Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FIFTH CIRCUIT REVERSES DENIAL OF MOTION TO COMPEL ARBITRATION

by

The plaintiff made a claim under a disability policy issued to him in conjunction with his opening a deposit account with a bank. When the claim was denied, plaintiff brought suit against both the bank and the insurance company, alleging several causes of action, including breach of trust, fraud, misrepresentation, breach of contract and bad faith. Both the bank and insurer moved to compel arbitration based on the arbitration provision contained in the deposit account agreement. The district court denied the motions on the basis that arbitrability had been raised, and was an issue for the court to decide. The Fifth Circuit reversed, noting some limited circumstances in which arbitrability can be addressed by the court, but finding that the arbitration provision in question unambiguously provided that issues of arbitrability should be decided by the arbitrator and not the court, and that the language controlled. Allen v. Regions Bank, No. 09-60705 (5th Cir. August 11, 2010)

This post written by John Pitblado.

FDIC ENGAGED IN DODD-FRANK RULEMAKING THAT MAY AFFECT INSURERS AND REINSURERS

by

The FDIC has published a Notice of Proposed Rulemaking proposing rules for the implementation of the Dodd-Frank Act provisions providing that the FDIC may, as a receiver, “resolve” (i.e., liquidate) covered financial companies. The proposed rules address very limited topics, encompass six sections, are only one and one-half pages of the Federal Register in length, and obviously are not the only rules that the FDIC will propose to implement its resolution authority under DFA. Dodd-Frank provides that while the liquidation of any insurance company could be initiated by the Secretary of the Treasury, “if an insurance company is a covered financial company or a subsidiary or affiliate of a covered financial company, the liquidation or rehabilitation of such insurance company, and any subsidiary or affiliate of such company that is not excepted under paragraph (2), shall be conducted as provided under such State law.” Dodd-Frank Act, section 203(e)(1). The proposed rules do not contain any provisions recognizing or implementing this subsection, but do contain a provision providing for a lien on the assets of an insurance company if the FDIC “makes funds available to” the insurance company. The comment period for the proposed rules expires November 18, 2010.

This post written by Rollie Goss.

NINTH CIRCUIT AFFIRMS ATTORNEY’S FEE AWARD FOR ARBITRATION, CONFIRMATION, AND COLLECTION, BUT NOT FOR LITIGATION WITH REINSURERS

by

In a dispute between providers of payroll services (“payroll providers”) and the reinsurers of a movie, the Ninth Circuit, which previously held that the reinsurers were liable for the obligations of the movie’s producers, affirmed an award of attorney’s fees that were incurred in an arbitration between the payroll providers and the movie producers, and in the payroll providers’ related efforts to confirm and collect the arbitration award. The Ninth Circuit held that the underlying arbitration provision in the contracts between the payroll providers and the movie producers provided that the prevailing party would be entitled to attorney’s fees. Under California law, an arbitration provision that permits the recovery of fees includes fees that were incurred in related judicial proceedings. However, the Ninth Circuit reversed the fees award for the payroll providers’ litigation with the reinsurers, reasoning that the arbitration clause and other provisions in the contracts did not entitle a party to attorney’s fees incurred in litigation between the parties. The Ninth Circuit also affirmed the district court’s decision to award prejudgment interest, but held that it should run from the time that the amount of damages became certain – not the time that liability to pay was established. Scie LLC v. XL Reinsurance America, Inc., Case No. 08-56502 (9th Cir. Sept. 27, 2010).

This post written by Michael Wolgin.

UK COURT INSISTS ON JURISDICTION OF CANADIAN MUNICIPAL REINSURANCE CONTRACT

by

Recently, Ontario Municipal Insurance Exchange applied for an order from the UK Royal Court of Justice dismissing an action against it, arguing that England was not the proper forum for the action brought against it by Stonebridge Underwriting Limited (a Lloyd’s underwriter). The claim arose out of an alleged failure by Stonebridge to pay under a 2001-2002 reinsurance contract. The Judge denied Ontario’s request, finding that the concurrent proceedings initiated by Ontario against JTL Canada (on issues directly related to this case) in Canadian Court did not provide a decisive reason for the UK Court to decline jurisdiction. The Court was mindful of the fact that many of the witnesses and much of the evidence were present in Canada, but that these issues were outweighed by the factors in favor of English jurisdiction. The Court noted that a great deal of London reinsurance relates to risk around the globe, and that often, the UK is still the most appropriate jurisdiction. Stonebridge Underwriting Ltd. v. Ontario Mun. Ins. Exchange, [2010] EWHC 2279 (Queen’s Bench Oct. 9, 2010).

This post written by John Black.

SUPREME COURT DENIES CERTIORARI IN CASE ADDRESSING THE RELATIONSHIP BETWEEN THE MCCARRAN-FERGUSON ACT AND THE NEW YORK CONVENTION

by

The United States Supreme Court denied certiorari in the Louisiana Safety Association case on October 5, 2010, leaving standing the en banc Fifth Circuit opinion described in our November 16, 2009 post. The issue was whether the laws of individual states that restrict or prevent the enforcement of an arbitration agreement in insurance agreements prevent the enforcement of such arbitration agreements that are subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the New York Convention”), because the New York Convention is “an Act of Congress” preempted by the McCarran-Ferguson Act. The Fifth Circuit answered the issue in the negative, finding that the New York Convention prevailed over state laws. The Court requested that the Solicitor General submit an amicus brief addressing whether certiorari should be granted. The government submitted an amicus brief which took the position that the opinion below was correct, and that the Supreme Court should deny certiorari. A conflict remains as to this issue with the Second Circuit’s decision in Stephens v. American International Ins. Co., 66 F.3d 41 (2nd Cir. 1995), although the government’s amicus brief took the position that there was an inter-panel conflict on the issue in the Second Circuit, rendering any conflict immature. La. Safety Assn. v. Certain Underwriters, et al., No. 09-945 (US Oct. 4, 2010) (see page 10).