Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

AIU v. TIG DISCOVERY DISPUTE: THE SAGA CONTINUES

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The bell has rung on the latest round of discovery litigation brought between AIU Insurance Company (“AIU”) and TIG Insurance Company (“TIG”) in litigation in federal District Court. As we wrote in our previous post of October 2, 2008, AIU brought the litigation to recover reinsurance payments allegedly owed to it from TIG on the basis of certain excess liabilities arising from underlying asbestos litigation exposure. In our October post, we noted that the Court ordered TIG to produce documents relating to its anticipated late notice defense from its claim file, despite its objections based on claims of attorney-client privilege and protection under the work product doctrine.

In the latest round of discovery litigation, TIG moved to compel AIU to produce certain documents despite AIU’s claims of privilege. In another split decision, the court ordered some, but not all of the relief sought by the moving party. Despite TIG’s arguments that certain privileged documents were nonetheless discoverable because AIU’s advice of counsel defense put them at issue, the Court held that the advice of coverage counsel is not necessarily at issue in evaluating the reasonableness of an underlying settlement. The Court did order the production of documents pertaining to similar, but unrelated claims, noting that they could lead to the discovery of admissible evidence pertaining to the manner in which the insurer interprets its own obligations under the notice provision of its contracts. The Court also ordered that AIU search the electronic files of certain persons named by TIG, finding that their electronic materials were discoverable. AIU Insurance Company v. TIG Insurance Company, 07-CV-7052 (SHS) (HBP) (USDC SDNY Nov. 25, 2008).

This post written by John Pitblado.

COURT TO PARTIES: YOU ARE ARBITRATING

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On behalf of an aggrieved union member, the International Brotherhood of Electrical Workers brought a grievance against Verizon for declaring the employee medically unfit to drive a company van. A collective bargaining agreement provided for mandatory arbitration for all disputes under the agreement. Verizon alleged in arbitration that the dispute fell under the Federal Motor Carrier Safety Act (“FMCSA”) rather than the Collective Bargaining Agreement. The arbitrator issued an Interim Award ordering the parties to submit to FMCSA dispute procedures before continuing arbitration. The American Arbitration Association cancelled an arbitration hearing and has since administratively closed the parties file. The FMCSA review process remains ongoing.

IBEW subsequently filed suit in the US District Court, alleging that Verizon’s failure to reschedule an arbitration hearing was in breach of the Collective Bargaining Agreement’s arbitration clause. IBEW moved for summary judgment on whether the underlying issue was arbitrable and whether Verizon was in violation of the arbitration agreement. The Court held that the crux of the matter was whether Verizon acted capriciously or arbitrarily when it found the employee medically unqualified to operate the motor vehicle, which would be a violation of the Collective Bargaining Agreement. Disputes under the Agreement are subject to arbitration. The Court also stated that because the arbitrator ordered the parties to submit to FMCSA procedures, arbitration was in fact still ongoing. The Court noted that arbitrators naturally were empowered to consider federal law in making their rulings so the arbitrators’ order to submit to FMCSA procedures was not in error. Int’l Brotherhood of Electrical Workers v. Verizon North, Inc., Case No. 07-3194 (USDC C.D. Ill. Dec. 3, 2008).

This post written by John Black.

COURT REFUSES SUBJCT MATTER JURISDICTION TO REVIEW ARBITRATION AWARD, SINCE THE VALUE OF THE AWARD WAS LESS THAN THE COURT’S JURISDICTIONAL AMOUNT

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A dispute arose between Hansen Beverage Company and DSD Distributors over a distribution agreement. The agreement included an arbitration clause providing that all disputes were to be arbitrated in California. The parties submitted to arbitration in San Diego where the arbitrator found that defendant had not breached the contract and Hansen did not constructively terminate the contract. Thus, no monetary damages or attorneys’ fees were awarded to either party.

On the day the arbitration award was handed down, DSD filed a motion in Wisconsin state court (the company’s state of domicile) to vacate or modify the award. That court declined jurisdiction holding that the arbitration should be finalized in California Federal Court. On the same day, Hansen filed a motion in the Southern Dist. of California to confirm the arbitration award, while DSD moved to stay or dismiss the award.

DSD contends that the action must be dismissed for lack of subject matter jurisdiction because the arbitration award fell below the $75,000 minimum for diversity jurisdiction. The court, noting a circuit split on this issue, held that where a petition seeks confirmation or vacatur of an award, without seeking remand for further arbitration proceedings, the amount in controversy is the value of the arbitration award itself. The court additionally stated that although the arbitrator’s judgment was essentially equivalent to a declaratory judgment, that aspect of the arbitration award was merely a collateral consequence of the arbitrator’s decision. Thus, the Motion to Dismiss or Stay was granted. The court did note specifically, however, that its decision may have been different if DSD was seeking to reopen arbitration in the California court rather than Wisconsin. Hansen Beverage Co. v. DSD Distributors, Inc., Case No. 08-0619 (USDC S.D. Cal. Dec. 12, 2008).

This post written by John Black.

CONNECTICUT AND MAINE ISSUE STATE REGULATORY PRONOUNCEMENTS

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The Connecticut Insurance Department recently issued a Bulletin (Number FS-4AR-08) relating to the 2008 and 2009 financial filing requirements by accredited reinsurers.

The Maine Bureau of Insurance (the “Bureau”) issued a Bulletin (Number 351) addressing the repeal by referendum of Parts D through F of “An Act To Continue Maine's Leadership in Covering the Uninsured” (the “Act”). Part A of the Act established a reinsurance program for individual health insurance, but the Bureau concluded that the reinsurance program and related provisions could not be implemented because the funding provision and its revenue sources were repealed by the referendum and no other sources of funds have been allocated or identified.

This post written by Dan Crisp.

DISTRICT COURT DENIES MOTION TO STAY ARBITRATION PROCEEDINGS IN STATE COURT

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Petitioners brought two Financial Industry Regulatory Authority (“FINRA”) arbitration actions against the Respondents, their former employer and a former supervisor, asserting a multitude of claims. The Respondents filed counterclaims. The FINRA panel consolidated all claims and counterclaims into one action. The panel later granted the Respondents’ motion for summary judgment, dismissed Petitioners’ claims in their entirety, and scheduled subsequent hearings for Respondents’ counterclaims. Petitioners then filed a petition in state court to vacate the panel’s decision, but the court stayed the petition pending final resolution of the action. When the FINRA panel issued the final arbitration award requiring one Petitioner to pay eighty percent of Respondents’ attorney fees and costs incurred, the Petitioners filed an amended petition to vacate the award in state court. Respondents in turn filed a motion to confirm the arbitration award. Days later, Petitioners filed a petition to vacate in the federal court. Petitioners then filed an ex parte motion to stay the Respondents from proceeding in state court pending the federal petition to vacate for manifest disregard of the law.

In support of their motion to stay, Petitioners argued an exception to the Anti-Injunction Act applied that allowed the district court to stay the state court proceedings because a stay was necessary in aid of the jurisdiction of the district court to review the federal petition to vacate. Citing the Supreme Court case of Atlantic Coast Line R.R., the district court explained that the exception does not apply unless such relief is necessary so as to prevent the serious impairment of the federal court’s flexibility and authority to decide the case. The existence of a parallel action in state court does not satisfy the level of impairment necessary to permit injunctive relief under the exception. The district court concluded that the requested injunctive relief was not necessary in aid of its jurisdiction and was prohibited by the Anti-Injunction Act. Holland v. Wachovia Securities, LLC, Case No. 08-1772 (USDC S.D. Cal. December 3, 2008).

This post written by Dan Crisp.