Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

AFTER ORDER CONFUSED INSURANCE FOR REINSURANCE, COURT RE-ENTERS SUMMARY JUDGMENT BASED ON FAILURE TO NOTIFY INSURER OF CLAIM

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On March 16, 2011, we reported on a summary judgment finding Lexington Insurance Company not responsible for a $28 million claim arising under a Lexington medical malpractice insurance policy issued to United Healthcare. While the decision was based on United’s failure to comply with notice provisions in the underlying policy and the resulting prejudice to Lexington, United sought reconsideration on the grounds that the court’s opinion erroneously described the policy as reinsurance, instead of insurance. United argued that an insured should be afforded more protection against the forfeiture of benefits than a reinsured. The court has now issued an amended opinion that corrects its description of the relationship between the parties, but stands by its original conclusions. The court refused to apply rules of contract interpretation that compel a court to construe an insurance policy in favor of an insured because “United is not an innocent consumer but rather a sophisticated insurance company who negotiated, and indeed drafted, the terms of their policy.” Lexington Insurance Co. v. United Health Group, Inc., Case No.09-10504 (USDC D. Mass. April 18, 2011).

This post written by Michael Wolgin.

NO COSTS AWARDED TO AIG AFTER APPELLATE VICTORY OVERTURNING $35 MILLION JURY VERDICT

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In a suit between AXA and AIG in which AIG prevailed over AXA’s claim that AIG fraudulently induced it to enter into two reinsurance facilities, a court has set aside AIG’s award of over $200,000 in litigation costs. AIG had prevailed in the case after the Second Circuit Court of Appeals reversed a $35 million jury verdict in favor of AXA, which awarded compensatory and punitive damages, on the grounds that the case was barred by the statute of limitations. The court reasoned that it would be “inequitable to award costs to AIG,” especially in light of the fact that “after a two-week trial, a jury of twelve citizens unanimously found that AIG had defrauded AXA to such a deplorable extent that the conduct merited an award of punitive damages.” AXA Versicherung AG v. New Hampshire Insurance Co., Case No. 05-10180 (USDC S.D.N.Y. March 9, 2011).

This post written by Michael Wolgin.

COURT COMPELS DISCOVERY IN REINSURANCE DISPUTE INVOLVING MUNICH RE

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Recently, the US District Court for the District of New Jersey granted defendant American National Insurance’s motion to compel discovery responses, extend discovery, and for a protective order. The dispute arose out of a reinsurance contract where, according to plaintiff Munich Re, defendant agreed to reinsure certain liabilities arising as a result of Munich Re’s participation in a Workers Comps Excess of Loss Reinsurance Agreement. Granting American National’s motion, the Court ordered that Munich Re produce a 30(b)(6) designee for deposition regarding relating to whether plaintiff will pay certain claims (and thus whether defendant will be liable) and provide substantive responses to interrogatories, rather than merely citing to all documents produced. The Court also extended the discovery period and granted American National’s motion for protective order pending an in camera review of the purported privileged documents. Munich Reinsurance Am., Inc. v. American Nat. Ins. Co., Case No. 09-6435 (D. N.J. Apr. 18, 2011).

This post written by John Black.

SUPREME COURT HOLDS STATE UNCONSCIONABILITY LAW PREEMPTED BY FAA IN AT&T v. CONCEPCION

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On April 27th, the Supreme Court issued its long-awaited opinion in AT&T v. Concepcion, reversing the Ninth Circuit in a 5-4 decision and holding that California’s Discover Bank rule is preempted by the Federal Arbitration Act. At issue was whether the state law – which provided that class action waivers in arbitration agreements are unenforceable in certain circumstances – frustrated the overarching purpose of the FAA, and by extension Congressional intent. The dispute arose out of a telephone contract between respondents (Concepcions) and petitioner (AT&T) which provided for arbitration of all disputes, but did not permit classwide arbitration. The District Court denied AT&T’s motion to compel arbitration under the contract. The Ninth Circuit affirmed.

Writing for the majority, Justice Antonin Scalia emphasized the liberal federal policy favoring arbitration and noted that courts must enforce arbitration agreements according to their terms, as with other contracts. Justice Scalia found that FAA §2’s saving clause preserved generally applicable contract defenses but does not act to preserve state-law rules that stand as an obstacle to the accomplishment of the FAA’s objectives. Justice Scalia ruled that the class arbitration mandate created by Discover Bank was not consensual and thus violated a fundamental attribute of arbitration, that parties are free to limit with whom they will arbitrate. Further, class arbitration will likely complicate the dispute resolution rather than streamlining it as arbitration usually does. Thus, the California state law stood as an obstacle to the accomplishment and execution of the full purposes and objectives of the FAA and the Discovery Bank rule was accordingly preempted by the FAA. The Court reversed and remanded the Ninth Circuit’s judgment.

Chief Justice Roberts and Justices Kennedy, Alito and Thomas (filing a concurring opinion) joined in Justice Scalia’s opinion. Justice Breyer filed a dissenting opinion which was joined by Justices Ginsburg, Sotomayor, and Kagan. AT&T Mobility LLC v. Concepcion, Case No. 09-895 (S. Ct. Nov. 9, 2010)

This post written by John Black.

ARBITRATION ROUNDUP

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Class Arbitration

Sutter v. Oxford Health Plans, LLC, Case No. 10-04903 (USDC D.N.J. Feb. 25, 2011) (class arbitration was still required following the Supreme Court’s Stolt-Nielson decision, notwithstanding the omission of the words “class action” in the parties’ arbitration agreement because the arbitrator had determined that the agreement unambiguously expressed the parties’ intent to authorize class arbitration).

Interim Awards

Draeger Safety Diagnostics, Inc. v. New Horizon Interlock, Inc., Case No. 11-mc-50160 (USDC E.D. Mich. Feb. 14, 2011) (confirming interim award for emergency relief ordering defendant to return records, data, and reports; claim was ripe because the plaintiff was likely to be harmed absent confirmation; court lacked subject matter jurisdiction to confirm non-final award of fees because the claim was not ripe).

Arbitrator Disqualification

O’Dowd v. Hardy, No. G04308 (Cal. Ct. App. Feb. 24, 2011) (defendant’s counsel’s letter to arbitrator, copied to plaintiff’s counsel, containing negative statements about plaintiff did not warrant arbitrator disqualification).

Notice Issues

Selective Ins. Co. v. Coach Leasing, Inc., No. A-4007-06T2 (N.J. Super. Ct. App. Div. June 16, 2008) (reversing orders vacating arbitration awards and remanding for entry of judgment enforcing awards; notifying defendant’s third-party administrator of the arbitration was sufficient notice under the parties’ agreement and New Jersey statute).

Exceeding Authority; Manifest Disregard for the Law

CCent. Mont. Rail v. BNSF Ry. Co., No. 05-00116 (9th Cir. Mar. 18, 2011) (affirming the district court’s confirmation of an arbitration award because the conditions for vacatur were not met; the arbitrators had not exceeded their authority nor manifestly disregarded the law).

Ameser v. Nordstrom, Inc., Case No. 09-0395 (USDC N.D. Tex. Mar. 14, 2011) (denying motion to vacate award; movant failed to demonstrate that the arbitrator was partial, exceeded her powers, demonstrated manifest disregarded for the law, or that the award was obtained by undue means).

Harrell & Owens Farm v. Fed. Crop Ins. Corp., Case No. 09-217 (USDC E.D.N.C. Mar. 23, 2011) (denying motion to vacate award and confirming award; arbitrator did not exceed the scope of his authority by purportedly failing to follow a government agency’s binding interpretation of an insurance policy; award did not fail to draw its essence from the arbitration agreement).

IFA Ins. Co. v. Am. Trucking & Transp. Ins. Co., No. A-1845-09T2 (N.J. Super. Ct. App. Div. Mar. 22, 2011) (affirming confirmation of arbitration award; failure of the arbitrator to apply comparative negligence principles did not warrant vacatur; the fact that the arbitration was court ordered and not by agreement of the parties did not alter the narrow scope of judicial review).

Timeliness Issues

Century Indem. Co. v. Clearwater Ins. Co., Case No. 11-1038 (USDC S.D.N.Y. Mar. 30, 2011) (confirming arbitration award because respondent failed to timely move to vacate, modify, or correct the award and finding no other basis for vacating the award).

Am. Ins. Managers, Inc. v. Guar. Ins. Co., Case No. 07-01615 (USDC D.S.C. Mar. 29, 2011) (motion to vacate or modify filed exactly three-months after delivery of the award was timely because the FAA and not state law governed the applicable statute of limitations; denying motion to vacate or modify; award was not “fundamentally unfair” or “irrational” and there was no “evident partiality” by the arbitrator).

This post written by Ben Seessel.