Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DISMISSES CASE AGAINST FOREIGN REINSURER FOR LACK OF PERSONAL JURISDICTION

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Pacific Employers Insurance Company entered into a quota share reinsurance agreement with AXA Belgium in the 1970s, when Pacific was a California domiciliary. The agreement was never formalized so it included no terms concerning exclusive jurisdiction, service of suit, choice of law or forum selection. Pacific moved its offices to Pennsylvania in the early 1990s. Pacific continued to bill AXA on occasion, and AXA paid claims and submitted billings to Pacific at its Pennsylvania office. The parties then became engaged in dispute over AXA’s continuing obligations. Pacific brought suit in Pennsylvania federal court. AXA challenged personal jurisdiction. Pacific produced evidence in support of its claim of jurisdiction, including billings AXA sent to it in Pennsylvania, and the fact that AXA representatives had conducted an audit of Pacific at its Pennsylvania offices. It also contended that AXA directed numerous written and telephone communications to Pacific in Pennsylvania. Finally, Pacific argued that AXA did other substantial business in Pennsylvania, in support of its “general jurisdiction” claim. The Court rejected all of Pacific’s claims, and granted AXA’s Rule 12(b)(2) motion to dismiss. Pacific Employers Ins. Co. v. AXA Belgium, S.A., No. 09-5211 (USDC E.D. Pa. April 27, 2011).

This post written by John Pitblado.

REINSURANCE BROKER CANNOT BE SUED FOR BREACH OF FIDUCIARY DUTY

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Insurance brokers are not subject to breach of fiduciary duty claims under California law, a court held. Workmen’s Auto Insurance Co. sued its reinsurance intermediary-broker, Guy Carpenter & Co., for negligence, breach of fiduciary duty, and breach of contract in connection with Carpenter’s placement of a finite quota share reinsurance agreement on Workmen’s behalf. The trial court granted Carpenter’s motion for summary adjudication with respect to Workmen’s allegation that Carpenter failed to secure the best terms for reinsurance, and sustained Carpenter’s demurrer on Workmen’s breach of fiduciary claim. A jury found for Carpenter on the negligence and breach of contract claims. Workmen’s appealed, but the court of appeal affirmed, holding that an insurance broker cannot be sued for breach of fiduciary duty. An insurance broker’s duties are defined by California insurance law, which ascribes to brokers a duty of care, not a fiduciary duty. The appellate court declined to address as untimely raised Workmen’s argument that the standard should be different for reinsurance brokers because the nature of the relationship with the client is more complex and comprehensive. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., No. B211660 (Cal. Ct. App. May 4, 2011).

This post written by Ben Seessel.

$1.2 BILLION SETTLEMENT OF PROPERTY DAMAGE CLAIMS ARISING FROM 9/11 TERRORIST ATTACKS AFFIRMED

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The Second Circuit has affirmed a $1.2 billion settlement of numerous property damage claims made against American Airlines, United Airlines, and their respective security firms, that arose from the September 11, 2001 terrorist attacks on Towers One and Two of the World Trade Center. The settlement, which was approved based on New York law, was challenged by a group of plaintiffs that elected not to participate in the mediation of the case. In affirming the settlement, the Second Circuit rejected arguments that the Air Transportation Safety and System Stabilization Act of 2001 (the “ATSSA”) preempted New York law, that the settlement was not fair, and that the defendants’ settlement payments could not be credited towards their liability limits under the ATSSA. In re September 11 Property Damage Litigation, No. 10-2970 (2d Cir. April 8, 2011).

This post written by Michael Wolgin.

MOTION TO TRANSFER REINSURANCE MATTER TO DISTRICT HEARING RELATED CASES INVOLVING DIFFERENT REINSURERS DENIED

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Plaintiff White Mountains Re, successor in interest to MONY Re, filed an action in the New York Supreme Court against Travelers asserting claims for declaratory judgment and breach of contract arising out of a dispute concerning certain reinsurance contracts. Travelers removed the action to the US District Court for the Southern District of New York and subsequently filed a motion to transfer this action to the District of Connecticut. There are a number of related cases concerning the reinsurance contracts pending in the US District Court for the District of Connecticut, although White Mountains Re is not a party in any of the Connecticut actions. The District Court denied Travelers’ motion, concluding that although the action could have been filed in the District of Connecticut originally, White Mountain Re’s choice of forum is “given great weight.” Further, the Court concluded that while the current action is related to those in the District of Connecticut, White Mountain Re’s suit was not filed in response to a direct threat of litigation in the other forum. Accordingly, Travelers failed to show that transfer was appropriate. White Mountains Reinsurance Co. of Am. v. Travelers Casualty and Surety Co., Case No. 11-390 (S.D. N.Y. Apr. 13, 2011).

This post written by John Black.

ARBITRATOR SHOULD DECIDE TIMELINESS EVEN WHERE CONTRACT SELECTS LAW THAT PERMITS IT TO BE DETERMINED IN COURT

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The Second Circuit Court of Appeals has recently reversed a court decision to apply New York law to bar the arbitration of a Brazilian construction dispute as untimely, holding that this issue should have been determined by the arbitrator. The Second Circuit held that the underlying contract ambiguously contained both a provision calling for “any” contract dispute to “be finally settled by arbitration” and a New York choice of law provision. New York law permits a party to litigate in court a statute of limitations defense. In resolving the ambiguity in favor of arbitration, the Second Circuit applied Supreme Court precedent, which holds that where a contract contains a broad arbitration provision and a general choice of law provision that does not itself specify that a timeliness defense should be withheld from arbitration, the choice of law provision “encompasses substantive principles” that courts would apply, but not “special rules limiting the authority of the arbitrators.” Bechtel Do Brasil Construcoes Ltda. v. UEG Araucaria LTDA, No. 10-0341 (2d Cir. March 22, 2011).

This post written by Michael Wolgin.