Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

EIGHTH CIRCUIT REVERSES SUMMARY JUDGMENT DUE TO FACTUAL ISSUES REGARDING ELECTRONIC TRANSFER OF CLAIM DATA TO REINSURER

by

The Eighth Circuit has reversed the district court’s entry of summary judgment that had disposed of the U.S. Government’s suit on behalf of the crop insurance reinsurer, Federal Crop Insurance Corporation (FCIC), against a crop insurance agent. The Government alleged various violations of provisions of the Federal Claims Act, including Section 3729(a)(1), which renders liable any person who knowingly “causes to be presented” to the United States Government a fraudulent claim for payment. The district court held that because the Government alleged that the agent “caused to be presented” fraudulent claims to the crop insurer and not the FCIC, the agent could not have caused fraudulent claims to be presented to the Government. Among other holdings, the Eighth Circuit held that a genuine issue of material fact existed as to whether the insurance agent “caused to be presented” fraudulent claims to the Government when the agent facilitated the submission of fraudulent claims to the insurer, which, in turn, transmitted the fraudulent claim data electronically to the FCIC. United States v. Hawley, No. 08-2992 (8th Cir. Aug. 23, 2010).

This post written by Michael Wolgin.

ELEVENTH CIRCUIT FINDS INSUFFICIENT EVIDENCE TO SUPPORT WAIVER OF ARBITRATION DESPITE ONE-MONTH DELAY PRIOR TO ARBITRATION DEMAND

by

In a suit between a law firm and Citibank, the Eleventh Circuit reversed the district court’s denial of Citibank’s petition to compel arbitration despite its one-month delay in demanding arbitration. The Eleventh Circuit held that even assuming that Citibank “acted inconsistently with the arbitration right” by filing an answer that was silent on arbitration, the law firm did not provide adequate evidence that its research and filings prior to Citibank’s arbitration demand constituted sufficient prejudice to preclude arbitration. Although the law firm may have suffered some prejudice “when it expended time and resources preparing and filing an offer of judgment, reply, and notice of readiness for trial,” waiver was inappropriate because of the “brevity” of the one-month delay and because the law firm “could not point to any portion of the record that reveals either the amount of money it spent or the number of hours it dedicated to conducting litigation-specific discovery and preparing litigation-specific documents.” Citibank, N.A., v. Stok & Assocs., P.A., No. 09-13556 (11th Cir. July 20, 2010).

This post written by Michael Wolgin.

USF&G WINS $260M JUDGMENT AGAINST REINSURERS FOR UNDERLYING CONSOLIDATED ASBESTOS SETTLEMENT

by

USF&G won a significant judgment against its reinsurers under certain reinsurance agreements covering liabilities in the 1950’s and early 1960’s (particularly 1959) in New York state court. USF&G, after protracted and largely unsuccessful coverage litigation with its insured, Western Asbestos Company, settled consolidated underlying asbestos claims for approximately $987 million (the settlement generally placed the liabilities in calendar year 1959). USF&G thereafter looked to its reinsurers under certain reinsurance agreements that covered that time period. The defendant reinsurers resisted, including American Re, under a certain reinsurance agreement for which USF&G sought $202 million, and another pool of reinsurers, under a reinsurance treaty for which USF&G sought an additional $59 million. The defendants asserted numerous theories limiting or eliminating their liabilities altogether, and the parties all cross-moved for summary judgment. The court rejected each of the defendants’ arguments, focusing principally on the follow-the-fortunes doctrine, and awarded USF&G the approximately $260 million in judgments it sought, along with interest and costs. United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604571/02 (N.Y. Sup. Ct. Aug. 20, 2010)

This post written by John Pitblado.

GEN RE DISMISSED FROM AIG CONSOLIDATED SECURITIES LITIGATION

by

A New York federal court granted judgment on the pleadings to the Gen Re defendants in the consolidated AIG securities litigation (about which we have previously posted on July 17, 2008 and November 17, 2009). The partial judgment under Rule 54 does not affect the other defendants. In 2008, Gen Re and certain of its individual officers moved for judgment on the pleadings, arguing that they were not liable to AIG as a matter of law for alleged “fraud on the market” in connection with alleged statements made pertaining to AIG, as a result of the U.S. Supreme Court’s decision in Stoneridge Investment Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148 (2008). In its recent ruling, the court agreed, holding that AIG’s pleading failed to allege the elements of “material misrepresentation or omission,” and “reliance upon that misrepresentation” under the standards set in Stoneridge, and therefore granted judgment on the pleadings to the Gen Re defendants. In re American International Group, Inc. Securities Litigation, No. 04-cv-8141 (USDC S.D.N.Y. Sept. 10, 2010)

This post written by John Pitblado.

SUPREME COURT’S “LOOK THROUGH” ANALYSIS FOR FEDERAL QUESTION JURISDICTION IN ARBITRATION PETITIONS DOES NOT OVERRULE PRIOR PRECEDENT IN DIVERSITY JURISDICTION PETITIONS

by

Federal courts have diversity jurisdiction over a petition to compel arbitration of claims that are part of a pending state court action that includes one or more nondiverse parties not named in the petition, the Eighth Circuit has held. The matter arose on separate actions to compel arbitration of state law tort claims pursuant to arbitration agreements governed by the Federal Arbitration Act. The plaintiffs filed lawsuits in state court asserting tort claims against nursing home operators and the administrators of two nursing homes. The operators, but not the administrators, filed federal actions to compel arbitration, basing federal jurisdiction on diversity of citizenship between the operators, alleged to be Alabama citizens, and the state court plaintiffs, alleged to be Arkansas citizens.

The plaintiffs did not contest the citizenship allegations, and the district court granted petitions to compel arbitration. Thereafter, in Vaden v. Discover Bank, the Supreme Court held that a federal court entertaining a petition to compel arbitration based upon federal question jurisdiction should determine its jurisdiction by “looking through” a petition to the parties’ underlying substantive controversy. Relying on Vaden, the district court vacated the arbitration orders, concluding that while Vaden addressed only federal question jurisdiction, its “look through” analysis implicitly overruled prior federal cases compelling arbitration based upon diversity of citizenship. The Eighth Circuit reversed and reinstated the orders. There was no credible evidence in Vaden itself to suggest that “the otherwise on-point decisions” in Moses H. Cone Memorial Hospital v. Mercury Construction Corp. and other precedents had been overruled. Northport Health Services of Arkansas, LLC v. Rutherford, No. 09-2433 (8th Cir. May 14, 2010).

This post written by Brian Perryman.