On June 24, 2010, we reported on a dispute between BG Group, a British company that invested in Argentinean gas distribution, and Argentina over losses incurred by BG Group after Argentina enacted emergency laws in response to an economic crisis in 2002. A U.S. district court has now confirmed an arbitration award in excess of $185 million over Argentina’s contention that the award violated public policy and was thus improper under the New York Convention. The court’s decision was based upon the following determinations: (1) that the panel correctly found that the governing investment treaty’s condition precedent for suit in Argentinean court to precede arbitration was invalid in light of Argentina’s emergency laws, which made it effectively impossible to comply with that condition; (2) that the arbitration was not an impermissible “derivative claim” brought by a non-party to the investment treaty because the duty that BG Group claimed Argentina violated was a duty contemplated by the treaty to extend to an investor; (3) that in calculating damages, the panel’s consideration of a transaction that occurred four years prior to the economic crisis was not improper because the panel considered it only to assist it in determining BG Group’s fair market value prior to its loss in 2002; and (4) that the award did not run afoul of the “just compensation” prong of the U.S. Takings Clause because the panel had held that no property had been expropriated by Argentina, and in any event, the panel was not an arm of the government, and a “judicial taking” is not an action under the law that is “well defined and dominant” so as to constitute a violation of public policy. Republic of Argentina v. BG Group PLC, Case No. 08-485 (USDC D.D.C. Jan. 21, 2011). This post written by Michael Wolgin.
SPECIAL FOCUS: SEVENTH CIRCUIT COURT BRINGS DOWN CURTAIN ON PRE-AWARD CHALLENGE TO ARBITRATOR PARTIALITY
What happens when an arbitrator is asked to further arbitrate an alleged fraud committed in a prior arbitration in which the same arbitrator presided? In this Special Focus, John Pitblado examines a recent Seventh Circuit decision holding that knowledge acquired in a prior reinsurance arbitration about an alleged failure to disclose material documents did not render the arbitrator impartial, since an arbitration need not follow the pattern of jury trials.
This post written by John Pitblado.
CONNECTICUT AG SETTLES ANTITRUST CASE AGAINST GUY CARPENTER & EXCESS RE
Connecticut Attorney General George Jepsen announced an antitrust settlement with Guy Carpenter & Co and Excess Re on January 31, 2011, concluding litigation pending for over three years. The settlement, amounting to $4.25 million, resolved allegations that the reinsurers were engaged in a series of antitrust conspiracies to fix prices, create closed reinsurance markets, and allocate reinsurance markets. The litigation against Guy Carpenter and Excess Re was the first such suit brought by a state or federal antitrust enforcement agency. The Hartford Financial Services Group settled similar claims with the Connecticut AG for $1.3 million in 2009.
This settlement is notable because, in addition the significant monetary payment, Guy Carpenter agreed as part of the settlement to reform a number of its nationwide business practices. The reforms, designed to prevent any suspicion of future antitrust violations, include disclosure of ownership interest in reinsurance companies, compensation arrangements, descriptions of facilities, disclosure of factors leading to its brokers making placement recommendations, implementation of minimum competitive bid requirements and a nationwide sampling program. State of Connecticut v. Guy Carpenter & Company and Excess Reinsurance Company, Case No. 07-4033778 (Conn. Super. Ct. Jan. 31, 2011).
This post written by John Black.
COURT HOLDS THAT REINSURANCE TRUST FUND WAS NOT AN “INSURER” THAT OBTAINED “REINSURANCE” FOR ITS MEMBERS
The Alabama Supreme Court has held that the Alabama Reinsurance Trust Fund, established by several self-insured employer groups to provide workers compensation coverage in excess of the members’ self-insured levels, is not an “insurer” and thus could not have obtained “reinsurance” for its members. The issue arose when the Reinsurance Trust Fund procured an excess coverage policy from a carrier that later became insolvent. The Reinsurance Trust Fund submitted a claim on behalf its member to the Alabama Insurance Guaranty Association (the “AIGA”). The AIGA denied coverage, arguing that the definition of a “covered claim” under the Guaranty Act excluded payments to an “insurer.” The court held that the Reinsurance Trust Fund did not act as an “insurer” because it was not in the business of entering into insurance contracts and that the Reinsurance Trust Fund had not obtained “reinsurance” for its members because, among other reasons, “reinsurance” is defined as “insurance for insurance companies.” Ala. Ins. Guar. Ass’n v. Ass’n of Gen. Contractors Self-Insurer’s Fund, No. 05-450 (Ala. Nov. 24, 2010)
This post written by Ben Seessel.
COURT DECLINES ATTORNEYS FEES AWARD TO PREVAILING PARTY IN ARBITRATION
Western Technology Services initiated an arbitration against Cauchos Industriales under the parties’ licensing and service agreements, and was awarded the preliminary injunction it sought terminating the contracts. Cauchos moved to vacate that award, and Westech moved for sanctions, asserting Cauchos’ motion to vacate was frivolous. Both motions were denied. However, after a final arbitration award in its favor, Westech thereafter sought to confirm the award in court, and also sought attorneys fees for its enforcement action, based alternatively on the FAA, as well as the parties’ contract. The court rejected both arguments, finding that Cauchos’ earlier attempt to vacate the award was not frivolous under the FAA’s standard for obtaining attorneys fees in an enforcement action, and finding that entitlement to attorneys fees under the contract had been considered and rejected by the arbitration panel, which decision was entitled to deference. Western Tech. Svcs. Int’l., Inc. v. Cauchos Industriales, S.A., Case No. 09-1033 (USDC N.D. Tex. Nov. 16, 2010).
This post written by John Pitblado.