEMENT OF AUSTRALIAN JUDGMENT AGAINST INSOLVENT REINSURER

by

An English appellate court permitted an Australian reinsurer in liquidation to enforce a judgment entered in Australian insolvency proceedings against a Lloyd’s syndicate, which had elected not to participate in the foreign proceedings. On appeal, the syndicate argued that England’s reciprocity act did not apply to foreign judgments made in insolvency proceedings, and that England’s insolvency act, which recognizes Australian courts, should be interpreted as strictly permitting only Australian choice of law, rather than the enforcement of Australian judgments. The court disagreed on both issues, relying on another English appellate decision (currently on appeal before the Supreme Court of the United Kingdom) that held that England would enforce a foreign insolvency judgment under the reciprocity act, and rejecting the syndicate’s narrow interpretation of the insolvency act. The court considered the respective laws’ legislative history, as well as the interplay between English common law, the reciprocity act, and the insolvent act’s jurisdictional provisions. In re New Cap Reinsurance Corp. Ltd. (In Liquidation), 2011 EWCA Civ 971 (Eng. Ct. App. August 9, 2011).

This post written by Michael Wolgin.

COURT DENIES IN PART, GRANTS IN PART CROSS-MOTIONS TO COMPEL DISCOVERY IN ASBESTOS REINSURANCE DISPUTE

by

A federal court recently ruled on cross-motions to compel in the ongoing litigation between Travelers Casualty and Century Indemnity. The dispute arose from Century’s denial of certain payment claims (regarding asbestos losses) under a series of reinsurance contracts covering underwriting years 1969-1974. The court denied Century’s motion to compel coverage dispute documents, finding them irrelevant because the underlying coverage was undisputed. Travelers, however, must provide all non-privileged documentation concerning the evaluation of the reinsurance claims. The court also denied Century’s motion regarding Traveler’s communications with other insurers, finding these irrelevant. The court also ordered the parties to meet and confer in an attempt to reach an agreement regarding the discovery of information related to Century’s reinsurance of other companies that insured the underlying insureds for asbestos liability. Finally, Century was compelled to answer an interrogatory related to its allocation of asbestos losses under the reinsurance treaties. Travelers Casualty & Surety Co. v. Century Indemnity Co., No. 3:10-cv-00400 (USDC D. Conn. Nov. 16, 2011).

This post written by John Black.