Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT COMPELS ARBITRATION AND REFUSES TO DISQUALIFY A PARTY’S SELECTED ARBITRATOR

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A federal district court compelled arbitration and refused to disqualify a party’s selected arbitrator, notwithstanding that the arbitrator was a former employee and consultant of the objecting party’s parent company. Service Partners, LLC and American Home Assurance Co. entered into a payment agreement for insurance and risk management services that contained an arbitration clause providing that each party would select an arbitrator and the two selected arbitrators would choose a third. The clause prohibited the selection of an arbitrator under either party’s control and, further, provided that, if a party refused or neglected to select an arbitrator, either party could petition a New York state court to appoint one. American Home objected to Service Partners’ selected arbitrator and refused to arbitrate because the arbitrator was a former employee of American Home’s parent, and in the past had served as a party arbitrator for American Home, and as a consultant/expert witness for American Home’s parent. Thus, according to American Home, the arbitrator was not qualified because he knew American Home’s “playbook.”

Service Partners moved to compel arbitration, arguing that nothing in the parties’ agreement or federal law provided for the disqualification of an arbitrator before the entry of an award and, moreover, that the arbitrator was qualified. The federal district court granted the motion to compel. The court first determined that venue was proper–finding that the New York court could only be accessed where no arbitrator had been appointed, not where an arbitrator’s qualifications were in dispute. The court, moreover, held that the arbitrator was qualified under the parties’ agreement because, as a former employee of American Home’s parent, he was not currently under either party’s control. Further, the court held that, absent extraordinary circumstances that did not exist in the case, a challenge to an arbitrator’s qualifications or partiality should be made only after an award is rendered. Serv. Partners, LLC v. Am. Home Assurance Co., Case No. 11-01858 (USDC C.D. Cal. June 20, 2011).

This post written by Ben Seessel.

IMPLEADED REINSURER DISMISSED UNDER CONVENTION ON THE RECOGNITION AND ENFORCEMENT OF FOREIGN ARBITRAL AWARDS

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The plaintiff in a personal injury suit arising from an automobile accident amended his petition to add Lloyd’s of London to a state court suit initially brought against the alleged tortfeasor and the tortfeasor’s primary insurer (Lloyd’s cedent). Lloyd’s removed the suit to federal court under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and sought dismissal based on the arbitration provisions of its contract with the insurer. The plaintiff did not oppose the dismissal, so long as it was without prejudice, and moved to remand the case back to state court. The court granted Lloyd’s motion to dismiss without prejudice and granted plaintiff’s motion to remand. Rossignol v. Tillman, Case No. 10-3044 (USDC E.D. La. June 17, 2011).

This post written by John Pitblado.

PRESIDENT APPOINTS INSURANCE EXPERT MEMBER OF FSOC

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President Obama has nominated Roy Woodall to fill the position designated for an insurance expert on the Financial Stability Oversight Council (“FSOC”). An attorney, Mr. Woodall served as Kentucky Insurance Commissioner, was President of the National Association of Life Companies for 13 years prior to its merger with the American Council of Life Insurers (“ACLI”), and continued with the ACLI as managing director for issues and vice-president and chief counsel for state relations. He later served as a senior insurance policy analyst in the Treasury Department and as an insurance consultant for the Congressional Research Service. If confirmed by the Senate, Mr. Woodall would be the long-awaited insurance “expert” in the FSOC’s work, including its deliberations concerning the criteria for designating companies as systematically important financial institutions. There is no indication yet as to when the Senate Banking Committee might hold a confirmation hearing for Mr. Woodall. With the Congress embroiled in the issue of the national debt, and the Senate scheduled to be in recess until July 10, and from August 8 to September 5, it may be a while before Mr. Woodall actually joins in the work of the FSOC (assuming he is confirmed by the Senate).

This post written by Rollie Goss.

“MANIFEST DISREGARD OF THE LAW” ALIVE AND WELL IN THE NINTH CIRCUIT

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A court in the Ninth Circuit recently considered whether an arbitration award in an employment dispute was a “manifest disregard of the law” under the Federal Arbitration Act. The case stemmed from the employer’s termination of its CEO under an employment agreement that deemed a termination “for cause” if the officer committed a “willful” illegal act. After the CEO was indicted for securities fraud and pleaded guilty to “willfully” making false and misleading statements in connection with the same conduct that led to his termination, the employer argued that the CEO made a “judicial admission” that precluded him from disputing that his conduct was “willful.” The arbitrator, however, disagreed and found that “willful” meant “something different in the context of a securities fraud violation as opposed to under the Agreement.” The court found no “manifest disregard” in the arbitrator’s determination, finding that the decision was “a reasonable construction” of the law and was “not clearly irrational.” Electro Scientific Industries, Inc. v. Dooley, Case No. 10-CV-1564 (USDC D. Or. May 17, 2011).

This post written by Michael Wolgin.

EIGHTH CIRCUIT AFFIRMS ARBITRATION DECISION AGAINST ILLINOIS FARMERS INSURANCE

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Recently, the Eighth Circuit Court of Appeals filed its opinion ruling on an appeal from the District Court’s orders dismissing Farmers’s counterclaim that Alpine Glass violated Minnesota’s anti-incentive statute, granting summary judgment in favor of Alpine on a breach of contract issue, and denying Farmers’s motion to vacate an arbitration award. The Eighth Circuit affirmed, finding that Alpine Glass did not violate the anti-incentive statute by charging a contingent price, and that the breach of contract issue was improperly framed by Farmers as a breach of a unilateral contract. Finally, the Court affirmed the District Court’s denial of Farmers’s motion to vacate the arbitration award concluding that the arbitrator applied the correct standard to the issue under the pertinent Minnesota statute. The Court upheld the arbitrator’s conclusion that Farmers failed to pay the competitive price. Alpine Glass, Inc. v. Illinois Famers Ins. Co., No. 10-1689 (8th Cir. June 17, 2011).

This post written by John Black.