Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NINTH CIRCUIT ADDRESSES DOCTRINE OF FUNCTUS OFFICIO

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Last month, the Ninth Circuit Court of Appeals reviewed an arbitration panel’s awards against Leonard Bosack and Sandy Lerner, founders of Cisco Systems. The panel issued a series of preliminary and final awards. Bosack and Lerner challenged the panel’s awards in favor of their former financial manager David Soward on three primary bases: (1) the panel violated Rule 46 of the Commercial Arbitration Rules and the common law functus officio doctrine (forbidding an arbitrator from redetermining an issue which he has already decided); (2) the panel manifestly disregarded the law; and (3) the awards were “irrational.”

The Court ruled against Bosack and Lerner on all accounts. First, as a matter of first impression for the Ninth Circuit, the Court applied the Eighth Circuit’s rule that the functus officio doctrine applies only to “final” awards, and does not bar revisiting an issue addressed in a preliminary award, which the arbitrators did not intend to be their final word on the subject. Applying this standard, the Ninth Circuit held that only one of the five arbitration awards should be considered “final” for purposes of the doctrine, and the sole final award was not in violation of functus officio or Rule 46. Further, the Court concluded that in reaching the award, the panel neither acted irrationally or in manifest disregard of the law. The Court explained that Bosack and Lerner accepted the risk that goes along with arbitration, and could not avail themselves of expanded judicial review simply because the awards were unfavorable. Bosack v. Soward, Case No. 08-35248 (9th Cir. July 23, 2009).

This post written by John Black.

COURT AGREES TO STAY REINSURANCE DISPUTE PENDING OUTCOME OF APPEAL IN UNDERLYING COVERAGE CASE

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A federal district court in Missouri granted the parties’ joint motion to stay their reinsurance dispute, pending the outcome of an appeal taken in an underlying coverage action in which the reinsured, Continental Casualty Company (“CCC”), suffered a $23,072,979 jury verdict against it. The underlying plaintiff, Black & Veatch Construction Company, suffered a loss in the construction of a power plant in Missouri. It sought coverage from its insurer, CCC, in connection with the loss. CCC declined coverage and Black & Veatch sued. CCC has appealed the judgment. The collateral reinsurance dispute between CCC and its alleged Global Builders Risk Facility reinsurance treaty was brought in Missouri federal court by CCC. The parties also moved to stay an identical action filed in the U.K. Commercial Court by the defendant reinsurers. Both joint motions were based on the fact that, if CCC were successful in reversing the underlying judgment against it, it would make much of the remaining dispute between the parties moot. The Court granted the motion on June 8, 2009. Continental Cas. Co. v. AXA Global Risks (UK) Ltd., No. 09-00335 (USDC W.D. Missouri, June 8, 2009).

This post written by John Pitblado.

PLAINTIFFS WITHDRAW APPEAL IN KATRINA-RELATED REINSURANCE DISPUTE

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The parties in Association Cas. Ins. Co. v. Allstate Ins. Co., have stipulated to dismissal of the plaintiffs’ appeal in a Katrina-related reinsurance dispute. The plaintiffs had appealed the trial court’s order granting the defendants’ motion for directed verdict after eleven days of testimony was heard before a jury. The Plaintiffs, members of a condominium association, brought claims against the condominium board for failing to purchase adequate reinsurance to cover damage to areas of common property. Plaintiffs sustained losses after Hurricane Katrina. The defendants sought a directed verdict, arguing that the plaintiffs did not have standing to sue the board in their individual capacities, since their claims were based on damage to areas of common property in which plaintiffs only had a partial interest. The Court granted the motion. Aegis Security Ins. Co. v. Allstate Ins. Co., No. 2:09-cv-24 (USDC S.D. Miss. March 18, 2009). Plaintiffs appealed shortly thereafter, and the parties have now stipulated to a withdrawal of the appeal. Association Cas. Ins. Co. v. Allstate Ins. Co., No. 09-60299 (5th. Cir., June 5, 2009).

This post written by John Pitblado.

VARIOUS DECISIONS WITH RESPECT TO ARBITRATION AWARDS

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Arbitration Awards Confirmed:
Dauphin Precision Tool v. United Steelworkers of Am., No. 08-2598 (3d Cir. July 15, 2009) (affirming award, finding that the Appellant had neither made a clear showing of bias nor established a manifest disregard of the law);
Verizon v. Commc’ns Workers of Am., No. 08-7092 (D.D.C. July 10, 2009) (reversing district court order granting summary judgment; upholding the award, concluding that the award draws its essence from the collective bargaining agreement);
Vitarroz Corp. v. G. Willi Food Int’l Ltd, Case No. 05-5363 (USDC D. N.J. June 26, 2009) (confirming the award, finding that the panel did not manifestly disregard the law) (an Amended Order and Final Judgment was later entered in favor of the plaintiffs);
Teamsters Local 945 v. Waste Mgmt., Inc., Case No. 08-3471 (USDC D. N.J. June 18, 2009) (confirming the award as the award draws its essence from the collective bargaining agreement);
Nat’l Union Fire Ins. Co. v. Excel Staffing Servs. Inc., Case No. 08-7249 (USDC S.D.N.Y. June 17, 2009) (confirming an arbitration award);
Franko v. Ameriprise Fin. Servs., Inc., Case No. 09-09 (USDC E.D. Pa. June 11, 2009) (confirming the award; Petitioners failed to establish that the Panel manifestly disregarded the law on several theories);

Award Vacated:
Augusta Capital, LLC v. Reich & Binstock LLP, Case No. 09-0103 (M.D. Tenn. July 10, 2009) (vacating the award, finding that the panel exceeded its powers);

Order Vacated:
Certain Interested Underwriters at Lloyds v. Pinehurst Accident Reins. Group, Case No. 08-2950 (USDC D. N.J. May 20, 2009) (vacating prior order confirming award and remanding award to the arbitrator for clarification as the award was ambiguous) (on a motion for reconsideration, questions were certified to the panel);

Lack Of Jurisdiction:
Azteck Commc’ns v. UPI Commc’ns, Inc., Case No. 09-0690 (USDC S.D. Tex. June 15, 2009) (dismissing the case under Rule 12(b)(1) because no basis for federal subject-matter jurisdiction was identified).

This post written by Dan Crisp.