Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT HOLDS THAT MANIFEST DISREGARD OF LAW DOCTRINE SURVIVES HALL STREET ASSOCIATES

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The Second Circuit Court of Appeals has held that the manifest disregard of law standard is a judicial gloss on the specific grounds for vacature of arbitration awards enumerated in section 10 of the Federal Arbitration Act, and remains a valid ground for vacating arbitration awards after the Supreme Court's Hall Street Associates decision. The issue in this case was whether class arbitration was appropriate under an arbitration agreement which was silent on that issue. It was undisputed that this was a question for the arbitrator to initially decide, and that it was a question of contract interpretation. The arbitrator allowed class arbitration, but the District Court found that decision to be in manifest disregard of law. The Second Circuit, noting the very narrow scope of the manifest disregard of law doctrine, disagreed, and remanded with directions that the District Court deny the request to vacate the arbitration award. Stolt-Nielsen SA v. AnimalFeeds Int'l. Corp., No. 06-3474 (2d Cir. Nov. 4, 2008). This decision further develops the conflict in court decisions as to whether the manifest disregard of law doctrine remains viable.

This post written by Rollie Goss.

UPDATE ON EVIDENCE ISSUES IN REINSURANCE BROKER NEGLIGENT MISREPRESENTATION CASE

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After a failed bid to take an interlocutory appeal from a federal district court’s denial of its motion for summary judgment in a case alleging that the broker negligently presented incomplete and misleading information to the plaintiff reinsurer, the court considered a number of evidentiary motions in limine. On October 9, 2008 we reported the US District Court for the Eastern District of Pennsylvania’s ruling on those motions. Some of the proffered testimony and exhibits were excluded with the caveat that the proponent could undertake to cure the defect and seek admission a second time. Plaintiffs sought reexamination of five pieces of excluded evidence. The court generally found the proffered evidence admissible. The most notable exhibits in this category were two extensive financial tables purportedly generated from the reinsurer’s financial system, and a summary of various “bordereaux” and other information included in the financial tables. The court originally excluded these for lack of foundation, but Plaintiff proffered a detailed affidavit describing the computer system, the witnesses' knowledge and oversight of its operation, and his attestation of authenticity. The court determined that the witness was qualified to authenticate the documents and that his sworn affidavit was sufficient. Accordingly, the exhibits were found to be admissible at trial. United National Insurance Co. v. Aon Ltd, Case No. 04-539 (E.D. Pa. Aug. 7, 2008).

This post written by John Black.

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.