Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ON REMAND FROM SECOND CIRCUIT, FEDERAL COURT DECLINES TO COMPEL ARBITRATION

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As reported in our December 3, 2009 post, the Second Circuit recently reversed and remanded a $40 million jury verdict against New Hampshire Insurance Company on claims made by AXA Versicherung AG. The remand instructed the trial court to determine whether the claims should have been arbitrated. In a thorough opinion, the lower court ruled on remand that (1) the claims were not arbitrable; and (2) even if the claims were arbitrable, New Hampshire waived its right to arbitrate them. The basis for the court’s first conclusion was that each of AXA’s claims generally sounded in fraud, rather than a dispute over interpretation of the parties’ reinsurance agreement. Because the agreement only required arbitration over disputes pertaining to the interpretation of the agreement, the fraud claims were non-arbitrable. The court also held that, even assuming any of the claims were arbitrable, New Hampshire waived its right to arbitration by (1) failing to seek arbitration of similar claims in separate litigation involving a different plaintiff; and (2) delaying any attempt to compel arbitration in the AXA litigation of non-fraud claims until after discovery and summary judgment briefing. AXA Versicherung AG v. New Hampshire Ins. Co., 05-10180 (USDC S.D.N.Y. April 29, 2010).

This post written by John Pitblado.

REINSURANCE FOCUS REACHES 1,000 POSTS

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Last week, we posted the 1,000th post to Reinsurance Focus. For any blog to reach that status, two factors must be present: (1) content that appeals to a sufficient number of readers; and (2) a dedicated staff of writers. This blog has drawn a good deal of interest from a broad range of readers from a number of countries, from insurance and reinsurance companies, brokers, law firms, academics, hedge fund personnel, editors of other blogs, on-line and print media and others. Frankly, I have been somewhat surprised but gratified by the number of readers that read our blog posts every month. We hope that we can continue to provide our readers with content of interest. I encourage you to use the e-mail link below to share with me your comments and suggestions for how we can make the next 1,000 posts of even greater interest to you. Obviously, this blogmaster has not written 1,000 posts. Thanks to Lynn (a writer from nearly the beginning and our every other week editor-in-chief) and writers, Karen, John, Dan (who is leaving us this week to take an in-house position), Brian and John. We could not have done this without each one of you. Thanks again, and I hope to hear from you, our readers.

Rollie Goss, blogmaster.

HALL STREET ASSOCIATES DOES NOT BAR A REMAND TO AN ARBITRATION PANEL FOR CLARIFICATION OF THE AWARD

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A trial court’s judgment confirming an arbitration award and awarding certain pre- and post-judgment interest to the defendant insurance companies was unsuccessfully appealed, the appellate court determining that an earlier remand to the arbitration panel was proper because, among other things, nothing in the United States Supreme Court’s ruling in Hall Street Associates, L.L.C. v. Mattel, Inc. precluded that procedure. On appeal, the plaintiff contended that the trial court: (1) improperly remanded the matter to the arbitration panel for clarification of its award; (2) improperly confirmed the arbitration award as clarified; and (3) abused its discretion in awarding pre- and post-judgment interest.

On the first point, the plaintiff contended that Hall Street Associates overruled the body of precedent permitting a remand to an arbitration panel for clarification of an award. This contention was rejected, as the issue in Hall Street Associates was whether parties to an arbitration proceeding could, by contractual agreement, supplement the statutory grounds for vacating an arbitration award. Hall Street Associates did not concern the procedure at issue, a remand for clarification of an arbitration award. On the second point, plaintiff argued that the arbitration panel imperfectly executed its powers, so that the clarified arbitration award did not conform to the submission. The appellate court noted, however, that courts will not review the evidence nor, where the submission is unrestricted, will they review the arbitrators’ decision of the legal questions. The submission at issue was unrestricted. On the third point, the plaintiff claimed the trial court abused its discretion in awarding pre- and post-judgment interest. The decision, however, of whether to grant interest is an equitable determination within the trial court’s discretion. The trial court’s reasoning was sound: “Although it does not appear that the plaintiff made its motions and appeals in bad faith, the plaintiff would receive an unfair advantage if it were allowed to retain this money while the defendants were deprived of its use and the opportunity to earn interest upon it for the past six years.” The judgment was confirmed in full. Hartford Steam Boiler Inspection & Insurance Co. v. Underwriters at Lloyd’s, Case No. AC 30162 (Conn. App. Ct. May 11, 2010).

This post written by Brian Perryman.

Court Orders Stay in B.D. Cooke v. Lloyds

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In the latest development in the dispute between B.D. Cooke & Partners and Lloyd’s of London, the Southern District of New York stayed litigation pending arbitration of the dispute. B.D. Cooke was directed to inform the Court within 30 days and every three months thereafter as to the status of the arbitration proceedings. If no timely response is received, the Court may dismiss the action pursuant to Fed. R. Civ. P. 41(b). B.D. Cooke & Partners Ltd. v. Certain Underwriters at Lloyd’s London, Case No. 08-3435 (S.D.N.Y. Apr. 13, 2010).

This post written by John Black.

Self-Funded Employee Benefit Plans Can Be Insurers Under Texas Law, so Stop-Loss Insurance Policies Sold to Them Are Reinsurance

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A Texas court has ruled that stop-loss insurance policies sold to self-funded employee benefits plans constitute reinsurance, such that the Texas Department of Insurance cannot regulate them. The Department has no authority to regulate reinsurance (although it can and does regulate direct insurance). Two insurance companies therefore sought a declaratory judgment that they acted correctly by reporting stop-loss policies sold to self-funded plans as reinsurance instead of direct insurance. The parties stipulated to the facts and filed cross-motions for summary judgment. The trial court granted the Department’s motion for summary judgment, agreeing with the Department that self-funded plans are not insurers under Texas law. This judgment was reversed on appeal. Because self-funded plans do many of the acts that constitute doing the business of insurance, the appellate court held that self-funded plans are insurers. Among other things, the plans make insurance contracts with the employees of the employer sponsors; collect premiums for their service from the plan sponsor or the employees or both; deliver insurance contracts to the employees; and provide expense indemnification, reimbursement, or direct payment of medical expenses to individuals. American National Insurance Co. v. Texas Department of Insurance, Case No. 03-08-00535-CV (Tex. Ct. App. Apr. 22, 2010).

This post written by Brian Perryman.