Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

THE STATUTE OF LIMITATIONS FOR A REVIEW OF ARBITRATION PROCEEDINGS BEGINS TO RUN ON THE DATE THE DECISION IS RECEIVED BY THE PETITIONER OR HER AGENT.

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New York law requires that applications to vacate or modify an arbitration award “be made by a party within ninety days after its delivery to him [or her].” However, New York Civil Practice Law and Rules (CPLR) 7511(a) does not define “delivery” in this context. Petitioner, Lowe, argued that delivery must be construed as the actual receipt of the award. Respondent, Erie, argued that delivery must be interpreted as the mailing of the award. In support of its argument, Erie cited Insurance Department Regulation Section 65-4.10(e)(3), which states that the delivery of the master arbitration award is the date the award is mailed to the parties. However, the court found that New York case law supported Lowe’s argument. Cases cited by the court used the terms “receipt” and “received” in discussing the 90-day period set forth in CPLR 7511(a). Lowe v. Erie Ins. Co., 1145 CA 08-00405 ( N.Y. App. Div. Oct. 10, 2008).

This post written by Dan Crisp.

CASE UPDATE: SECOND CIRCUIT HOLDS THAT ALLEGED CONSPIRACY WITH SIGNATORY TO CONTRACT IS INSUFFICIENT RELATIONSHIP TO ENFORCE ARBITRATION AGREEMENT AGAINST OTHER SIGNATORY

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We previously posted on March 27, 2007 on the Second Circuit’s denial of a motion to dismiss an interlocutory appeal from a federal district court’s denial of a motion to compel arbitration. The motion to compel arbitration was filed by several American Express companies (collectively “Amex”) against plaintiffs who brought a class action suit against Amex and other credit card companies and issuing banks for conspiring to fix certain fees charged to cardholders at excessive rates.

Addressing the appeal on its merits, the Second Circuit Court noted the undisputed fact that, though the plaintiff class had entered into cardholder agreements with other defendants in the class action, including Mastercard, Visa and Diner’s Club, they had no such relationship with Amex. Amex nonetheless sought to compel arbitration under the plaintiffs’ agreements with the other defendant companies on a theory of equitable estoppel. The Second Circuit held that because the only connection between Amex and the cardholders’ agreements with the other defendant companies was the alleged conspiracy, Amex could not establish the necessary condition under a theory of equitable estoppel that plaintiffs intended to be bound to arbitrate disputes with a stranger to their contracts. Ross v. American Express Co., Nos. 06-4598-cv(L), 06-4759-cv(XAP) (2d Cir. Oct. 21, 2008).

This post written by John Pitblado.

DISPUTE OVER WHETHER QUOTA SHARE TREATY HAD BEEN TERMINATED IS SUBJECT TO ARBITRATION; LATE APPOINTMENT OF ARBITRATOR ALLOWED DUE TO ABSENCE OF PREJUDICE

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Lincoln General reinsured Clarendon National under a quota share reinsurance treaty. Lincoln gave notice of termination of the agreement, and Clarendon demanded that Lincoln provide collateral under a contractual provision requiring collateral if Lincoln’s Best rating became B++ or lower. Lincoln refused to provide collateral due to its purported termination of the treaty, and Clarendon demanded arbitration under the treaty. Lincoln sued in state court, seeking a declaration that it did not have to collateralize or arbitrate due to the termination of the treaty. Clarendon removed and moved to compel arbitration. The district court granted the motion, holding that a challenge to the validity of the contract as a whole was an arbitrable issue, whereas a challenge only to the arbitration provision would have been a judicial issue.

During the course of the dispute, Clarendon appointed an arbitrator, and had demanded that Lincoln do so. Lincoln refused, contending that it did not have to do so pending the dispute as to whether the dispute should be arbitrated. Clarendon then appointed a second arbitrator, under a provision allowing it to do so if Lincoln defaulted in appointing an arbitrator. Lincoln then belatedly named an arbitrator. The court confirmed Clarendon’s first appointment and Lincoln’s belated appointment, under a line of cases which decline to strictly enforce an appointment deadline if there is no prejudice from the delay in making an appointment. Lincoln General Ins. Co. v. Clarendon National Ins. Co., Case No. 08-0583 (USDC M.D. Pa. Aug. 15, 2008).

This post written by Rollie Goss.

CASE UPDATE: COURT RULES ON JURISDICTION AND DISMISSAL ISSUES IN THE HUNTSMAN/INTERNATIONAL RISK INSURANCE LAWSUITS

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We previously posted on May 14, 2008 about a group of reinsurers’ successful effort to transfer venue in a casualty coverage dispute. In an update to that litigation, the transferee court ruled on four motions in two related lawsuits: a motion to remand the transferred lawsuit to state court; a motion to enjoin related state court litigation; a motion to dismiss for lack of subject matter jurisdiction; and a motion to dismiss for failure to state a claim. Initially, the court found that remand should be denied because it had federal question jurisdiction under the New York Convention, 9 U.S.C. § 201 et seq. Specifically, jurisdiction was proper because arbitration agreements between citizens of foreign countries and citizens of the United States were implicated. This opinion also addresses the interesting question of whether the parties should be realigned for purposes of evaluating diversity of citizenship. Huntsman Corp. v. International Risk Ins. Co., Case No. 08-1542 (USDC S.D. Tex. Sept. 26, 2008). The motion to enjoin the state court litigation was denied as moot because, by the time of the rulings, the state case had been removed and was the subject of the decided motion to remand. Ace American Ins. Co. v. Huntsman Corp., Case No. 07-2796 (USDC S.D. Tex. Sept. 26, 2008). The motion to dismiss for lack of subject matter jurisdiction was denied. The principal thrust of that motion was that the defendant’s (International Risk Insurance Company) liability to its co-defendant (Huntsman) under an insurance policy had not yet been determined; however, the court found that this did not warrant dismissal of the reinsurers’ claim to compel arbitration with IRIC because, among other things, the reinsurers’ liability to IRIC under reinsurance certificates was intertwined with IRIC’s demand that the reinsurers accept the defense of IRIC’s lawsuit against Huntsman in related litigation. Finally, the court denied Huntsman’s motion to dismiss the reinsurers’ claim to compel arbitration, and to dismiss the reinsurers’ claim for declaratory relief. Ace American.

This post written by Brian Perryman.