Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DISTRICT COURT REFUSES TO DISQUALIFY ARBITRATORS IN REINSURANCE DISPUTE

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IRB-Brasil and National Indemnity Company recently filed cross petitions concerning the ongoing arbitration between the parties. The arbitration arises out of a dispute over reinsurance policies issued by NICO to IRB. IRB sought to stay the arbitration, to disqualify NICO’s appointed arbitrator, and to appoint one in his place. It sought further to consolidate the two arbitration proceedings pending between the parties. In the alternative, IRB sought to form an arbitration panel to determine whether the arbitrations should be consolidated. NICO, for its part, sought to designate a neutral third-party arbitrator in one of the pending arbitrations. The court denied all petitions, concluding that under the Federal Arbitration Act it was not authorized to disqualify an arbitrator chosen in accordance with the parties agreement to arbitrate. The agreement specified only that the arbitrators be “active or retired officers of insurance or reinsurance companies,” a criterion that had been fulfilled. All other decisions before the Court stemmed from this conclusion and the petitions were accordingly denied. IRB-Brasil Resseguros v. National Indem. Co., No. 11-1965 (USDC S.D.N.Y. Oct. 6, 2011).

This post written by John Black.

FEDERAL COURT HOLDS IT HAS NO AUTHORITY TO TRANSFER ARBITRATION CONFIRMATION ACTIONS TO STATE COURT

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Subway International B.V., a Netherlands-based franchisor of Subway sandwich stores, brought three actions in Connecticut federal court, seeking enforcement of arbitration awards secured against certain Greek franchisees for breach of their respective franchise agreements. The franchisees had each separately brought actions to vacate the awards in New York State Supreme Court, and they each moved to transfer the Connecticut cases filed by Subway to that venue. The Court denied each of the motions to transfer, holding that it had no authority under federal procedural statutes to transfer actions to state court. In one of the actions, however, the Court granted a motion to dismiss for insufficient service of process. Subway Int’l B.V. v. Cere, Case No. 10-01713 (USDC D. Conn. Aug. 11, 2011), Subway Int’l B.V. v. P. Bletas and J. Bletas, Case No. 10-01714 (USDC D. Conn. Aug. 11, 2011); and Subway Int’l B.V. v. P. Bletas, Case No. 10-01715 (USDC D. Conn. Aug. 11, 2011).

This post written by John Pitblado.

COURT HOLDS TERMS OF ARBITRATION AGREEMENT REQUIRES PARTIES TO ARBITRATE DISPUTES ARISING UNDER SUBSEQUENT AGREEMENTS

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General Motors stripped franchisee Glen West of his stock and removed him as president and operator of one of its dealerships because West was allegedly self dealing and failing to keep proper records. West filed an action in state court seeking an injunction preventing General Motors from disposing of his dealership and an order reinstating him as president. General Motors removed the case to federal court and subsequently moved to compel arbitration, citing an arbitration agreement that the parties had executed when they entered into their first stockholders’ agreement in 2008. West argued that his claims were governed by a 2010 dealer sales and services agreement, and a 2010 stockholders agreement, both of which did not incorporate or reference the terms of the arbitration agreement. The court, however, compelled arbitration, finding that the parties had agreed to arbitrate any claim arising from any other agreement they entered into “whether executed before or after this Arbitration Agreement.” West v. Gen. Motors LLC, Case No. 3:11-00819 (USDC D.N.J. June 7, 2011) motion for reconsideration denied (Aug. 5, 2011).

This post written by Ben Seessel.

INSURER UNSUCCESSFULLY ATTEMPTS TO AVOID ARBITRATION BY WINNING RACE TO THE COURTHOUSE

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Republic Mortgage Insurance issued policies to lender Countrywide insuring against default by Countrywide’s borrowers. Each policy contained an arbitration clause providing that Countrywide “may elect to settle by arbitration a controversy, dispute, or other assertion of liability or rights which it initiates arising out of or relating to this policy.” A dispute arose after Republic denied claims, contending that coverage had been rescinded due to misrepresentations allegedly made by Countrywide in applying for the policies and by its borrowers in applying for loans. Republic filed suit in state court seeking a declaration that its rescissions were consistent with policy terms; Countrywide moved to compel arbitration. Republic opposed the motion, arguing that Republic had “initiated” the dispute, and that the arbitration provision only requires disputes that Countrywide “initiates” to be arbitrated. The trial court rejected this argument and granted Countrywide’s motion to compel. The appellate court affirmed, holding that Republic’s proposed interpretation would frustrate the purpose of the agreement. The court also noted how Republic’s interpretation is commercially unreasonable because it would promote procedural gamesmanship, i.e., attempting to avoid arbitration by filing a declaratory judgment action before Countrywide filed a demand for arbitration. Republic Mortgage Ins. Co. v. Countrywide Fin. Corp., No. 06292 (N.Y. App. Div. August 18, 2011).

This post written by Ben Seessel.

COURT DENIES PRE-PLEADING SECURITY AND DISMISSES SURETY CASE BASED ON STAY IN REHABILITATION PROCEEDING

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General Security National Insurance Company brought an action in New York federal court against Aequicap Insurance Company, in connection with Aequicap’s alleged failure to perform under a surety bond it issued to General Security.  After Aequicap filed an answer in the case, General Security filed a motion seeking to compel Aequicap to post security pursuant to New York’s pre-pleading security statute.  Aequicap objected on various bases, including the fact that, after the filing of General Security’s motion, a stay had been entered in Aequicap’s Florida rehabilitation proceeding.  The New York court denied General Security’s motion, citing the Florida court’s stay Order, and dismissed the case without prejudice to re-filing, pending the outcome of the Florida proceeding.   General Security Nat’l Ins. Co. v. Aequicap Ins. Co., No. 10-9685 (USDC S.D.N.Y. April 29, 2011).

This post written by John Pitblado.