Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ROMANIAN GOVERNMENT DEFEATS EFFORT TO MAKE IT PICK UP THE TAB ON REINSURANCE OBLIGATIONS

by

A plaintiff insurance company (General Star National Insurance Company) unsuccessfully moved for entry of a writ of execution and restraining notice against the Romanian Bank of Foreign Trade and its purported successors-in-interest. In an underlying action in an Ohio federal district court, General Star alleged that a Romanian company (Astra) acquired the reinsurance obligations a state-owned Romanian insurance company, but failed to remit funds owed to General Star under certain reinsurance contracts. The Ohio court found that the Romanian goverment was Astra’s alter ego and permitted General Star to attach the government’s assets to satisfy a default judgment in General Star’s favor.

Unable to satisfy its judgment in Ohio, General Star sought to execute the judgment in New York, arguing that the Romanian Bank of Foreign Trade and its successors were alter egos of the Romanian government. The argument was rejected, as General Star could not demonstrate grounds for disregarding the Bank of Foreign Trade’s or its successors’ corporate forms. Among other things, there was no proof the Romanian government exercised daily control over these entities. Moreover, although the corporate form may be disregarded if necessary to prevent fraud or injustice, General Star failed to persuade the Court that the equities weighed in favor of piercing the corporate veil. There was no showing that the corporate form was used by the Romanian government to avoid payment. The writ of execution and restraining notice were denied. General Star National Insurance Co. v. Administratia Asigurarilor de Stat, Case No. 18 MS 302 (USDC S.D.N.Y. May 12, 2010).

This post written by Brian Perryman.

THIRD CIRCUIT CLARIFIES THAT FEDERAL ARBITRATION ACT DOES NOT NECESSARILY PREEMPT UNCONSCIONABILITY CHALLENGES TO CLASS ARBITRATION PROVISIONS

by

In an unpublished disposition, the Third Circuit vacated an order compelling arbitration of a putative class action against Verizon Wireless based on Verizon’s alleged unlawful imposition of
administrative charges on class members’ cell phone accounts. The arbitration clause in the customer agreements prohibited class arbitrations. The plaintiffs argued that arbitration provisions in contracts of adhesion that prohibit use of a class action mechanism for low-value claims are unconscionable under New Jersey law. Verizon countered that Third Circuit precedent held that the Federal Arbitration Act preempted such laws. The appellate court concluded its prior cases on the question could not be read as establishing a blanket prohibition on unconscionability challenges to class arbitration provisions since the Federal Arbitration Act permits the use of generally applicable contract defenses to attack arbitration agreements. The order compelling arbitration was vacated and the case remanded to the district court. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. May 21, 2010).

This post written by Brian Perryman.

COURT AFFIRMS RULING THAT THE ISSUE OF ARBITRABILITY IS RESERVED FOR THE ARBITRATION PANEL

by

On November 30, 2009, we reported on a state appellate court ruling that the arbitration panel had the power to rule on its own jurisdiction, pursuant to the American Arbitration Association rules incorporated into the parties’ agreement. The New York Court of Appeals has since ruled that this order should be affirmed with costs, stating that the parties agreed to arbitrate questions of arbitrability, including whether the agreement itself is invalid according to Hall St. Assocs., L.L.C. v. Mattel, Inc., or whether the offending provision could be severed from the remainder of the agreement. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 138 SSM 12 (N.Y. May 4, 2010).

This post written by Dan Crisp.

REVERSING TRIAL COURT, TENTH CIRCUIT FINDS NO WAIVER OF RIGHT TO ARBITRATE

by

Phillip Hill sued his former employer in federal court, alleging retaliatory discharge. His former employer, Ricoh Americas Corp., answered the complaint, and the parties engaged in a Rule 26 pre-trial conference to set discovery and trial deadlines. Shortly thereafter, and approximately four months after suit had been filed, Ricoh moved to compel arbitration based on a provision in Hill’s original employment contract with Ricoh’s predecessor-in-interest. The district court denied the motion to compel on waiver grounds and Ricoh appealed. The Tenth Circuit found no waiver, quickly disposing of Hill’s argument that Ricoh failed to raise “arbitration and award” as an affirmative defense with its answer, as Hill asserted was required under Rule 8, noting that the provision only applies to completed arbitrations. The Tenth Circuit then analyzed several factors to determine whether Ricoh had waived its right to arbitrate, and found that on balance of the factors, it had not. Key to this analysis was that Ricoh had engaged in “minimal litigation activity,” and that there was “no evidence in the record that Ricoh intentionally and knowingly relinquished its right to demand arbitration.” It remanded with instructions to compel arbitration. Hill v. Ricoh Americas Corp., No. 09-3182 (10th Cir. April 19, 2010).

This post written by John Pitblado.

UNAUTHORIZED INSURER’S OBJECTION TO RULING ON PRE-PLEADING SECURITY OVERRULED

by

On April 19, 2010, we reported on a magistrate judge ordering that the defendant, an unauthorized insurer, post pre-pleading security in the amount of $660,389. The defendant subsequently filed an objection to this ruling, arguing that the plaintiff could not recover more than the current amount contained in the segregated accounts at issue. Affirming the ruling of the magistrate judge, the district court observed that the pre-pleading security statute contemplated the posting of an amount sufficient to secure the judgment sought by the plaintiff and concluded that the ruling was not erroneous or contrary to law. Arrowood Surplus Lines Ins. Co. v. Gettysburg Nat’l Indem. Co., Case No. 09-972 (USDC D. Conn. May 7, 2010).

This post written by Dan Crisp.