Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

REINSURER PRECLUDED FROM INTERPOSING EARLY DEFENSES IN LIQUIDATION CLAIMS PROCESS

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Everest Reinsurance Company intervened in the liquidation proceedings of Midland Insurance Company, and moved to have the anti-suit injunction vacated, in order to allow it to participate in the claims settlement process, and to interpose defenses. The trial court denied the motion, and Everest appealed. The appellate court affirmed, finding Everest’s defenses were premature, as none of the relevant claims had yet been approved, and because adequate procedures existed for it to interpose defenses later in the process. It further found that Everest’s ability to challenge the liquidator’s claims decisions was limited by the “follow the fortunes” language in its reinsurance policies. Everest also appealed the trial court’s decision denying its motion for an order precluding the liquidator and Midland policyholders from introducing evidence of settlements entered into by Everest as a direct insurer in other proceedings. The court, however, affirmed that ruling as well, noting such evidence might be relevant insofar as it demonstrated that Everest utilized claims handling methodologies that it seeks to challenge in the Midland proceeding. In re Liquidation of Midland Insurance Co., No. 41294/86 (N.Y. App. Aug. 25, 2011).

This post written by John Pitblado.

COURT RULES FOR REINSURER IN ASBESTOS COVERAGE DISPUTE

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OneBeacon sued Commercial Union of Canada, based on its contention that Commercial Union agreed to reinsure successive renewals of a primary policy issued by OneBeacon to Harrisons & Crossfield (America) Inc. and affiliates. Harrisons faced lawsuits for asbestos-based personal injury claims. One of the OneBeacon primary policies at issue was renewed for three successive one-year terms in 1980, 1981, and 1982. Commercial Union issued a Facultative Certificate covering the policy period from March 28, 1980 through April 1, 1981. OneBeacon took the position that the parties intended for the reinsurance cover to be renewed as well. The court disagreed, finding as a matter of law that the Facultative Certificate was unambiguous, covered only the single year described in the contract, and that OneBeacon had not demonstrated with competent evidence any intent on the part of Commercial Union to extend the reinsurance cover beyond its stated term. The Court granted both parties’ motions to strike certain evidence (including a so-called “sham affidavit” proferred by OneBeacon that contradicted sworn testimony), denied OneBeacon’s motion for summary judgment, and granted Commercial Union’s motion for summary judgment. OneBeacon America Insurance Co. v. Commercial Union Assurance Co. of Canada, Case No. 10-10164 (USDC D. Mass. Aug. 18, 2011).

This post written by John Pitblado.

THIRD CIRCUIT CONFIRMS THAT FEDERAL ARBITRATION ACT PREEMPTS STATE LAW DEEMING CLASS ARBITRATION WAIVERS UNCONSCIONABLE

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The Third Circuit reversed a prior decision and held that, under the Supreme Court’s ruling in AT&T Mobility v. Concepcion, a New Jersey law providing that class arbitration waivers in consumer adhesion contracts are unconscionable is preempted by the Federal Arbitration Act. As we reported earlier on June 1, 2010, the Third Circuit had previously vacated a trial court order compelling individual arbitration holding that, under governing New Jersey law, provisions in adhesion contracts precluding class arbitrations are unconscionable and thus unenforceable. The defendant, Cellco Partnership, d/b/a Verizon Wireless, successfully petitioned for a writ of certiorari to the Supreme Court, which vacated the Third Circuit’s decision after deciding in Concepcion that a similar California law was preempted by the FAA. On remand, the Third Circuit reversed its prior decision and affirmed the trial court’s order compelling individual arbitration of the plaintiffs’ claims. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. June 6, 2011).

This post written by Ben Seessel.

ONGOING REINSURANCE DISPUTE SURVIVES MOTION TO DISMISS

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A court granted in part and denied in part a motion to dismiss in a case involving the alleged miscalculation and underpayment of amounts owed to plaintiff Lincoln General Insurance Company by defendant U.S. Auto Insurance Services, Inc. We covered this litigation in a May 11, 2009 post. Lincoln General was the reinsurer of a variety of auto insurance policies sold by U.S. Auto, as managing general agent for State and County Mutual Fire Insurance Company. U.S. Auto sought dismissal on variety of grounds, including that a memorandum of understanding entered by the parties in a 2007 lawsuit between the parties necessitated dismissal of claims not raised in that earlier suit. The court, however, found that the memorandum did not limit the available causes of action in the later suit to those delineated in the 2007 suit, so the motion to dismiss on this ground was denied. Defendants also claimed that an “Assignment of Rights” between State and County and Lincoln General was invalid because it contained a “revocability clause.” The court noted, however, the absence of any case or statute saying a court must ignore the manifested intent of the parties in declaring the assignment void on revocability grounds. The court did dismiss Lincoln General’s claims of alter ego liability against others for U.S. Auto’s breaches of contract, fiduciary duty, and conversion because Lincoln General voluntarily withdrew these claims. Lincoln General Insurance Co. v. U.S. Auto Insurance Services, Inc., No. 10-CV-2307-B (USDC N.D. Tex. Aug. 18, 2011).

This post written by Brian Perryman.

TWO LONDON ARBITRATION AWARDS ENFORCED

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Constellation Energy recently filed a petition in the US District Court for the Southern District of New York to confirm two London arbitration awards entered against Transfield ER Cape Ltd. Constellation also sought to enforce the awards against ER Cape’s alleged alter ego, Transfield EL Limited, which was not a party to the arbitrations. The District Court held that the arbitration awards against ER Cape should indeed be enforced, concluding that forum non conveniens did not prevent adjudication in US Court and that venue was appropriate. The Court noted that the petitioner’s choice of home forum is entitled to substantial deference, the balance of private and public interests did not strongly favor ER Cape, and that the mere existence of adequate alterative forums in insufficient to override petitioner’s choice of forum. The Court, however, ruled that Constellation had failed to plead sufficient factual content to support a claim for alter ego liability and accordingly dismissed the petition against ER Limited. Constellations’ petition for attorneys’ fees and costs was also denied. Constellation Energy Commodities Group, Inc. v. Transfield ER Cape Ltd., No. 10-cv-04434 (USDC S.D.N.Y. July 29, 2011).

This post written by John Black.