Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

U.S. SUPREME COURT FINDS FAA PROVISIONS APPLICABLE TO NON-SIGNATORIES TO ARBITRATION AGREEMENT

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The U.S. Supreme Court recently addressed whether Sections 3 and 16 of the Federal Arbitration Act (“FAA”) apply to non-signatories affected by an arbitration agreement. Section 3 of the Federal Arbitration Act (“FAA”) allows parties who have agreed to arbitrate to move for a stay of trial proceedings until they have had a chance to attempt arbitration. Section 16 of the FAA allows an immediate appeal of judgments denying a stay under such circumstances.

In a 6-3 decision, with Justice Scalia writing for the majority, the Court held that a federal court of appeals has jurisdiction over an appeal from a motion to stay proceedings under Section 16(a)(1)(A) of the FAA regardless of whether the petitioner is in fact eligible for a stay. The Court also found that Section 3 of the FAA does not categorically prevent a non-signatory to an arbitration agreement from pursuing a stay in proceedings. Rather, a person may pursue and obtain a stay under Section 3 if the relevant state law would make a contract to arbitrate a particular dispute enforceable by a non-signatory. The Court remanded the case to the Sixth Circuit to determine whether state law allows the non-signatories to enforce their agreement under state contract law and thus are allowed to pursue a stay in proceedings.

The dissent (authored by Justice Souter and joined by Chief Justice Roberts and Justice Stevens) argued that Congressional policy limits the ability of parties to obtain interlocutory appeals and that an appeal from a denial of a motion to stay proceedings should not be available to those parties who have not signed the relevant arbitration agreement. Arthur Andersen v. Carlisle, No. 08-146 (Sup. Ct. May 4, 2009).

This post written by Lynn Hawkins.

E.U.’S SOLVENCY II INSURANCE REGULATORY FRAMEWORK MOVING ALONG ON TRACK

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The European Union’s Economic and Financial Affairs Council recently approved the Solvency II Amended Directive, an insurance and reinsurance regulatory framework which we initially reported on in a September 14, 2007 post, and which moved forward with recent approval by the European Parliament last month. The Council’s approval is mentioned on page 14 of a release describing a meeting of the Council, which followed a press release about the Parliament's action. The proposal will now be up for adoption by the Council at its next meeting, and implementation remains on track for October 31, 2012.

This post written by John Pitblado.

JUDGE GRANTS MOTION FOR LEAVE TO AMEND COMPLAINT TO INCLUDE ADDITIONAL CLAIMS ARISING OUT OF REINSURANCE CONTRACTS

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Before a United States Magistrate Judge, TIG Insurance Company (“TIG”) moved for leave to amend its complaint for a second time to include breach of contract claims arising out of two additional reinsurance contracts. The defendants opposed the motion and argued that the two new claims were unrelated to the existing claims and that discovery would be substantially increased. However, the Magistrate Judge granted TIG’s motion, reasoning that courts regularly allow amendments of pleadings to join additional claims under Rule 18(a), even when those claims arise out of different transactions, and that the need for additional discovery is a consequence of almost every amendment of the pleadings, which, by itself, does not constitute sufficient prejudice to preclude the amendment. TIG Ins. Co. v. Century Indemnity Co., Case No. 08-7322 (USDC S.D.N.Y. Apr. 8, 2009).

This post written by Dan Crisp.

NINTH CIRCUIT FINDS THAT THE DISTRICT COURT LACKED JURISDICTION TO CONFIRM ARBITRATION AWARD AGAINST THE UNITED STATES

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In a proceeding in which the United States declined to participate, an arbitration panel awarded over $93 million to Park Place Associates, Ltd. (“Park Place”) on a breach of contract claim against the United States, which subsequently filed a motion to vacate in district court, which denied the motion to vacate and granted Park Place’s motion to confirm the award. On appeal, the Ninth Circuit first affirmed the denial of the motion to vacate, finding jurisdiction sufficient, since the United States had commenced civil proceedings in the district court by filing a complaint and a motion to vacate, and rejecting United States’ manifest disregard of the law arguments. Next, the court vacated the grant of the motion to confirm, concluding that, in this case where the action is to confirm a contract-based claim against the United States, the Tucker Act, which conditions its waiver on jurisdiction to the Court of Federal Claims, is the only means by which the United States can be said to have waived sovereign immunity, and, thus, the district court lacked jurisdiction to confirm the award. The court then remanded the case to the district court with instructions to dismiss the confirmation action as barred by sovereign immunity. United States v. Park Place Assocs., Ltd., No. 05-56235, No. 05-56312 (9th Cir. Apr. 22, 2009).

This post written by Dan Crisp.

COMMUTATION’S TANGLED WEB UNWOVEN BY APPELLATE COURT

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An appellate court in Illinois recently concluded that a decades-old commutation agreement between Old Republic Insurance Company and Central National Insurance Company (predecessor in interest to the defendant), was, in fact, not ambiguous, rendering superfluous the trial at which various extrinsic evidence was introduced in support of the parties’ competing interpretations, after the trial court denied summary judgment based on triable ambiguity.

The parties entered into the agreement in 1990, in an effort to mitigate the effects of Central National’s financial difficulties, which had caused it to be placed in rehabilitation by the State of Nebraska. The parties had come to reinsure one another under various reinsurance agreements. However, Central National argued that the commutation agreement was ambiguous, and was not intended to extinguish certain of Old Republic’s obligations to Central National. The appellate court disagreed, finding the language mutually releasing “all liabilities and obligations of the parties to each other under the reinsurance agreements” to mean just that – that all liabilities and obligations flowing both ways were equally extinguished. Old Republic Ins. Co. v. Ace Property & Casualty Ins. Co., 1-07-2668 (Ill. App. Ct. March 24, 2009).

This post written by John Pitblado.