New reinsurance-related and arbitration developments from Carlton Fields
In a Special Focus analysis, we profile the long-awaited Supreme Court decision in AT&T v. Concepcion, which holds that the Federal Arbitration Act prohibits states from conditioning the enforceability of an arbitration agreement on the availability of class wide arbitration procedures. AT&T v. Concepcion, No. 09-893 (US Apr. 27, 2011).
This post written by John Black.
We previously reported on May 5, 2010, June 21, 2010 and January 7, 2011 about litigation between Pacific Employers Insurance Company and Global Reinsurance, relating to their dispute over a facultative reinsurance agreement covering certain underlying asbestos-related injury claims. After discovery, Pacific Employers moved to strike certain portions of Global’s affirmative defenses. Global opposed the motion. The court invoked its discretion to hear the untimely Rule 12(f) motion, but limited review to the pleadings only. The court granted the motion in part and denied it in part. The court ordered stricken a paragraph pertaining to prejudice arising from Pacific Employer’s late claim notice, as Global had since abandoned any claim of prejudice. The court, however, did not strike paragraphs relating to Global’s affirmative defense of breach of the duty of utmost good faith. Global did not waive the defense, and that the defense was inextricably linked with Global’s late notice defense, the case’s central issue. Pacific Employers Insurance Company v. Global Reinsurance Corp. of America, No. 09-6055 (USDC E.D. Pa. Apr. 18, 2011).
This post written by John Pitblado.
National Casualty is one of several reinsurers providing reinsurance to Munich Re under a single treaty. Munich Re submitted claims under the treaty that were denied by National Casualty and another reinsurer, Wasau. The treaty provided disputes would be submitted to arbitration and that if more than one reinsurer was involved in the same dispute, all the reinsurers would constitute and act as one party. Wasau refused to submit to the arbitration, however, and National Casualty refused to proceed without Wasau, taking the position that the treaty’s “act-as-one” clause prohibited the arbitration from going forward without Wasau as a party. Munich Re successfully moved to compel. The district court held that whether the “act-as-one” provision prohibited a separate arbitration against National Casualty was a threshold procedural issue for the arbitrators to decide. Munich Reinsurance America, Inc. v. National Casualty Co., Case No. 10 Civ. 5782 (USDC S.D.N.Y. April 26, 2011).
This post written by Ben Seessel.
GTE Reinsurance Company, in runoff since 1990, proposed a commutation plan regarding its remaining potential property-casualty related liabilities. The commutation plan is essentially a statutory “solvent scheme of arrangement.” Two of GTE’s cedents objected. One challenged Rhode Island’s Voluntary Restructuring of Solvent Insurers Act, G.L. 1956 § 27-14.5-1 as unconstitutional under the Contract Clause and Due Process Clause of the Rhode Island and federal Constitutions. The court rejected the challenges, crediting the large majority of cedents (34 out of 39) that voted in favor of the plan, and noting that, while some rights under the contracts between the objectors and GTE would be impaired by the commutation, they would not be “substantially impaired” – the standard for a contract clause challenge. The court also found the Act to have a legitimate public purpose, and to employ reasonable and necessary means to carry out that purpose. It rejected the due process argument for essentially the same reasons, noting that a “Contract Clause inquiry is more searching than the rational basis review employed in a due process challenge.” In re GTE Reinsurance Co. Ltd., No. PB 10-3777 (R.I. Super. Ct. Apr. 25, 2011).
This post written by John Pitblado.
Trenwick America Reinsurance Corporation had entered into various reinsurance agreements with W.R. Berkley Corporation and its affiliates. Trenwick and W.R. Berkley subsequently executed a commutation agreement to “commute and extinguish” the parties’ respective “past, present, and future obligations” under their reinsurance agreements. For several years after the execution of the commutation agreement, however, Trenwick continued to accept premiums and pay liabilities with respect to one agreement, referred to as the Special Casualty and Reinsurance Facility (“SCARF II”). When Trenwick revisited the commutation agreement, it determined that Trenwick’s liabilities under SCARF II had been commuted. Trenwick initiated an action seeking a declaratory judgment that its liabilities under SCARF II had been commuted, and asserting a claim for unjust enrichment for the amount of net payments made under SCARF II after the commutation agreement was executed. The court held that SCARF II was a reinsurance agreement that had been commuted but rejected Trenwick’s claim for unjust enrichment, finding that Trenwick’s voluntary payments after execution of the commutation agreement precluded its claim. Trenwick American Reinsurance Corp. v. W.R. Berkley Corp., Case No. UWYX01CV094019488 (Conn. Super. Ct. Apr. 1, 2011).
This post written by Ben Seessel.