Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Southern District of New York Confirms FINRA Arbitration Award

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Following an initial FINRA arbitration award holding Steven Singer liable to Hartford Financial Holdings for compensatory damages, Mr. Singer filed Chapter 7 bankruptcy. After a complicated procedural history, the Bankruptcy Court granted relief from the automatic stay and allowed Hartford to proceed with this action in US District Court for the Southern District of New York. In its petition, Hartford asked the District Court to confirm the arbitration award, and for a determination that the award is nondischargeable under § 523(a) of the Bankruptcy Code, or alternatively for a remand to the FINRA arbitration panel so that it may clarify the award. As an additional alternative, Hartford asked the Court to review FINRA arbitration hearings to determine whether the award is dischargeable.

The District Court confirmed the initial arbitration award but denied all of Hartford’s other requests for relief. In particular, the Court determined that a determination of whether the award was nondischargeable would violate the automatic stay. Further, the Court denied modification or remand finding that the award was not an evident miscalculation nor was it indefinite or ambiguous. Pursuant to New York statute and FINRA, 9% interest per annum was set on the award. Hartford Financial Holdings, Inc. v. Singer, Case No. 08-2459 (S.D.N.Y. May 4, 2010).

This post written by John Black.

Various Rulings with Respect to Arbitration Awards

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Attorneys’ Fees:

  • Steinberg v. Morgan Stanley & Co., Case No. 06-02628 (USDC S.D. Cal. Apr. 5, 2010) (granting motion to confirm the arbitration award, finding that the arbitrator’s use of the lodestar method, rather than the percentage recovery method, to allocate fees between law firms was not completely irrational).
  • Janney Montgomery Scott LLC v. Tobin, Case No. 07-11197 (USDC D. Mass. Mar. 10, 2009) (allowing a motion for attorneys’ fees and costs following an order denying the petition to vacate the final arbitration award, however, the court modified the amount of attorneys’ fees that respondent was entitled to receive).
  • Amerisure Mut. Ins. Co. v. Global Reinsurance Corp. of Am., Case No. 08-42242 (Ill. App. Ct. Mar. 15, 2010) (vacating part of the order awarding attorneys’ fees because Section 155 of the Illinois Insurance Code does not authorize arbitrators to award attorneys’ fees).

Awards Upheld:

  • Ventress v. Japan Airlines, No. 08-15731 (9th Cir. Apr. 30, 2010) (affirming the confirmation of an award where appellant put forth only unsupported allegations of evident partiality).
  • Omnicare, Inc. v. RxSolutions, Inc., No. 08-01254 (9th Cir. Mar. 17, 2010) (rejecting several arguments that the arbitrator exceeded his powers and ruling the district court did not err in denying the motion to vacate).
  • Dunkley v. Mellon Investor Servs., No. 09-3609 (3d Cir. May 4, 2010) (affirming the district court’s denial of the motion to vacate; appellant did not satisfy his burden of demonstrating evident partiality or corruption).
  • Local 4-406 United Steel v. IMTT-Bayonne, Inc., Case No. 09-05380 (USDC D. N.J. Apr. 14, 2010) (denying a motion to vacate; the arbitrator did not exceed the scope of the parties’ submissions in finding that the employee’s termination was warranted based on excessive absences alone and did not disregard applicable law since the non-approved absences alone constituted a sufficient basis for termination).
  • Am. Tower Corp. v. Tri-State Bldg. & Supply, Inc., Case No. 09-3470 (USDC D. Md. Mar. 23, 2010) (dismissing petition to vacate award; the arbitrator, not the court, has the power to determine whether a single arbitrator is appropriate as this determination is one of procedure, not arbitrability).
  • Jamoua v. CCO Inv. Servs. Corp., Case No. 09-13604 (USDC E.D. Mich. Mar. 10, 2010) (granting motion to confirm award and denying application to vacate award; the award, on its face, does not demonstrate manifest disregard for the law).
  • Dallas MTA, LP v. Celltex Cellular, Case No. 06-15412 (USDC S.D.N.Y. Mar. 9, 2010) (denying the application to vacate part of the award because the court could infer a basis for the panel’s decision finding one defendant personally liable under the contract).
  • D’Adamo v. Erie Ins. Exch., Case No. 479-2008 (Pa. Super. Ct. Apr. 30, 2010) (affirming the judgments entered on the arbitration awards; the panel properly applied credits to the awards pursuant to the exhaustion clause, and the trial court properly refused to vacate or modify the arbitration awards to disallow the credits).
  • Twp. of Irvington v. Coregis Ins. Co., Case No. 2424-08T3 (N.J. Super. Ct. App. Div. Apr. 7, 2010) (affirming the trial court’s confirmation of an arbitration award that concluded the insurer was not obligated to provide coverage where the insured, among other things, failed to cooperate in the defense and settlement of a lawsuit).

Mixed Results:

  • New Jersey Reg’l Council of Carpenters v. Heartland Dev. Co., Case No. 09-178 (USDC D. N.J. Apr. 26, 2010) (granting motion to confirm award against one company, and vacating award against other company due to the other company not being a signatory to the collective bargaining agreement, then determining that a hearing on the facts is necessary to hold other company liable under the arbitration agreement).

This post written by Dan Crisp.

NAIC Naic Spring Meeting Summary

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The Spring Meeting of the NAIC saw relatively little progress on reinsurance issues. Several groups received reports on the status of federal financial services reform legislation. The Regulatory Modernization Initiatives Task Force received testimony from four state legislators and two insurance executives. The International Insurance Relations Committee received information and discussed strategic planning initiatives under way at the International Association of Insurance Supervisors (“IAIS”). The Reinsurance Task Force received an update on the pending Congressional legislation and the NAIC’s proposed federal statute, the Reinsurance Regulatory Modernization Act (“RRMA”). The NAIC is no longer seeking a Congressional sponsor for the RRMA for this session of Congress. These activities have been the subject of prior posts to this blog. In addition, the Reinsurance Task Force:

  • received a report on reinsurance-related activities of the IAIS;
  • agreed to initiate discussions with interested parties with respect to contract certainty considerations;
  • received an update on a proposal to amend Schedules F and S of the Annual Statutory Financial Statement to facilitate the collection of information with respect to financial institutions that have issued or confirmed letters of credit for reinsurance collateral purposes;
  • passed a motion to submit a recommendation to the Financial Examiners Handbook Technical Group to revise the example letter of credit; and
  • passed a motion to direct NAIC staff to initiate a request to the Financial Condition Committee to amend the Credit for Reinsurance Model Law to reduce the trusteed surplus requirement for a multiple-beneficiary trust mainbtained for reinsurance collateral purposes by an assuming insurer in run-off.

This post written by Rollie Goss.

Eleventh Circuit Rejects Manifest Disregard

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The Eleventh Circuit has joined the First and Fifth Circuits in holding that the manifest disregard of law doctrine is not a valid basis for vacating arbitral awards after the Supreme Court’s Hall Street Associates opinion. In Frazier v. Citifinancial Corp., No. 08-15188 (11th Cir. Apr. 30, 2010), the losing party in an arbitration sought to vacate an arbitral award on statutory grounds and on three non-statutory grounds: (1) that the award was arbitrary and capricious; (2) that the award was in violation of public policy; and (3) that the award was in manifest disregard of law. The Court concluded that Hall Street “compels” the conclusion that judicially-created bases for vacature are no longer valid. The Court rejected the Second and Ninth Circuit’s characterization of the doctrine as a judicial interpretation of the statutory ground that an award may be vacated if the arbitrators exceeded their powers. Manifest disregard is now no longer a viable basis for vacating arbitral awards in three Circuits.

This post written by Rollie Goss.

Special Focus: Pre-Award Challenges to Party-Selected Arbitrators

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The issue of arbitrator bias has been of particular interest. Two decisions were issued by judges of the same court recently, both involving Trustmark, that shed light on this issue in the context of the actual or potential breach of confidentiality provisions due to a single arbitrator participating in multiple arbitrations. Our Special Focus article explores these decisions.

This post written by John Pitblado.