Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NINTH CIRCUIT: NO “MANIFEST DISREGARD OF THE LAW” WHERE ARBITRATORS MAY HAVE INTERPRETED LAW DIFFERENTLY

by

On October 7, 2009, we reported on See More Light Investments v. Morgan Stanley DW Inc., Case No. CV 08-580 (USDC D. Ariz. July 29, 2009), in which a court vacated an arbitration award for “manifest disregard of the law” based on the failure to apply the Cuban Assets Control Regulations (CACR), which the arbitrators had initially recognized as applicable law. On January 14, 2011, the Ninth Circuit Court of Appeals reversed, holding that the CACR is not “well defined, explicit, and clearly applicable” to the transaction at issue because the arbitrators may have concluded that the CACR should not apply based on its provisions, or simply “interpreted the CACR differently, then the district court did.” See More Light Investments v. Morgan Stanley DW Inc., No. 09-16953 (9th Cir. Jan. 14, 2011).

This post written by Michael Wolgin.

DISTINCT CLAIMS AGAINST REINSURANCE BROKERS WERE NOT IMPERMISSIBLY COMMINGLED

by

In September, 2010, Instituto Nacional de Seguros filed an amended complaint against two reinsurance brokers (Hemispheric Reinsurance and Howden Insurance) alleging breach of contract, negligence, and breach of fiduciary duty, alleging that the two brokers failed to provide reinsurance slips and other requested information, and when finally forced to do so, the documents revealed significant brokerage overcharges. Howden subsequently filed a motion to dismiss. A Florida state court General Magistrate has recommended the denial of the motion, finding that INS did not impermissibly commingle separate and distinct claims in a single count. Instituto Nacional De Seguros v. Hemispheric Reinsurance Group, LLC, Case No. 10-33653 (Fla. Cir. Ct. Dec. 13, 2010).

This post written by John Black.

DISMISSAL REVERSED IN NEW YORK RETROCESSIONAL REINSURANCE CASE

by

Global Re filed a suit in the New York Supreme Court alleging that Equitas (and a number of co-defendants) were the hub of a conspiracy in violation of New York state antitrust law. The market in question is a worldwide market for non-life retrocessional reinsurance coverage, including the purchase, sale, and service of such coverage. Following a dismissal of the action for lack of an antitrust injury, plaintiff appealed. The Supreme Court Appellate Division reversed the dismissal, finding plaintiff’s allegations sufficient to survive a motion to dismiss. The Court specifically held that Global Re sustained antitrust injury because the quality of what it purchased (retrocessional coverage) was adversely affected by an agreement eliminating competition over claims handling. Global Reinsurance Corp. v. Equitas Ltd., Case No. 600815/07 (N.Y. Sup. Ct. Jan. 18, 2011).

This post written by John Black.

LOUISIANA WAIVES ITS RIGHT TO ARBITRATE DISPUTE OVER AUCTION RATE SECURITIES DUE TO LITIGATION INVOLVEMENT

by

A federal appeals court affirmed that Louisiana Stadium & Exposition District and the State of Louisiana (“LSED”) waived their right to arbitration by expressing the intent to litigate a dispute with Merrill Lynch, Pierce Fenner & Smith Inc. (“MLPFS”) concerning auction rate securities. LSED, which owns the Superdome, structured $240 million in municipal debt as auction rate securities to finance repairs after Katrina, based on MLPFS’s allegedly misleading advice. After the auctions failed in 2008, LSED filed lawsuits against MLPFS. Following eleven months of litigation, LSED moved to compel arbitration before FINRA. The appeals court affirmed that LSED had waived its right to arbitration by expressing its intent to litigate, finding that MLPFS would be prejudiced because, among other reasons, it would forfeit procedural victories it had won in litigation, including having the cases consolidated with other auction rate securities actions, and lose the opportunity to file a dispositive motion, which are disfavored in FINRA arbitrations. Louisiana Stadium & Exposition District v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 10-889 (2d Cir. Nov. 22, 2010).

This post written by Ben Seessel.

ALABAMA COURT OF CIVIL APPEALS AFFIRMS CONFIRMATION OF ARBITRATION AWARD

by

Three prospective buyers of certain multi-million dollar beach condo properties, who paid twenty percent down, but later refused to purchase the condos due to alleged deficiencies, brought suit against the owner/builder, who allegedly improperly retained a portion of the down payment. The parties arbitrated their dispute pursuant to the arbitration provision in the purchase agreement, and the plaintiffs were awarded compensatory and punitive damages on a conversion claim. However, disputing the damages calculation, the plaintiffs brought an action in court seeking to vacate the damages award in favor of a higher figure. The trial court generally confirmed the arbitration award, with only a slight modification based on a computational error. The appellate court affirmed, reiterating the principles of deference codified in the Federal Arbitration Act, and rejecting “manifest disregard of the law” as a proper basis on which to challenge an arbitration award. Kitchens v. Turquoise Properties Gulf, Inc., No. 2090791 (Ala. Civ. App. Nov. 12, 2010) (opinion not available without charge).

This post written by John Pitblado.