Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FEDERAL APPELLATE COURT AFFIRMS STAY IN CASE INVOLVING PARALLEL STATE PROCEEDING

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Although this case does not directly address reinsurance or arbitration issues, it may be of interest to our readers, as it is a federal appellate opinion covering the relationship between parallel proceedings in federal and state court. Specifically, the Eleventh Circuit affirmed a district court’s decision to grant the defendant’s motion to stay pending a state court action involving the same issues. Plaintiff, Great Lakes Reinsurance (UK) PLC, appealed the ruling arguing that the lower court: (1) failed to apply the proper test governing whether to stay a declaratory judgment action; and (2) failed to give sufficient weight to the fact that the uniquely federal issues of admiralty law were central to the federal case.

The Eleventh Circuit disagreed with both arguments, and affirmed a stay of the case pending the resolution of the state court case. In Ameritas Variable Life Ins. Co. v. Roach, the Eleventh Circuit set forth nine factors that a court should consider in determining whether to accept or decline jurisdiction under the Declaratory Judgment Act when a related state action is pending. Although the district court did not expressly cite to the Ameritas case, the Eleventh Circuit found that the district court did sufficiently address certain prongs of the test. Additionally, the Eleventh Circuit concluded that the fact that the case involved admiralty law issues did not control the district court’s decision whether to stay the case. Great Lakes Reinsurance v. TLU Ltd., No. 08-11588 (11th Cir. Oct. 10, 2008).

This post written by Lynn Hawkins.

EIGHTH CIRCUIT REJECTS CHALLENGE TO ARBITRATOR’S QUALIFICATIONS, DEFERRING TO AAA

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In this case, the Eighth Circuit affirmed a district court decision that an arbitrator was qualified to hear a dispute and did not exceed his powers under the arbitration agreement. In 2000, in an attempt to make itself attractive for public financing, the Crawford Group decided to compensate its senior executives with a package that included awards of stock. William Holekamp retired in 2000 after three decades of working for Crawford and its subsidiary, Enterprise Car Rental. In June of 2004, Crawford attempted to buy back Holekamp’s stock by the terms of the Stock Award and Shareholder Agreement. A Missouri state court ruled that there was an issue with respect to the purchase price of the shares and sent the dispute to arbitration in accordance with the agreement. The arbitrator, chosen by Holekamp but approved by AAA (American Arbitration Association) valued Holekamp’s shares at $20.7 million, rather than the $11.4 million figure at which Crawford had valued them. The Eighth Circuit ruled that the AAA had the final determination as to whether or not the arbitrator was qualified, and the court then applied a deferential standard to the arbitrator’s decision, ruling that the award could not be set aside as long as the arbitrator was “even arguably construing or applying the contract and acting within the scope of his authority.” Crawford Group, Inc. v. Holekamp, No. 07-3454 (8th Cir. Oct. 6, 2008).

This post written by John Black.

COURT UPHOLDS SANCTIONS ORDER BASED UPON FRIVOLOUS APPEAL BY LLOYDS NAME

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In 1979, Bennett signed a contract with Lloyd’s as a Name to provide underwriting capital for insurance syndicates. The contract contained clauses stating that English law applied to Names’ disputes and such disputes can only be resolved in the courts of England. At the time the contract was signed, Lloyd’s failed to disclose massive anticipated losses. In 1998, Bennett and 600 other Names sought to avoid the forum selection and choice of law clauses. The Ninth Circuit upheld the clauses. Lloyd’s sued in England and won a large judgment against non-settling Names to recover mandatory premiums. Lloyd’s then sought to enforce its claim against Bennett, a non-settling Name, in Utah District Court. The court found in favor of Lloyd’s. Bennett appealed, and this appeal was consolidated with other Names cases in the Reinhart case before the Tenth Circuit. The circuit court upheld the forum selection and choice of law clauses.

During the pendency of the Reinhart appeal, Bennett filed for bankruptcy and brought two separate lawsuits under the auspices of the bankruptcy case. The parties stipulated to the dismissal of the first suit, and the second suit went to trial. In the second suit, the court granted Lloyd’s summary judgment motion and a motion for sanctions, finding that the forum selection issue had been previously determined. Bennett appealed, but the district court affirmed the ruling.

Bennett appealed the bankruptcy court’s sanctions order, again advancing arguments against the forum selection clause. The court upheld the award of sanctions, finding the appeal from the bankruptcy court to be frivolous, and that “no reasonable attorney” could believe otherwise based upon the doctrine of res judicata and the Tenth Circuit’s prior opinions. Bennett v. Soc’y of Lloyd’s (In re Bennett), Case No. 2:07-CV-736 TS (USDC Utah Sept. 24, 2008).

This post written by Dan Crisp.

COURT DENIES MOTION TO COMPEL PRODUCTION OF REINSURANCE INFORMATION

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This case arises out of a state court lawsuit asserting claims from a motor vehicle accident, in which Bituminous Casualty sought a declaratory judgment that it did not owe its insured, the defendant in the state court action, a defense under its policy. The plaintiff in the state court action, which was not insured by Bituminous, sought the production of Bituminous’ reinsurance agreements and correspondence with its reinsurers. Although the court compelled the production of other documents, it denied the motion to compel to the extent that it sought information about Bituminous’ reserves, reinsurance agreements and other documents relating to reinsurance. Bituminous Cas. Corp. v. Smith Bros., Inc., Case No. 2:07-cv-354-KS-MTP (USDC S.D. Miss. Sept. 22, 2008).

This post written by Dan Crisp.

MCCARRAN-FERGUSON ACT DOES NOT PERMIT STATE LAW TO INVALIDATE CONTRACTUAL PROVISION FOR ARBITRATION UNDER INTERNATIONAL TREATY

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Plaintiff Louisiana Safety Association of Timbermen – Self Insurers (“LSAT”) filed an action in federal district court in Louisiana seeking to enforce the assignment of a reinsurance contract entered into between its predecessor in interest, Safety National Casualty Corporation (“SNCC”), and SNCC’s reinsurer, Certain Underwriters at Llloyd’s, London (“Lloyd’s”). Lloyd’s refused to recognize the attempted assignment by SNCC to LSAT of SNCC’s rights under the reinsurance contract on the ground that the reinsurance pertained to underlying personal injury claims under workers compensation insurance, and thus were non-assignable rights.

Lloyd’s sought, in response to LSAT’s suit, an order referring the matter to arbitration, as required under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). The Convention, an international treaty, requires that courts of signatory states “shall, at the request of one of the parties, refer the parties to arbitration. . .” LSAT contended that a Louisiana statute barring mandatory arbitration provisions in insurance contracts reverse-preempted the Convention, under the McCarran-Ferguson Act. The district court granted summary judgment to LSAT, finding that the Louisiana statute supersedes the Convention. Lloyd’s appealed. The Fifth Circuit reversed, holding that while McCarran-Ferguson reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. Safety Nat’l. Cas. Corp. v. Certain Underwriters at Lloyd’s, London, et al., No. 06-30262 (5th Cir. Sept. 29, 2008).

This post written by John Pitblado.