Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

UK COURT DENIES REINSTATEMENT COVERAGE FOR SAME CLAIM

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The UK Commercial Court recently considered the ambit and extent of insurance coverage between Flexsys America LP and XL International Corp. In particular, the court was left to interpret whether a reinstatement provision (which are sometimes found in reinsurance agreements) in the master insurance policy should be made to provide additional coverage for a claim governed by a local policy extended to Flexsys by a company related to XL. In 2006, a Korean company (KKPC) filed a complaint alleging improper and illegal conduct by Flexsys. Flexsys claimed indemnity under a provision in the local policy. Flexsys settled the claim and incurred legal costs of over $2 million. The local policy carriers (who expressly denied liability) settled with Flexsys for the policy limit of $1 million. Flexsys sought recovery of the balance from the master policy insurers (the Defendants) alleging that the “Drop Down Clause” included in the master policy provided “umbrella” coverage that would provide a higher limit of indemnity.

The judge, Lord Tomlinson, rejected Flexsys’ argument, and interpreted the language of the Drop Down Clause to provide for a reinstatement of the local policy for “subsequent claims” and not, as Flexsys asserted, for the same claim. Further, the judge rejected Flexsys’ position that such a low level of coverage ($1M) was commercially unreasonable. The court could not address this question without dramatically altering the scope of the lawsuit to determine the range of commercial considerations necessary for such a decision. Finally, Lord Tomlinson concluded that Flexsys would not be reimbursed for additional legal expenses under the local policy because the claim at issue by the Korean company (product disparagement) was subject to an exclusion under the local policy. Flexsys Am. L.P. v. XL Ins. Co. Ltd., [2009] EWHC 1115 (Comm. Ct. May 20, 2009).

This post written by John Black.

WILLIS REACHES SUBSTANTIAL SETTLEMENT OF PERSONAL ACCIDENT REINSURANCE DISPUTE

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Willis Group Holdings Limited has filed a Form 8-K with the Securities and Exchange Commission describing the settlement reached by one of its subsidiaries, Willis Limited, with American Reliable Insurance Company and Assurant General Insurance Limited (“the Assurant companies”). The settlement pertains to personal accident reinsurance placed with and on behalf of the Assurant companies in the excess of loss market in London and elsewhere. Willis acted as the reinsurance broker for the transactions, which led to the Assurant companies suing Willis in the UK Commercial Court in London, alleging irregularities in Willis' placement of reinsurance. Under the settlement, Willis will pay the Assurant companies a total of $139 million.

This post written by Rollie Goss.

COURT HAS SECOND THOUGHTS ON DOCUMENT PRODUCTION

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In our January 7 post this year, we last told you about the discovery battles in AIU Insurance Company v. TIG Insurance Company, 07-7052 (USDC S.D.N.Y. Nov. 25, 2008), which we described as a “saga.” The saga continues. This time, the court reconsidered its August 28, 2008 order directing the production by TIG of information pertaining to its late notice investigation and records audit (which we discussed in a October 2, 2008 post). TIG moved for reconsideration of 25 of the documents ordered produced. The court found it had overlooked the factual bases for attorney-client privilege. Accordingly, the court entered an Order excusing TIG from producing some documents in their entirety, and permitting it to redact others.

This post written by Brian Perryman.

REACH OUT AND SUE SOMEONE – STOLEN CELL PHONES SPUR ARBITRATION

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Litigation was stayed pending concurrent arbitration in a dispute arising out of the theft of cell phones during international shipping. The complaint sought over $804,000 for the subrogated loss of approximately 15,000 cell phones. One of the defendants – companies involved in the phones’ shipping – moved to dismiss or, in the alternative, to stay on the basis of an arbitration clause between itself and the plaintiff’s subrogor. The court found that the litigation was intended to hold the defendants liable on the contract, which governed the parties’ relationship with respect to the transportation and delivery of cargo. Noting a strong bias in favor of international arbitration, the court found that the dispute should proceed through nonappealable arbitration in Peru. The court also denied another defendant’s motion to dismiss under the doctrine of forum non conveniens or, in the alternative, to transfer venue, holding that no factors “strongly” favored forcing the plaintiff to re-file elsewhere; there was no significant burden on the parties, nor were than any witnesses who would be inconvenienced. Rimac Internacional Cia. de Seguros y Reaseguros, S.A. v. Exel Global Logistics, Inc., Case No. 08-3915 (USDC S.D.N.Y. June 29, 2009).

This post written by Brian Perryman.

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.