Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NO MANIFEST DISREGARD OF LAW FOUND IN EMPLOYMENT ARBITRATION DISPUTE

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An order denying a petition to vacate arbitration awards arising out of an oral employment contract dispute, mentioned in our January 20, 2010 post, was affirmed on appeal to the Second Circuit. The arbitrator dismissed the claim as barred by the Statute of Frauds. The appellant-employee sought to establish that the arbitrator manifestly disregarded the law by failing to give any weight to the employer’s oral representations. The Second Circuit found no such manifest disregard, and affirmed the district court’s denial of vacatur. Matthew v. Papua New Guinea, No. 10-0074-CV (2d Cir. Sept. 30, 2010).

This post written by Brian Perryman.

REINSURANCE CLAIM BARRED BY AGREEMENT’S EXPRESS TIME LIMITATIONS

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A reinsured lost its case for reinsurance benefits because the reinsured’s settlement of an underlying claim fell outside the time limits imposed on the reinsurer’s potential liability. Arrowood Surplus Lines Insurance Company filed suit against Westport Insurance Company for amounts purportedly owed under a liability reinsurance agreement and arising from Arrowood’s settlement of a claim under an insurance policy it issued to Equity Residential. The trial court dismissed the complaint for failure to state a claim. Arrowood appealed to the Second Circuit. The appellate court held that, by its terms, the reinsurance agreement provided reinsurance coverage for policies that become effective after the agreement’s inception date of February 1, 1999 with respect to occurrences taking place before the agreement’s termination date of August 18, 2000. Insurance policies issued for multiple years “become effective” on the anniversary of their inception. An optional run-off provision provided further coverage for policies that became effective before the termination date through the anniversary of their inception. The Equity policy was issued on December 15, 1999, and Arrowood elected to maintain run-off coverage thereon through December 15, 2000. The Equity policy dispute involved coverage periods beyond December 15, 2000, so those periods were not covered by the agreement because they fell outside its time limitations. The Second Circuit declined to accept Arrowood’s argument that the agreement’s “follow the fortunes” provision expanded coverage beyond the agreement’s express time limitations. Arrowood Surplus Lines Insurance Co. v. Westport Insurance Co., No. 10-0397-CV (2d Cir. Oct. 8, 2010).

This post written by Brian Perryman.

NEW YORK APPELLATE COURT AFFIRMS ORDER COMPELLING NON-AAA ARBITRATION AND STAYING AAA ARBITRATION

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A New York State appellate court recently affirmed the lower court’s order compelling a non-American Arbitration Association (AAA) arbitration and staying a separate AAA arbitration that was later demanded by the respondent to the original non-AAA arbitration demand. The court based its decision on the fact that the respondent had demanded AAA arbitration nearly four months after service of the petitioner’s demand for the non-AAA arbitration, that the respondent had participated in the petitioner’s non-AAA arbitration by advancing a counterclaim and designating an arbitrator, and that the respondent did not seek a stay of the petitioner’s proceeding. The court agreed with the lower court that the respondent’s tactics were designed to delay the matter and effectively refuse to arbitrate pursuant to the petitioner’s demand. Nachmani v. By Design, LLC, No.04847 (N.Y. Ct. App. Aug. 25, 2010).

This post written by Michael Wolgin.

NORTH CAROLINA APPELLATE COURT: LEX LOCI DELICTI CONTROLS ON CHOICE OF LAW FOR NEGLIGENT AUDIT CLAIMS

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Reinsurer Harco National Ins. Co. entered into a “fronting” agreement with Capital Bonding Corporation, a now-defunct bail and immigration bond issuer, relying in part on an audit performed by the defendant accounting firm, Grant Thornton, LLP. When Capital Bonding ceased making payments and became insolvent, the North Carolina Department of Insurance seized assets from Harco, which ultimately paid $15 million for the forfeited bonds. Harco sued Grant Thornton in North Carolina state court alleging its audit was negligently performed and misled Harco into entering into the agreement with Capital Bonding. Grant Thornton asserted it was entitled to summary judgment under Illinois law, which it claimed was controlling. The trial court disagreed, holding that – based on a choice of law rule it devised itself – Pennsylvania law controlled, and denied summary judgment. On appeal, the Appellate Court reversed in part, noting that the lex loci deliciti rule governed, but nonetheless affirmed the denial of summary judgment, as it held that North Carolina, and not Illinois, law controlled. Harco National Ins. Co. v. Grant Thornton, LLP, No. 05-CVS-2500 (N.C. App. Ct. September 7, 2010).

This post written by John Pitblado.

ARBITRATION COMPELLED FOR COMMUTATION COMPUTATION DISPUTE

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Greenlight Reinsurance, Ltd. reinsured Medicus Ins. Co. under a stop-loss reinsurance contract covering a certain portion of Medicus’s medical professional liability insurance risks. Medicus terminated the contract according to its termination provisions. Greenlight asserted, and Medicus disputed, that those provisions require a commutation payment or “break up fee,” which Medicus refused to pay. Greenlight demanded arbitration and Medicus thereafter filed suit. After failing to respond to Greenlight’s motion to compel arbitration, which was granted, Medicus sought reconsideration. The Court upheld its decision compelling arbitration, noting that the dispute inarguably arose under the contract, and that the FAA required a broad rendering of the arbitration provision as covering all such disputes. Medicus Ins. Co. v. Greenlight Reinsurance, Ltd., Case No. 10-00277 (USDC W.D. Tex Je. 24, 2010). Reconsideration has been denied.

This post written by John Pitblado.