Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

WHETHER ARBITRATIONS SHOULD BE CONSOLIDATED IS A PROCEDURAL MATTER FOR AN ARBITRATION PANEL TO DECIDE

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A federal district court denied reinsurer Allstate’s motion to compel two separate arbitrations and granted insurer Liberty Mutual’s cross-motion to compel Allstate to select an umpire to complete an arbitration panel that, in turn, could decide how many arbitration proceedings should be held. Allstate had filed two arbitration demands based on distinct issues and argued that the parties’ reinsurance treaties permitted each dispute to be arbitrated separately. Allstate further argued that the Federal Arbitration Act required that two arbitrations be held. The court denied Allstate’s request, however, reasoning that its job was to determine the validity and scope of the arbitration provision. The arbitrators should decide procedural questions related to the arbitration, including whether to consolidate the separately requested arbitration proceedings. Allstate Insurance Co. v. Liberty Mutual Insurance Co., Case No. 11-10415 (USDC D. Mass. May 19, 2011).

This post written by Ben Seessel.

NO MANIFEST DISREGARD IN ATTORNEYS’ FEES AWARD

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General Security and AequiCap were parties to a contingent commission agreement, by which AequiCap reinsured certain of General Security’s losses under a specified formula. The parties disputed whether AequiCap owed General Security approximately $400,000 under the agreement. General Security demanded arbitration. A three-arbitrator panel ruled in its favor, and also granted it an additional $200,000 for costs and attorneys fees. AequiCap petitioned for vacatur to the district court, arguing that the award of attorneys fees was in “manifest disregard” of the law. The district court found for General Security, noting that the arbitration agreement allowed the panel to order such remedies as it deems appropriate. The court therefore denied the petition to vacate, and granted General Security’s cross-motion to confirm the award. In re General Security National Insurance Co., Case No. 10-CV-8682 (USDC S.D.N.Y. Apr. 29, 2011).

This post written by John Pitblado.

REINSURER CANNOT DENY COVERAGE BASED ON LATE NOTICE WITHOUT SHOWING PREJUDICE

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A federal district court held that, under Pennsylvania law, a reinsurer must show prejudice to deny coverage based on an insurer’s failure to provide prompt notice of loss, even where timely notice is a condition precedent to coverage. Global Reinsurance Corporation of America claimed that Pacific Employers Insurance Company was not entitled to benefits under the parties’ facultative reinsurance contract because Pacific Employers failed to provide prompt notice of loss arising from underlying asbestos litigation. Under the contract, prompt notice was a condition precedent to coverage. New York law, which Global argued should apply, provides that a reinsurer is not required to show prejudice to avoid coverage if the insurer fails to provide prompt notice and timely notice is a condition precedent. The court concluded, however, that Pennsylvania law should apply and denied Global’s attempt to avoid paying benefits for what it called the insurer’s “technical breach” of providing late notice. Pacific Employers Insurance Co. v. Global Reinsurance Corp. of America, Case No. 09-6055 (USDC E.D. Pa. May 23, 2011).

This post written by Ben Seessel.

JUDGMENT AFFIRMED AGAINST GUY CARPENTER OVER TERMINATION OF REINSURANCE BROKERAGE AGREEMENT

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The Second Circuit affirmed a judgment against reinsurance broker Guy Carpenter, finding that its former client, Royal Palm Insurance Company, effectively terminated the parties’ brokerage agreement when it switched to another broker before the end of the agreement’s three-year term. Guy Carpenter contended the district court improperly relied on a Florida statute, which allows a reinsurer to terminate a brokerage agreement at any time. The Second Circuit affirmed, however, noting the statute was irrelevant given the plain terms of the brokerage agreement, which afforded Royal Palm the right to unilaterally terminate the agreement at any time. The three-year term was merely an outer time limit for the relationship, rather than a fixed term. Royal Palm Insurance Co. v. Guy Carpenter & Co., No. 10-2814-CV (2d Cir. May 27, 2011).

This post written by John Pitblado.

COUNSEL PERMITTED TO REPRESENT FORMER CLIENT’S ADVERSARY DESPITE AWARENESS OF FORMER CLIENT’S “PREDILECTIONS” ON THE SELECTION OF AN ARBITRATOR

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In an action by a former client to disqualify its former attorney from representing an adversary in an impending reinsurance arbitration, disqualification was denied because the two matters were “neither the same nor substantially similar.” The court first determined that the dispute was properly before the court, rather than the arbitrators, because the dispute over disqualification of counsel did not arise “out of [the] Contract,” as required by the underlying agreement between the parties. The court then held a “substantial relationship” was lacking between the attorney’s prior representation of the former client and the attorney’s representation of the adversary in the current dispute, despite the fact that both cases involved arbitrations. “General ‘litigation thinking’ – the general strategic plan or hopes of the lawyer and client on how best to pursue or defend claims – does not satisfy, without more, the substantial relationship test.” This includes “predilections” and “prejudices” on the selection of an arbitrator “gained from a small number of prior representations.” Employers Insurance Co. of Wausau v. Munich Reinsurance America, Inc., Case No. 1:10-cv-03558 (USDC S.D.N.Y. May 16, 2011).

This post written by Michael Wolgin.