Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT ALLOWS DISCOVERY OF ARBITRATOR FOR VACATUR CLAIM BASED ON EVIDENT PARTIALITY

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Chartis insured Lasalle Bank under certain surplus lines policies covering Lasalle’s business trusts. The insurance policies contained mandatory arbitration agreements. After a dispute arose between the parties, Chartis initiated a tripartite arbitration through the AAA as per the agreement. The arbitration entailed more than sixty (60) days of evidentiary hearings, which concluded on September 22, 2010. During the pendency of the arbitration, Chartis discovered that Charles Ennis, one of the three agreed-upon arbitrators, had concealed a past adversarial relationship with Chartis affiliates, and requested his removal through the AAA. After reviewing supplemental disclosures by Ennis, the AAA rejected Chartis’ request and the arbitration was concluded. The panel thereafter issued an award, and the parties and arbitrators entered into a Confidentiality Order. Chartis immediately filed an action in court to vacate the award, based in part on Ennis’ purported “evident partiality.” Chartis moved to seal the award pursuant to the Confidentiality Order, and also moved for permission to seek limited discovery on Ennis’ prior adversarial relationship with the Chartis affiliates. The court denied the motion to seal, but allowed Chartis the opportunity to redact specified portions of the award. The Court granted Chartis’ motion for discovery of Ennis’s past adversarial relationship to Chartis affiliates. Chartis Specialty Ins. Co. v. Lasalle Bank, N.A., C.A. No. 6103-VCN (Del. Ch. July 29, 2011).

This post written by John Pitblado.

STATE COURT INTERVENES TO FACILITATE SELECTION OF NEUTRAL ARBITRATOR

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Arrowood Indemnity Co. filed suit in state court, complaining that Clearwater Insurance Co. failed to name three neutral umpire candidates in accordance with the parties’ arbitration agreement. Arrowood asked the court to issue orders facilitating the designation of a neutral arbitrator. Clearwater moved to dismiss, arguing that the court lacked subject matter jurisdiction because the FAA, which undisputedly governed, does not allow for pre-award challenges to an arbitration panel. The court denied Clearwater’s motion, holding that the FAA does not preclude state court involvement in procedural pre-arbitration matters and that it should intervene to facilitate the selection of a neutral arbitrator to protect the integrity of the arbitration process. To court directed the parties to schedule an evidentiary hearing where Clearwater could make challenges to a slate of neutral arbitrators proposed by Arrowood. Arrowood Indem. Co. v. Clearwater Ins. Co., Case No. 11-6018055-S (Conn. Super. Ct. July 26, 2011).

This post written by Ben Seessel.

EIGHTH CIRCUIT AFFIRMS DECISION AGAINST REINSURER UNDER “FOLLOW THE SETTLEMENTS” DOCTRINE

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The Eighth Circuit Court of Appeals affirmed judgment in favor of Massachusetts Mutual Life Insurance Company (“Mass Mutual”) in a case brought against it by its reinsurer, Employers Reinsurance Company (“ERC”). ERC and Mass Mutual were parties to an Excess Disability Income Reinsurance Agreement. ERC and Mass Mutual later entered into a Claim Review Agreement, allowing ERC to make non-binding settlement recommendations. After Mass Mutual revealed some of its own claims reporting errors to ERC, ERC concluded that Mass Mutual had breached the reinsurance treaty and sued Mass Mutual, asserting breach of contract, breach of the implied covenant of good faith and fair dealing, and declaratory claims. Mass Mutual countered, making similar claims against ERC. The parties cross-moved for summary judgment and the trial court granted Mass Mutual’s motion and denied ERC’s. ERC appealed, but the Eighth Circuit Court affirmed the trial court’s decision and findings that the reinsurance agreement contained a “follow the settlements” provision, and that this ultimately allowed Mass Mutual to settle claims as it saw fit, whether or not the CRA required it to consider ERC’s non-binding recommendations. (We posted on the District Court’s decisions four times: September 15, 2010 (pre-judgment interest), July 12, 2010 (1292(b) appeal certification request), November 20, 2008 (reconsideration and appeal certification) and September 2, 2008 (summary judgment). Employers Reinsurance Co v. Massachusetts Mutual Life Ins. Co., No. 10-3099 (8th Cir. Sept. 7, 2011).

This post written by John Pitblado.

AIG TRANSFERS REINSURANCE DISPUTE TO BANKRUPTCY COURT

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Following removal to federal district court of an action against AIG, defendants petitioned to refer the case to the district’s bankruptcy court. Plaintiffs’ claims arose out of a reinsurance arrangement between AIG and non-party The Robert Plan Corporation, who were engaged in the automobile insurance business. After a dispute regarding administration of the reinsurance treaties, plaintiffs – “family members and former shareholders” of TRP – allege TRP agreed to accept a certain sum as payment pursuant to AIG’s allegedly fabricated representations about its loss reserves. Following this dispute, TRP filed Chapter 11 bankruptcy. The District Court agreed to refer the case, holding that plaintiffs’ claims “could conceivably have an effect” on TRP’s bankruptcy estate and are therefore related to the case under Title 11. The Court noted that plaintiffs did not dispute AIG’s arguments. Wallach v. American International Group, Inc., No. 11-3025 (USDC E.D.N.Y. Sept. 12, 2011).

This post written by John Black.

ARBITRATION ROUND-UP

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Manifest Disregard:

Protherapy Associates, LLC v. AFS of Bastian, Inc., Case No. 6:10cv00017 (USDC W.D. Va. July 27, 2011) (granting motion to confirm award; denying motion to modify award; no manifest disregard of law; arbitration decision that found joint and several liability did not conflict with related judicial opinion that elected not to pierce corporate veil);

International Brotherhood of Teamsters Local Union 177 v. United Parcel Service, Inc., Case No. 2:11cv00180 (USDC D.N.J. Aug. 11, 2011) (denying motion to vacate award; arbitrator relied on evidence and did not exceed powers; no “manifest disregard” of underlying collective bargaining agreement where arbitrator’s interpretation was not “totally unsupported” by general contract principles);

Johnson v. Wells Fargo Home Mortgage, Inc., Case No. 3:05cv00321 (USDC D. Nev. Aug. 17, 2011) (granting in part motion to vacate award on remand from Ninth Circuit; damages award under the Fair Credit Reporting Act was “manifest disregard” to the extent it conflicted with court’s prior holding that certain foreclosure fees were paid for a business purpose and not a consumer purpose);

Priority One Services, Inc. v. W&T Travel Services, LLC, Case No. 1:10cv01873 (USDC D.D.C. Aug. 23, 2011) (granting in part motion to vacate award; panel’s award of prejudgment interest was an “evident material miscalculation” requiring modification; court need not resolve whether “manifest disregard” is valid basis for vacatur because no showing panel otherwise acted improperly in applying state law and calculating damages);

Amaprop Ltd. v. Indiabulls Financial Services Ltd., Case No. 1:11cv02001 (USDC S.D.N.Y. Sept. 9, 2011) (granting petition to confirm arbitration award; no “manifest disregard” where arbitrator’s analysis justified award and party failed to oppose petition);

Sussex v. Turnberry/MGM Grand Towers, LLC, Case No. 2:08cv00773 (USDC D. Nev. Sept. 15, 2011) (denying motion to vacate award and motion for reconsideration; no “manifest disregard” for arbitrator’s determination that plaintiffs could not proceed as a class; reconsideration denied where new case law did not change the law);

Jurisdiction:

Powerweb Energy, Inc. v. GE Lighting Systems, Inc., Case No. 2:10cv02652 (USDC E.D. Pa. Sept. 2, 2011) (granting motion for remand to state court of petition to vacate award; jurisdiction cannot be based on federal issues absent from complaint that would arise only upon vacatur of award or based on counts of counterclaim);

Northland Truss System, Inc. v. Henning Construction Co., Case No. 4:11cv00216 (USDC S.D. Iowa Sept. 7, 2011) (dismissing petition to vacate arbitrator’s order joining seller of construction materials to arbitration between barn owner and builder; no jurisdiction where allegation of manifest disregard of federal law was “patently meritless”; noting that Eight Circuit has not determined whether claim for manifest disregard of federal law confers jurisdiction; plaintiff failed to state claim because FAA does not authorize vacatur of arbitration orders).

Procedure:

Pearl Seas Cruises, LLC v. Irving Shipbuilding, Inc., Case No. 3:11cv00201 (USDC D. Conn. Aug. 9, 2011) (granting motion to dismiss petition to vacate interim award; prior to final award, party’s claim of undue delay was for panel, not for court);

Atlantic City Electric Co. v. Estate of Jerry Riccardo, Case No. 2:09cv03573 (USDC E.D. Pa. Aug. 11, 2011) (granting summary judgment in action to set aside award due to misrepresentations related to health of accident victim; fraud claims were time-barred; under Pennsylvania law, “regardless of whether the arbitration at issue is a statutory or common law arbitration, the thirty (30) day time limit within which to challenge the award applies”);

International Brotherhood of Teamsters, Local No. 264 & 375 v. Nason’s Delivery, Inc., Case No. 1:11cv00186 (USDC W.D.N.Y. Aug. 31, 2011) (denying unions’ motion for preliminary injunction and temporary restraining order to enforce relief awarded in arbitration against employer liquidating its assets; unions failed to show irreparable harm of employer’s liquidation and likelihood of success of petition to confirm award under N.Y. General Associations Law).

Evident Partiality:

Plastic Recovery Technologies, Co. v. Samson, Case No. 1:11cv02643 (USDC N.D. Ill. July 28, 2011) (denying motion to vacate award; no evident partiality despite arbitrator’s knowledge of party’s refusal to pay fees).

FINRA:

McCafferty v. A.G. Edwards & Sons, Inc., Case No. 2:11cv00517 (USDC D.N.J. Aug. 11, 2011) (granting motion to dismiss and cross-motion to confirm award; alleged violation of N.J. whistleblower statute was not a “statutory employment discrimination claim” under FINRA; arbitration panel did not lack jurisdiction or exceed powers by including a “non-public” arbitrator on the panel).

Due Process:

First American Title Insurance Co. v. Ordin, Case No. B226671 (Cal. Ct. App. Sept. 14, 2011) (affirming confirmation of awards; plaintiff failed to show it was “substantially prejudiced” by arbitrator’s alleged refusal to hear relevant evidence and to permit supplemental briefing).

This post written by Michael Wolgin.