Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FACTUAL DISPUTES PRECLUDE SUMMARY JUDGMENT AS TO WHETHER CLAIMS COOPERATION CLAUSE WAS AGREED TO BY REINSUREDS

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In this English case, the claimant reinsurer, Markel, applied for the UK equivalent of summary judgment against two defendant German reinsureds, seeking a declaration that it was not liable under a contract of reinsurance. The primary issue was whether the contract provided in a claims cooperation clause that it was a condition precedent to any liability under it that if the reinsureds knew of any circumstances which may give rise to a claim against them, they should advise Markel within thirty days. Conflicting evidence was submitted as to whether the parties had agreed to the clause as suggested by Markel. Consequently, the court stated it was unable to accept Markel’s submission that there should be summary judgment since the issue involved questions of fact to be determined at trial. The court further addressed the separate issue of whether knowledge of the manager of the reinsurance pool (VOV) amounted to knowledge of the reinsureds for purposes of the claims cooperation clause. The court rejected Markel’s construction of the clause, holding that under the terms expressed, knowledge of VOV would not be imputed. Summary judgment was denied on all issues. Markel Capital Ltd. v. Gothaer Allgemeine Versicherung AG [2008] EWHC 2517 (Comm. Oct. 24, 2008).

This post written by Brian Perryman.

BOSTON’S ‘BIG DIG’ CONSTRUCTION PROJECT LEADS TO REINSURANCE DISPUTE; COURT GRANTS MOTION TO TRANSFER

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This action stems from litigation arising from Boston’s “Big Dig” construction project. In early 2003, the Massachusetts Turnpike Authority (as manager of the project) made a claim against a subcontractor, Parsons Corporation (“Parsons”), arising from construction delays. Parsons gave notice of the claim to its liability insurer, National Union Fire Insurance Company of Pittsburgh, PA (“National Union”). The claim against Parsons was settled in November 2007 for more than $1.5 million. In April 2008, National Union demanded payment of the $500,000 alleged limit of the reinsurance contract from its reinsurer, Syndicate 1861, for indemnity under the agreement. Syndicate 1861 denied the claim.

In the instant matter, National Union filed suit against Tonicstar (the “capital provider” to Syndicate 1861) in California federal court alleging that Tonicstar wrongfully denied paying National Union the amount due to it under the contract. Tonicstar argued that National Union did not give timely notice under the agreement or fulfill its claims cooperation clause. Tonicstar also moved to transfer, stay or dismiss the suit, arguing that California was not a suitable forum and noting that a substantially similar suit was proceeding in New York.

Persuaded by Tonicstar’s argument that National Union was forum shopping, the California court granted Tonicstar’s motion to transfer the action to the Southern District of New York. National Union Fire Ins. Co. of Pittsburg v. Tonicstar Ltd., Case no. 08-03706 (USDC C.D. Cal. Aug. 20, 2008). Further information about this motion is found in a Memorandum of Law filed in the case.

This post written by Lynn Hawkins.

IMPORTANT DECISIONS ON MANIFEST DISREGARD OF LAW DOCTRINE ON THE HORIZON

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Since the Supreme Court’s Hall Street Associates decision last March, it has been unclear whether the manifest disregard of law doctrine survived as a basis upon which to vacate an arbitration award. Authoritative guidance on that issue from the Second and Ninth Circuits may be relatively close at hand. The United States Supreme Court has granted a petition for writ of certiorari in Improv West Associates v. Comedy Club, Inc., No. 07-1334 (Oct. 6, 2008), and has summarily vacated the decision of the Ninth Circuit at 514 F.3d 833, and remanded the case for further consideration in light of Hall Street Associates. The Ninth Circuit, in a decision issued prior to the Supreme Court’s decision in Hall Street Associates, had found that a decision of an arbitrator was in manifest disregard of California law. The Supreme Court wishes to have the Ninth Circuit consider whether that decision is still appropriate in light of the Hall Street Associates decision.

In the Second Circuit, the court recently affirmed the confirmation of an arbitration award, rejecting the contention that the award was in manifest disregard of law, concluding that “even if the manifest-disregard standard were to survive Hall Street Associates, it affords Sole no relief from the arbitration award challenged in this case.” Sole Resort, S.A. v. Allure Resort Management, LLC, No. 07-1284 (2d Cir. Oct. 20, 2008). The Sole opinion notes that the issue of whether the manifest disregard of law doctrine survived Hall Street Associates is pending in another case in the 2d Circuit, Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 06-3474 (argued May 30, 2008). Therefore, there may be federal appellate court authority addressing the continued viability of the manifest disregard of law doctrine fairly soon.

This post written by Rollie Goss.

SECOND CIRCUIT UPHOLDS DISTRICT COURT’S CONFIRMATION OF ARBITRATION AWARD OVER MANIFEST DISREGARD OF LAW CHALLENGE

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Appellant appealed the confirmation of an arbitration award, contending that: (1) the contract required de novo review on appeal; (2) the award was in manifest disregard of law; (3) the arbitrator exceeded his authority in awarding consequential damages; and (4) the award was not “final and definite” as required by the Federal Arbitration Act. The court rejected the de novo review claim, citing the Supreme Court’s opinion in Hall Street Assoc., LLC v. Mattel, Inc., which held that the Federal Arbitration Act does not authorize expandable judicial review through contract. Although recognizing that some courts have questioned the continuing viability of the manifest disregard doctrine, the court affirmed the rejection of that challenge to the award on the basis that it was clear that the arbitrator did not manifestly disregard the law. Characterizing the remaining contentions as asserting that the arbitrator had erred, the court held that it could not vacate an award merely because it was convinced that the arbitration panel made an erroneous legal ruling. Esso Exploration & Prod. Chad, Inc. v. Taylors Int’l Serv., Ltd., No. 06-5673 (2d Cir. Sept. 17, 2008).

This post written by Dan Crisp.

COURT DISMISSES CLAIMS AGAINST REINSURER AND THIRD PARTY ADMINISTRATOR FOR LACK OF CONTRACTUAL RELATIONSHIP TO PLAINTIFF

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Plaintiff Samuel Brand sued his disability insurer, AXA Equitable Life Insurance Company (“AXA”), for failing to pay and improperly handling his disability claim. Brand also sued the third party administrator who handled the claim, Disability Management Systems, Inc. (“DMS”), and Centre Life Insurance Company (“Centre”), AXA’s reinsurer for its disability claims. Centre and DMS moved to dismiss Brand’s breach of contract and statutory bad faith claims on the basis that they had no contractual relationship with the plaintiff.

The district court agreed with the defendants, noting that the breach of contract claims failed because Brand was not a party to any contract with DMS or Centre. The court also rejected Brand’s theory that he was a third-party-beneficiary of AXA’s contracts with DMS and Centre, holding that the defendants’ contracts with AXA did not reflect an expectation that DMS or Centre would have a direct obligation to any AXA policyholder such as Brand. The court dismissed the statutory bad faith claims because neither DMS nor Centre qualified as Brand’s “insurer” as that term is defined and construed under Pennsylvania’s insurance bad faith statute. Brand v. AXA Equitable Life Ins. Co., No. CV-08-2859 (USDC E.D. Pa. Sept. 16, 2008).

This post written by John Pitblado.