Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

MANIFEST DISREGARD OF THE LAW UNDER THE LABOR-MANAGEMENT RELATIONS ACT QUESTIONED IN THE EIGHTH CIRCUIT

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In a case involving an arbitration award in a labor dispute, a federal district court in the Eighth Circuit recently questioned whether the “manifest disregard of the law” ground for vacating an arbitration award continues to exist under the Labor-Management Relations Act. The case concerned an arbitration regarding the company’s procedures for evaluating whether an injured employee was physically able to return to work. The arbitrator found in favor of the employee, determining that the procedure employed by the company concerning this employee was inconsistent with its past practices with other employees. The company claimed that its actions were consistent with its collective bargaining agreement and with federal law, and moved to vacate the award as a “manifest disregard” under the LMRA and the Federal Arbitration Act. In upholding the arbitration award, the court recognized that in the Eighth Circuit, “manifest disregard” is no longer a valid basis for vacating an arbitration award under the FAA, and “even if this ground for vacatur survives in LMRA cases,” the arbitrator at worst incorrectly applied the applicable law, rather than refused to apply it. Breckenridge O’Fallon, Inc. v. Teamsters Union Local No. 682, Case No. 4:09CV2005 (USDC E.D. Mo. Jan. 24, 2011).

This post written by Michael Wolgin.

NINTH CIRCUIT: DISTRICT COURT CANNOT SHIRK REVIEW OF ARBITRATION AWARD

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The Ninth Circuit Court of Appeals recently issued an opinion holding that it was improper for a District Court to pass initial review of an arbitration award onto an appellate court rather than reviewing the award itself when presented with motions to confirm and to vacate. The parties, following a lengthy discovery process, had submitted to binding arbitration with appeal rights. After the arbitrator issued an award, and plaintiff moved the federal district court to confirm, defendant Wells Fargo informed the district court of an arithmetical error in the arbitrator’s calculations. Wells Fargo indicated that it did not intend to appeal the arbitrator’s judgment, but moved to modify or vacate the award. The district court refused to review the award, stating that such objections should be taken up on appeal. Wells Fargo subsequently filed the instant appeal.

Finding that it was proper to review the procedural error sua sponte, the Ninth Circuit remanded the case to the district court. The appeal court saw no reason justifying the district court’s circumvention of the Congressionally-established structure of the federal courts and the Federal Arbitration Act’s process for the review of arbitration awards. The Supreme Court’s Hall Street Associates opinion prevents parties from contracting for a standard of review different than that contained in the FAA, and similarly, parties should not be able to contract for a different review process. The district court was thus directed to rule on the motion to modify or vacate. Johnson v. Wells Fargo Home Mortgage, Inc., Case No. 05-321 (9th Cir. Feb. 15, 2011).

This post written by John Black.

INSURER AND REINSURER STIPULATE TO DISMISSAL OF LAWSUIT, AGREEING TO ARBITRATE REINSURANCE CLAIM DISPUTE

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TIG Insurance Company (“TIG”) sued Arrowood Indemnity Company (“Arrowood”) in federal court for breach of a reinsurance agreement. TIG had settled claims with insured Browning Ferris Industries, Inc., and claimed coverage from Arrowood under a facultative reinsurance contract. The parties dismissed their court case without prejudice, agreeing to arbitrate the dispute. The dispute is described in the lawsuit’s Complaint. TIG Ins. Co. v. Arrowood Indem. Co., Case No. 1:10-cv-00465-SM (U.S.D.C. D.N.H. Dec. 29, 2010)

This post written by Ben Seessel.

U.K. COURT CONFIRMS ARBITRATION AWARD AGAINST REINSURER AND IN FAVOR OF P&C INSURER THAT PAID SUMS UNDER SETTLEMENTS

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A reinsurer challenged an arbitration award finding coverage in favor of a P&C insurer in six cases where the insurer had paid sums under compromise agreements. A U.K. court confirmed the award in favor of the P&C insurer, finding that the arbitrators’ reasoning was clear, and that their judgment was unchallengeable in law. The underlying claims by insureds involved silicon breast implant manufacturers’ liability, liability of makers of products derived from blood contaminated with HIV or AIDS, asbestos, and environmental pollution. In re Arbitration Between IRB Brasil Resseguros SA & CX Reinsurance Co., [2010] EWHC 974 (Q.B. 2010).

This post written by Ben Seessel.

NON-PARTY TO ARBITRATION AGREEMENT COMPELLED TO ARBITRATE

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A federal judge in Illinois compelled arbitration of a defamation suit brought by an ousted board member against other board members of an LLC formed as a joint venture. The LLC was formed by an operating agreement that included a procedure for the designation of governing board members. Plaintiff, the principal of one of the entities forming the joint venture, was designated to the board, but other board members successfully sought to have him removed for reasons they set forth in writing to other members. Plaintiff sued them for defamation. The defendants moved to compel arbitration, citing the operating agreement’s arbitration provision. While the Plaintiff was not a party to the operating agreement, the court still compelled him to arbitration, as it found him to be an agent of one of the signatory companies, citing agency as one of the “five doctrines through which a non-signatory can be bound by arbitration agreements entered into by others.” The court also found the defamation claims to be within the scope of the arbitration agreement, because it pertained to a disagreement “concerning the management or conduct of the affairs” of the joint venture created by the operating agreement. Denari v. Rist, Case No. 10-2704 (USDC N.D. Ill. Jan. 31, 2011).

This post written by John Pitblado.