Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DENIES MOTION TO VACATE ARBITRATOR’S DECISION THAT CLASS ARBITRATION IS NOT PROHIBITED BY THE ARBITRATION AGREEMENT

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In this class action brought by current and former female employees of Sterling Jewelers, Inc. (“Sterling”), Sterling moved to vacate the arbitrator’s decision that class arbitration is not prohibited by the arbitration agreement or, in the alternative, to stay the arbitration proceedings. The federal district court stated, and Sterling conceded, that the arbitrator’s decision could be overturned only if the decision exceeded the arbitrator’s powers in violation of the Federal Arbitration Act or if the decision was made in manifest disregard of the law. In denying the motion to vacate, the court first ruled that the arbitrator had the power to decide such an issue, pointing to the broadness of the arbitration clause and citing the court’s prior decision determining that the arbitrator should resolve the question of whether class arbitration should proceed. The court held that the arbitrator did not act in manifest disregard of law based upon the Second Circuit’s holding in Stolt-Nielsen SA v. Animalfeeds Int’l Corp., 548 F.3d 85 (2d Cir. 2008), which is currently pending for decision before the Supreme Court after argument last December. Lastly, the court refused to grant a stay of arbitration pending the Supreme Court’s decision in Stolt-Nielsen, finding that Sterling did not identify any substantial harm that would justify a delay and noting the uncertainty surrounding when Stolt-Neilsen will be decided and whether the decision will dispose of the issues raised in this case. Jock v. Sterling Jewelers, Inc., Case No. 08-2875 (USDC S.D.N.Y. Dec. 28, 2009).

This post written by Dan Crisp.

ENGLISH COURT OF APPEALS AFFIRMS RULING CONFERRING EXCLUSIVE JURISDICTION ON ENGLISH COURTS, SETS ASIDE RULING CONFINING FRAUD TO CLAIMS OF DECEIT

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This post is our fourth installment covering this convoluted, international lawsuit involving the Seaton Insurance Company (“Seaton”) and Stonewall Insurance Company (“Stonewall”). The dispute centers around the interpretation of a term sheet that details the termination of the parties’ relationship with respect to the run-off of Seaton’s and Stonewall’s insurance business (see our July 23, 2008, December 22, 2008, and January 20, 2009 posts for more information). Interpreting this term sheet, an English court concluded that the parties agreed to submit all disputes to the exclusive jurisdiction of English courts and that the carve-out provision for “fraud” had only the primary meaning of deceit. Seaton and Stonewall appealed. On the jurisdiction issue, the Court of Appeals affirmed the ruling that any claims for fraud must be brought in England and agreed with the lower court judge who called the prospect of a New York court applying the English concept of fraud a “judicial nightmare.” On the “fraud” issue, the Court of Appeals stated that, in the commercial context, the concept of fraud is broader than the concept of deceit which requires a fraudulent misrepresentation, or an equivalent to fraudulent misrepresentation. The Court of Appeals then set aside the judge’s ruling and substituted a declaration that the “fraud” exception is not limited to claims of deceit; the exception extends in some instances to cases of the dishonest abuse of a fiduciary position. Cavell USA, Inc. v. Seaton Ins. Co. [2009] EWCA 1363 (Dec. 16, 2009).

This post written by Dan Crisp.

ARBITRATOR WHO MIGHT BREACH CONFIDENTIALITY AGREEMENT NOT ORDERED OFF PANEL

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Trustmark Ins. Co. brought an action against Clarendon Nat’l Ins. Co. and Clarendon America Ins. Co. (“Clarendon”) seeking a preliminary injunction barring any arbitration between Trustmark and Clarendon with Clarendon’s appointed arbitrator on the panel. In a decision issued ten days after a similar decision in favor of Trustmark in another case in the same district (see our February 15, 2010 post), a different judge rejected nearly identical arguments made by Trustmark. Trustmark argued that Clarendon’s arbitrator would necessarily breach a confidentiality agreement entered into by the parties and arbitrators relating to a prior arbitration between the parties (see our December 9, 2009 arbitration roundup). Clarendon named the same arbitrator it used in the first arbitration for the second, unrelated arbitration. Trustmark argued this would require the arbitrator necessarily to import information from the first arbitration into the second, in violation of the confidentiality agreement. The court rejected Trustmark’s argument, finding that a potential future breach of the confidentiality agreement by Clarendon’s arbitrator was not sufficient ground for a preliminary injunction barring the proceeding, and that any challenge to an arbitrator’s conduct or impartiality must be made post-award. It seems questionable whether this result can be harmonized with the prior ruling in favor of Trustmark on the basis that in the earlier decision there was an actual breach by the party-appointed arbitrator of the confidentiality agreement, not a hypothetical future breach. The issue now seems a good candidate for review by the Seventh Circuit Court of Appeals. Trustmark Ins. Co. v. Clarendon Nat’l Ins. Co., No. 09-c-6169 (N.D. Ill. Feb. 1, 2010).

This post written by John Pitblado.

ARBITRATOR WHO BREACHED CONFIDENTIALITY AGREEMENT ORDERED OFF PANEL

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Trustmark Ins. Co. filed an action against John Hancock Life Ins. after the parties arbitrated one reinsurance dispute and had begun a separate arbitration of another reinsurance dispute. Trustmark sought a preliminary injunction barring the parties from proceeding with the second arbitration with Hancock’s appointed arbitrator on the panel. Trustmark argued that Hancock’s choice of arbitrator in the second arbitration – the same person who served as Hancock’s chosen arbitrator in the first arbitration – resulted in: (1) that arbitrator’s breach of the confidentiality agreement that the parties and arbitrators in the first arbitration had signed; and (2) an inherent conflict of interest by that arbitrator who was being asked to interpret the confidentiality agreement to which he was a signatory (and which he allegedly breached), and who was also being asked to consider the extent to which issues in the second arbitration had been resolved in the first arbitration. The Court agreed with Trustmark, noting that the arbitrator had breached the confidentiality agreement by discussing matters pertaining to the first arbitration with the other panel members in the second arbitration (who were not parties to the confidentiality agreement). The Court also noted that Trustmark’s arbitrator violated a court order, in that the previous arbitration award and the confidentiality agreement entered into in connection therewith had been confirmed by Court Order. In a separate decision released simultaneously with its memorandum granting Trustmark’s preliminary injunction, the Court addressed additional issues raised in a motion for reconsideration by Hancock, but reaffirmed its prior ruling. Trustmark Ins. Co. v. John Hancock Life Ins. Co., No. 09-c-3959 (N.D. Ill. Jan. 21, 2010)

This post written by John Pitblado.

COURT DENIES SERBIAN REINSURER’S MOTION FOR RECONSIDERATION OF REMAND ORDER

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In the latest development in the case of DiNallo v. Dunav Ins. Co., defendant Dunav moved for reconsideration of the Southern District of New York’s order remanding the suit to New York State Court. Dunav argued that the Court’s order overlooked the fact that Dunav Re was a Serbian reinsurance company rather than Underwriters at Lloyds. Further, Dunav Re asserted that the Reinsurance treaties were among the first entered into by the company in the US and it lacked the sophistication and expertise of insurance companies who regularly did business in London or the US. Dunav Re additionally argued that it thought that the Service of Suit provision was “required by law” and that none of the parties indicated that Dunav Re was being asked to waive its removal rights. The Court determined that, given the strict standard for motions for reconsideration, Dunav Re had failed to demonstrate that the Court had overlooked important factors. Further, to the extent that Dunav Re grounded its motion on previously unconsidered issues, the motion for reconsideration was untimely. Dunav Re’s motion was denied. DiNallo v. Dunav Ins. Co., Case No. 09-5575 (S.D. N.Y. Feb. 1, 2010).

This post written by John Black.