Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DISMISSES MUNICH RE’S CLAIM FOR BREACH OF THE DUTY OF UTMOST GOOD FAITH

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In a suit regarding a health insurer’s alleged over-billing of its reinsurer, Munich Re, the federal district court for the Northern District of Illinois dismissed Munich Re’s counterclaim for breach of the duty of utmost good faith. The court based the dismissal on the fact that, under Illinois law, the duty of utmost good faith is simply a “tool of construction in deciding whether a party has breached the governing reinsurance treaties,” and not a basis for an independent cause of action. The court further explained that Illinois has recognized an independent cause of action for breach of the duty of utmost good faith only in cases involving an insurer’s obligations to settle with a third-party who has sued the policyholder. Under that scenario, an independent bad faith cause of action is needed because an insurance policy does not sufficiently govern the insurer’s duty to settle. That is not the case in other insurance contexts, such as reinsurance, where the reinsurance treaty sufficiently governs the parties’ relationship. Guarantee Trust Life Ins. Co. v. Insurers Administrative Corp., Case No. 09-5129 (USDC N.D. Ill. Sept. 24, 2010).

This post written by Michael Wolgin.

COURT DENIES MOTION TO RECONSIDER CONFIRMATION OF ARBITRATION AWARD

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Following a denial of its motion to vacate an adverse arbitration award, plaintiffs ABS Financial Services submitted a Motion for Reconsideration requesting that the US District Court for the District of New Jersey reverse its prior ruling and judgment. In its earlier decision, the Court had confirmed the arbitration award even though it contained errors of law because it determined that the the award was supported “by at least some of the evidence in the record and was an arguably reasonable construction of the parties’ contracts.” Noting the extremely difficult standard of review for motions for reconsideration, the Court denied the instant Motion, holding that it had not committed a clear error or manifestly disregarded the law in its prior ruling and judgment. ABS Brokerage Servs., LLC v. Penson Fin. Servs., Inc., Case No. 09-04590 (D. N.J. Aug. 16, 2010).

This post written by John Black.

US DISTRICT COURT DENIES MOTION TO DISMISS “PARALLEL” REINSURANCE CASE

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Guarantee Life filed an Illinois state action seeking a declaration that an unexecuted 2006 reinsurance agreement with American Medical and Life was null and void. Despite numerous problems in its dealings with American (such as the state action), Guarantee Life entered another reinsurance agreement with American in 2008. No surprisingly, the 2008 agreement led to litigation. Guarantee Life filed a federal suit against American alleging breach of the 2008 agreement and violations of the Illinois Insurance Code. Because of the pendency of the Illinois state action, American moved to dismiss the federal complaint asking the court to abstain from hearing the case.

The United States District Court for the Northern District of Illinois denied American’s motion to dismiss finding that although the state and federal cases were parallel, abstention was not appropriate. The Court held that American failed to demonstrate the “clearest of justifications” or anything “extraordinary” that would overcome its “virtually unflagging” obligation to exercise its jurisdiction. Guarantee Trust Life Ins. Co. v. American Medical & Life Ins. Co., Case No. 01-02125 (USDC N.D. Ill. Sept. 15, 2010).

This post written by John Black.

MOTION TO RECONSIDER DENIED IN LAWSUIT AGAINST NATIONAL WORKER’S COMPENSATION REINSURANCE POOL

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We previously reported in a June 25, 2010 post on a lawsuit brought by plaintiff American Insurance Group, Inc., and its affiliates and subsidiaries, alleging underreporting of worker compensation premiums to the the National Worker’s Compensation Reinsurance Pool. That post discussed the court’s order on motions to dismiss brought by the defendants. The court has now ruled on a motion to reconsider the earlier order, granting the motion in part and denying it in part. Specifically, the court agreed with the Pool that the court was mistaken when it concluded that the Pool became the National Workers Compensation Reinsurance Association. The court affirmed, however, that the Pool has the capacity to be sued, since the Pool qualified as a voluntary unincorporated association that may sue or be sued in its own name. American International Group, Inc. v. Ace INA Holdings, Inc., Case No. 07 CV 2898 (USDC N.D. Ill. Sept. 16, 2010).

This post written by Brian Perryman.

NINTH CIRCUIT REVERSES CONFIRMATION OF ARBITRATION AWARD BASED ON IMPROPER FORUM

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The Ninth Circuit has reversed and remanded a district court’s confirmation of an arbitration award because the plaintiff/counterclaim defendant, a manufacturer located in Belarus, established a defense under the New York Convention. The parties agreed to an arbitration clause that requires disputes to be arbitrated where the “defendant” is located. Arbitration was commenced in California, but the plaintiff expressly reserved the right to have any counterclaims asserted against it arbitrated in Belarus. When counterclaims were filed, the arbitrator refused to dismiss them on the ground they should have been filed in Belarus. The district court confirmed the California arbitrator’s award against the plaintiff, which appealed to the Ninth Circuit.

On appeal, the court held that procedures used in the arbitration of “counterclaims” were not in accordance with the agreement. Invoking a defense under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”), the plaintiff contended the “arbitral procedure was not in accordance with the agreement of the parties” because the counterclaims should have been arbitrated in Belarus. The Ninth Circuit agreed. The arbitration agreement required that any “dispute” be arbitrated at “the defendant’s [site].” The term “dispute” encompassed both claims and counterclaims. Further, a party is a “defendant” as to any dispute whenever another party seeks damages or other form of relief against it. Polimaster Ltd. v. RAE Systems, Inc., No. 08-15708 (9th Cir. Sept. 28, 2010).

This post written by Brian Perryman.