Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION OF NON-ARBITRABLE CLAIM ORDERED SINCE IT WAS COLLATERAL TO AN UNPLEADED ARBITRABLE CLAIM ASSERTED AS A SET OFF

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OrbitCom, Inc. (“OrbitCom”) brought suit against Qwest Communications Corp. (“Qwest”) seeking the recovery of telecommunications access fees. This claim was not independently arbitrable. Qwest refused to pay later charges under an agreement that contained an arbitration clause, essentially asserting a set off or right of recoupment with respect to the prior “overcharges.” Qwest then filed this Motion to Stay Proceedings and Petition to Compel Arbitration, arguing that even though not pleaded as a counterclaim, its refusal to pay amounted to a counterclaim, which arose out of or related to the contract, and that arbitration should be compelled of all claims, because the non-arbitrable claim was collateral to an arbitrable claim. Noting that the arbitration clause was a “broad clause,” which resulted in a presumption of arbitrability, the court granted Qwest’s motion, following Tenth Circuit precedent which requires the arbitration of claims that are collateral to an arbitrable claim. The court also concluded that OrbitCom had not overcome the presumption of arbitration. OrbitCom, Inc. v. Qwest Comm’ns Corp., Case No. 09-00181 (USDC D. Colo. June 25, 2009).

This post written by Dan Crisp.

ANTECEDENT DEBT IS “FAIR CONSIDERATION” FOR REINSURANCE CONTRACT

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The Rehabilitator of Frontier Insurance Company challenged a New York federal court to reconsider summary judgment rulings that dismissed claims against Everest Reinsurance Company. The Rehabilitator’s claims against Everest sounded in fraudulent conveyance on the theory that payments made to Everest under a reinsurance contract it issued to Frontier were not based on fair consideration because no risk was transferred under the contract. The Court had previously ruled that there was fair consideration due to an antecedent debt at the time the parties entered into the reinsurance contract. The Court allowed reconsideration, but upon review maintained its prior ruling. Mills v. Everest, Case No. 05-8928 (USDC S.D.N.Y. June 8, 2009). Further background to supplement the brief opinion is found in a related Memorandum of Law.

This post written by John Pitblado.

ARBITRATION PANEL’S ORDER TO SIGN SECURITY AGREEMENT AFFIRMED

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After a coverage decision by the arbitration panel, the parties disagreed as to the terms of the security interest agreement as stated in the “Memo of Understanding.” The panel subsequently issued an order directing Robinson Outdoors, Inc. (“Robinson”) to sign the other party’s proposed security agreement, which the trial court confirmed. Before the appellate court, Robinson argued that the panel exceeded its authority when it ordered Robinson to sign the agreement. However, the appellate court found that the record demonstrated that the panel had such authority because: (1) the memo expressly provided for a security agreement; (2) the language in the memo did not limit the scope of arbitration; (3) holding the parties to a broad reading of the scope of arbitration was fair; and (4) such authority was necessary in order to effectuate the intent of the memo. American Employers Ins. Co. v. Robinson Outdoors, Inc., Case No. 25-06-702 (Minn. Ct. App. June 9, 2009).

This post written by Dan Crisp.

COURT GRANTS LIMITED PRE-ARBITRATION DISCOVERY OF NON-PARTY

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A New York State Court allowed the issuance of judicial subpoenas to non-parties at the request of Petitioner corporations in a pre-arbitration discovery action. The Petitioners and Respondents had agreed to arbitrate under FINRA rules, but the arbitration had not yet commenced, as Petitioners sought discovery to determine if other parties should be joined in the arbitration.

The Court noted that FINRA provides a comprehensive discovery scheme, and allows for the issuance of arbitral subpoenas, but is ambiguous as to pre-arbitral discovery. The Court also noted a general judicial reluctance to order discovery where the parties have agreed to arbitrate, but ruled that it was nonetheless appropriate for the limited purpose of determining whether any other parties exist that should be brought into the arbitration. VP Trader Pro, LLC v. Joseph Azevedo Pires, No 102334-09 (N.Y. Sup. Ct. April 21, 2009).

This post written by John Pitblado.

DEAL OF THE CENTURY (INDEMNITY COMPANY): REINSURANCE DISPUTE SETTLED

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Century Indemnity Company has settled and voluntarily dismissed its lawsuit against Munich Re. Century’s complaint alleged that Munich Re failed to pay amounts due under several facultative reinsurance certificates through which it reinsured Century. Specifically, Munich Re agreed to indemnify Century’s predecessor in interest, Insurance Company of North America, for payments made pursuant to various insurance policies covering asbestos losses. Century sought nearly $2.26 million in unpaid reinsurance billings. As part of the settlement, Century dismissed that portion of its complaint seeking a declaratory judgment that Munich Re was obligated to pay all future billings. Century Indemnity Co. v. Munich Reinsurance Am., Inc., Case No. 2:08-CV-5666-LDD (USDC E.D. Pa. May 22, 2009).

This post written by Brian Perryman.