Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

AON RECEIVES FINANCIAL SERVICES AUTHORITY’S LARGEST FINANCIAL CRIME RELATED FINE TO DATE

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The UK’s Financial Services Authority has imposed a fine on Aon Limited of £5.25 million. FSA contended that Aon failed to take reasonable care to establish and maintain effective systems to counter the risks of bribery and corruption associated with making payments to overseas firms and individuals. As a result, between January 2005 and September 2007, Aon failed to properly assess the risks involved in its dealings with firms and individuals in Bahrain, Bangladesh, Bulgaria, Burma, Indonesia and Vietnam who helped it win business. In total, the firm made suspicious payments amounting to approximately $7 million. This is the largest financial crime related fine imposed by the FSA to date. The FSA published a press release and a Final Notice relating to this fine.

This post written by Brian Perryman.

SECOND CIRCUIT: ARBITRATION CLASS ACTION BAN UNENFORCEABLE

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On a matter of first impression, the Second Circuit Court of Appeals considered the enforcement of a mandatory arbitration clause in a contract that also contained a “class action waiver” forbidding parties to the contract from pursuing class claims in the arbitral forum. Though the court declined to decide whether class action waiver provisions were void or enforceable per se, it concluded that the plaintiffs had demonstrated that the class action waiver provision at issue should not be enforced because it would effectively preclude any action seeking to vindicate the statutory rights asserted by the plaintiffs.

The court noted that although the Supreme Court has not squarely addressed this issue, it had implicitly recognized that a provision in an arbitration agreement is not per se unenforceable because the question of the validity of an arbitration clause which contained a class action ban was a matter for the arbitrator, not the court, to decide. The court found Green Tree Fin. Corp.v. Randolph, 531 U.S. 79 (2000) controlling to the extent that, based on the costs of individual litigation or arbitration, the agreement entailed more than a speculative risk that enforcement of the class action ban would deprive the plaintiffs of substantial rights under federal antitrust statutes. Further, the court found that, for all intents and purposes, the plaintiffs could only pursue their antitrust claims against American Express through the aggregation of individual claims either in class action litigation or in class arbitration. The court concluded that the class action waiver could not be enforced because the provision would effectively grant American Express de facto immunity from antitrust liability. The court noted by way of caveat that the ruling was in no way dependent on the “size” of any or all of the merchant plaintiffs; rather, it depended on a showing that the size of the recovery of any individual plaintiff would be too small to justify the expenditure of bringing an individual action. Finally, the court emphasized that this decision did not find all class action bans in arbitration agreements per se unenforceable. The case was remanded to the District Court for further proceedings. In re: American Express Merchants' Lit., No. 06-1871 (2d Cir. Jan. 30, 2009).

This post written by John Black.

COURT REFUSES BLANKET MATERIALITY RULE FOR INSURANCE APPLICATION MISREPRESENTATIONS

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The parties in this case moved for summary judgment as to whether the theft of Defendants' boat was covered under a maritime insurance policy. Plaintiff Great Lakes Reinsurance PLC asserted that because the defendant failed to disclose a prior theft of a boat on the insurance application, the insurance should be void ab initio under the doctrine of ubberimae fidei, which frequently has application in reinsurance matters. The insurance application specifically asked whether the prospective insured had suffered a “marine loss” in the prior ten years. This question was answered in the negative, despite the fact that the responding party had a boat stolen the prior year. The court found that there was no disputed issue of fact that this response was a misrepresentation, but that there was insufficient evidence to support summary judgment as to whether the question was material, which was required for avoidance. The court declined to follow Ninth Circuit precedent that every specific question on an application is material, holding that controlling Eleventh Circuit precedent required a factual demonstration of materiality. The detailed opinion is in a Magistrate Judge's Report and Recommendation, which were adopted by the district court judge. Great Lakes Reinsurance PLC v. Roca, Case No. 07-23322 (USDC S.D.Fl. Jan. 6, 2009).

This post written by John Black.

NINTH CIRCUIT AFFIRMS SUMMARY JUDGMENT IN CHALLENGE OF ARBITRATION AWARD

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Collier appealed from the district court’s sua sponte grant of summary judgment, confirming an arbitration award. Finding the case suitable for decision without oral argument, the Ninth Circuit concluded that summary judgment was properly granted because Collier initiated and fully participated in arbitration proceedings and, as a consequence, waived any argument that the dispute was not arbitrable. Additionally, the Ninth Circuit affirmed the district court’s conclusion that Collier failed to satisfy the statutory requirements to vacate or modify the arbitrator’s award. This opinion demonstrates the importance of preserving objections to the arbitration process. Collier v. State of New York, No. 07-55474 (9th Cir. Jan. 15, 2009).

This post written by Dan Crisp.

COURT GIVES PARTIES A DEADLINE TO APPOINT A THIRD ARBITRATOR

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National Casualty Company (“NCC”) filed a complaint in federal court against several of its reinsureds (collectively, “MMO”) alleging that, under the treaties, MMO’s demand for arbitration was ineffective to commence arbitration. Specifically, NCC claimed the demand for arbitration was not properly served and did not identify the dispute with sufficient particularity. Further detail regarding this dispute is set forth in the Complaint and in the memoranda in support of and in opposition to MMO’s Motion to Stay or Dismiss, Compel Arbitration and Appoint an Arbitrator.

When the arbitrators appointed by the parties failed to agree on a third arbitrator, the court held a telephone conference with the parties. The court then stated its preference that, pursuant to the parties’ agreements, the previously selected arbitrators choose a third arbitrator by December 23, 2008, failing which the court would appoint a third arbitrator, giving consideration to the names submitted by the parties. Finally, the district court ordered the action dismissed with prejudice. National Casualty Co. v. Mutual Marine Office, Inc., Case No. 08-8062 (USDC S.D.N.Y. Dec. 11, 2008).

This post written by Dan Crisp.