New reinsurance-related and arbitration developments from Carlton Fields
The doctrine of uberrimae fidei, or utmost good faith, has been invoked in reinsurance disputes for many years. In a Special Focus feature, John Pitblado explores the origins of this doctrine and its current status in the reinsurance field.
This post written by John Pitblado.
In an action for breach of an insurance policy and the tort of bad faith, the Western District of Arkansas recently compelled arbitration and stayed the action. The court considered whether an arbitration clause in a policy governed by the Federal Arbitration Act (FAA) was invalidated by an Arkansas state law that purports to invalidate arbitration clauses “in any insurance policy” in Arkansas. The court held that although the McCarran-Ferguson Act would typically operate to preempt the FAA with the state insurance law, in this case an exception to McCarran-Ferguson existed, namely that another federal law that “specifically relates to the business of insurance” and provides for arbitration (the Federal Crop Insurance Act), applied to the policy at issue and required arbitration. The court also stayed the entire action, rather than just the claim for breach of contract, based on the language of the relevant arbitration clause, on the broad mandate of the FAA to “stay the trial of an action” until arbitration has occurred, and in the interests of judicial economy. Hays v. Rural Community Insurance Services, Case No. 1:10-cv-01020 (W.D. Ark. Oct. 7, 2010) (Magistrate Report and Recommendation adopted on October 26, 2010).
This post written by Michael Wolgin.
Deep Sea Financing, LLC filed suit against British Marine as an alleged loss payee under a policy of marine hull insurance issued by British Marine to Dragados Mundiales del Caribe S.A. de C.V., covering a dredge and other equipment owned by Dragados. When the dredge ran aground on an environmentally sensitive reef near Puerto Cancun, Mexico, various claims were made under the policy, including a claim by Deep Sea. When Deep Sea’s written demand was not accepted by British Marine, it filed suit in Georgia state court seeking statutory bad faith penalties. British Marine removed the case to federal court and filed a separate interpleader action naming Dragados and Deep Sea. In Deep Sea’s action, Deep Sea moved for partial summary judgment on its statutory bad faith claim. The contract — which was originally negotiated as reinsurance to a Mexican primary policy that later became unnecessary, and so was converted to a primary policy under British Marine’s typical “London terms,” — nevertheless still included (whether inadvertently or not) a choice-of-law provision requiring application of Mexican law. British Marine argued this provision precluded the statutory claim under Georgia law, and the court agreed. Deep Sea moved for reconsideration, but the court stuck by its initial decision. Deep Sea Financing, LLC v. British Marine Luxembourg, S.A., CV 409-022 (USDC S.D. Ga. Sept. 1, 2010).
This post written by John Pitblado.
In a case pending in English court brought by a property insurer against Swiss-based Glacier Reinsurance AG, another reinsurer, and an English reinsurance brokerage, Glacier moved to dismiss, contending that the proper venue for the claims against it was a court in Switzerland, its domicile. The English court denied Glacier’s motion and the English Appellate Court affirmed. The court applied Article 6 of the Lugano Convention and applicable interpretive case law, which provide that a defendant may be sued in the state of domicile of one of its co-defendants when necessary to avoid the risk of irreconcilable judgments. The court explained that this risk exists when the same situation in law and in fact applies to the claims of multiple defendants. The court held that English Law governed the claims against Glacier because Glacier made a “demonstrable choice” of English law when, among other things, it participated in the London market. The court noted that the reinsurance agreement, which was presented to Glacier and accepted by Glacier in Switzerland, should not be construed as a separate placement in the Swiss market. The court also stressed the “commercial need” for a dispute involving multiple parties to be determined by one tribunal. Gard Marine & Energy Ltd. v. Lloyd Tunnicliffe, [2009] EWHC 2388 (Ct. App. Oct. 6, 2010).
This post written by Michael Wolgin.
The International Association of Insurance Supervisors (IAIS) — a consortium of insurance and reinsurance regulators and supervisors from 190 jurisdictions around the world — had its tri-annual conference and general meeting in Dubai on October 29, 2010. The conference featured discussions about regulatory reforms in light of continuing global financial crises. The IAIS adopted a “Strategic Plan and Financial Outlook” for 2011 to 2015, to ensure resources are in place to strengthen overall supervision. It also approved a two-year roadmap to ensure timely progress toward high level goals. The IAIS will undertake research and analysis of systemic risk in the insurance sector, and the means by which to assess those risks from qualitative and quantitative standpoints. It adopted eight “supervisory papers,” which revised the insurance core principles with supporting standards and guidance materials. The IAIS also announced the signing of two more signatories to the IAIS Multilateral Memorandum of Understanding, the members of which voluntarily agree to be bound by certain minimum regulatory standards (no U.S. authority has yet signed). For more details, see the attached Press Release.
This post written by John Pitblado.