Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION AWARD VACATED FOR ARBITRATOR BIAS AND MISCONDUCT

by

In a labor dispute governed by the Labor-Management Relations Act, the U.S. District Court for the Eastern District of Louisiana has vacated a labor arbitration award due to bias and misconduct on the part of the arbitrator. The arbitrator had admitted that he had a prior business relationship with a party affiliated with the plaintiff. The arbitrator also made a request of plaintiffs’ counsel to assist him in recovering money connected with the prior business relationship and implied that plaintiff’s counsel’s compliance would effect the result of the arbitration. The Federal Mediation and Conciliation Service Arbitration Review Board had found that the arbitrator violated the Code of Professional Conduct for this behavior. The court held that “it is crucial that arbitrators remain, and appear, completely unbiased” and the arbitrator’s failure to do so required that the arbitration award be vacated. United Steel Workers AFL CIO v. Murphy Oil USA, Inc., No. 09-7191 (U.S.D.C. E.D. La. Aug. 3, 2010).

This post written by Michael Wolgin.

LET IT SNOW: ARBITRATION COMPELLED IN VAIL RESORT PARKING KERFUFFLE

by

A Colorado district court granted a Vail resort condominium developer’s motion to compel arbitration under a condominium purchase agreement. Residents brought suit alleging that they were denied promised parking rights at the resort-side condominium they purchased, and were instead secretly substituted with valet parking rights instead, which rights were of lesser value. The residents sued the developer. The developer demanded arbitration under the purchase agreement, which the residents resisted. The developer brought a separate action to compel arbitration. The court found for the developer, rejecting the residents’ arguments that (1) they were not bound by the arbitration provision because they were not parties to the original purchase agreement, but instead were assignees; (2) the claims do not arise out of interpretation of the agreement; (3) the developer waived its right to arbitrate by failing to assert that right as an affirmative defense to the lawsuit brought by the residents, and (4) the residents’ claims under the Colorado Consumer Protection Act were not arbitrable. Stone v. Vail Resorts Development Co., No. 1:09-CV-02081 (USDC D. Col. July 1, 2010)

This post written by John Pitblado.

AON BENFIELD SECURITIES AND SWISS RE ISSUE REPORTS ON THE INSURANCE-LINKED SECURITIES MARKET

by

Aon Benfield Securities has issued its third-annual review of the insurance-linked securities (ILS) market. The review describes the growth that has occurred in the ILS market for the year ending June 30, 2010, including 20 new transactions representing a volume of $4.6 billion. The review also provides a positive outlook for the upcoming year.

Also included in the Aon Benfield review are Aon Benfield’s newly-created indices for its All Bond, BB-rated Bond, U.S. Earthquake Bond, and U.S. Hurricane Bond categories of the ILS market. The indices reflect strong investment returns for 2010, including returns of nearly 13% for both the All Bond and the BB-rated Bond indices, over 15% for the U.S. Hurricane Bond index, and over 7% return for the U.S. Earthquake Bond index. Aon Benfield also provides analyses of the catastrophe bond market and the non-U.S. ILS market, as well as a panel discussion of the ILS market with five active investors.

A report was also issued by Swiss Re that focuses on the ILS market for the first half of 2010. The report provides an overview of new issuance for the first half of the year – which had a volume of $2.5 billion and was comprised of 85% exposure to U.S. Wind risk. Swiss Re’s report also provides analysis of catastrophe bond maturities, trading in the secondary market, and a breakdown of the 3.3% return of its Swiss Re Global Cat Bond Index. Swiss Re’s report also spotlights its recent placement of notes covering U.S. hurricane and earthquake risk for Allianz, and a breakdown of various ILS sector data. Similar to the market review of Aon Benfield Securities, Swiss Re provides a positive outlook for the ILS market.

This post written by Michael Wolgin.

SECOND CIRCUIT REVERSES IN FAVOR OF AIG ON FRAUD CLAIMS, FINDING AXA IGNORED “STORM WARNINGS”

by

The Second Circuit Court reversed a $34.3 million judgment rendered after a jury verdict against AIG on fraudulent inducement claims asserted by AXA arising from reinsurance facilities the parties entered into in or about 1998. While the Court agreed with a district court ruling that AXA’s claims sounded in fraud and not contract, and thus were properly not referable to arbitration, it nonetheless held as a matter of law that AXA failed to prove the claims were timely brought under the two-year discovery prong of the statute of limitations for fraud. The Court found that AXA was on notice of the alleged fraud as early as 1998, when it signed wordings which the Court found clearly indicated the manner in which AIG intended to operate the reinsurance facilities. AXA, despite the “storm warnings” of the wordings, and other indications of AIG’s intentions from 1998 through 2000, failed to bring suit until 2005. Because it found the claims were time-barred, the Court reversed the entry of judgment, and remanded with instructions to enter judgment in favor of AIG. AXA Versicherung AG v. New Hampshire Ins. Co., No. 08-2521 (2d Cir. Aug. 23 2010).

This post written by John Pitblado.

THIRD CIRCUIT VACATES SEVERAL SHERMAN ACT AND RICO CLAIMS IN INSURANCE BROKERAGE MDL

by

We have reported several times on the ongoing developments in the Insurance Brokerage Antitrust Litigation MDL proceeding. In the most recent development, following a third District Court dismissal of the RICO and Sherman Act claims, the Third Circuit Court of Appeals issued a 200 page opinion affirming in part, vacating in part, and remanding for further proceedings. The Court of Appeals vacated the District Court’s dismissal of the Sherman Act claims with respect to defendants alleged to have engaged in bid rigging in the Marsh-centered commercial conspiracy, the dismissal of the RICO claims based on the same issue, and the dismissal of the alleged CIAB enterprise with respect to defendant brokers. The Court also vacated the dismissal of the state law claims. The District Court’s judgment was affirmed in all other respects. The Third Circuit remanded for further proceedings consistent with the opinion. In re: Insurance Brokerage Antitrust Litig., MDL No. 1663 (3d Cir. Aug. 16, 2010).

This post written by John Black.