Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT OF APPEALS AFFIRMS ORDER COMPELLING ARBITRATION

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3M Company (“3M”) and Amtex Security, Inc. (“Amtex”) entered into two agreements, a master agreement and a sub-agreement. While the sub-agreement contained an arbitration provision, the master agreement did not. Despite their titles, the parties agreed that the sub-agreement controlled to the extent the two agreements conflicted. A dispute arose, and Amtex filed a complaint in Texas state court. 3M removed the case to federal district court, demanded arbitration and filed a motion to compel arbitration in federal district court in Minnesota. Amtex then filed an amended complaint that included fraud claims and requested punitive damages. The district court in Texas granted 3M’s motion to stay pending a decision by the court in Minnesota as to whether the disputes should be arbitrated. The Minnesota district court granted 3M’s motion to compel arbitration, and Amtex appealed.

In affirming, the Eighth Circuit ruled that the order compelling arbitration is final and appealable since the motion to compel arbitration was the only matter brought before the Minnesota district court. In affirming the order of the district court, the court reasoned that the definitions of the terms in the arbitration agreement indicated an intent to arbitrate a broad range of disputes. The court then looked to the underlying factual allegations in the amended complaint and determined that the broad scope of the arbitration clause could cover each of Amtex’s claims. 3M Co. v. Amtex Sec., Inc., No. 07-3519 (8th Cir. Sept. 16, 2008).

This post written by Dan Crisp.

TEXAS STATE APPELLATE COURT UPHOLDS TEXAS WINDSTORM INSURANCE ASSOCIATION’S RIGHT TO PETITION FOR DECLARATORY RELIEF

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The Texas legislature created the Texas Windstorm Insurance Association (“the Association”) as a means of providing property insurance to homeowners in certain areas at elevated risk of hurricane damage. The Association’s membership consists of all property insurers authorized to do business by Texas’ department of insurance. The Association is run by a board of directors made up of member representatives nominated to the board by the office of public insurance counsel, and the Association’s board in turn reports to the Texas commissioner of insurance. Notably, the Court listed some of the powers of the board, as set forth in its plan of operation appearing in the Texas Administrative Code, which powers include “assuming reinsurance from and ceding reinsurance to members, and purchasing reinsurance on behalf of members” (though the Association’s reinsurance rights and obligations were not at issue).

The Association became engaged in an appraisal dispute with homeowners to whom it issued a policy, and whose property was damaged by Hurricane Rita. In seeking to clarify its obligations under the policy, the Association filed a petition for declaratory relief in state court. The homeowners challenged the Association’s capacity to sue, asserting that the power to sue was not enumerated among the enumerated powers in the governing statutes and regulations. The Court rejected that argument, finding that, inherent in the Association’s general power to “perform all other duties reasonably necessary to accomplish the purpose” of its authorizing statute, was the power to seek resolution of inevitable disputes in Texas’ courts. Texas Windstorm Insurance Association v. Poole, No. 07-07-0061-CV (Tex. App. 7th Dist. 2008).

This post written by John Pitblado.

ARBITRATION CONFIRMATION DECISIONS

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Courts have continued to brush aside objections and confirm arbitration awards, with an uneven consideration of the impact of Hall Street Associates on the manifest disregard of law doctrine.

  • Arbitration awards have been confirmed: Cline v. Chase Manhattan Bank USA, Case No. 07-650 (USDC D. Utah Sept. 11, 2008) (Magistrate Judge’s Report & Recommendation; District Court’s Order Approving the R&R) (rejecting arguments that there was no valid arbitration agreement, arbitrator bias and the lack of a fundamentally fair hearing); Hartford Fire Ins. Co. v. The Evergreen Org., Inc., Case No. 07-7977 (USDC S.D.N.Y. Sept. 9, 2008) (confirming after remanded by court to arbitration panel for clarification of award); Southern N. J. Building Laborers’ Dist. Council v. GMAC Constr., Inc., Case No. 08-2896 (USDC D.N.J. July 24, 2008) (award not completely irrational); Commercial Union Ins. Co. v. Lines, Case No. 02-0573 (USDC S.D.N.Y. June 11, 2008) (opinion and Final Judgment) (issues resolved in a reasonable and sound manner) (Notice of Appeal filed July 8, 2008).
  • Several courts have considered the manifest disregard of law doctrine: Hereford v. D. R. Horton, Inc., 2008 WL 4097594 (Ala. Sept. 5, 2008) (under Hall Street Associates, “manifest disregard of law is no longer a proper basis under the Federal Arbitration Act for vacating, modifying, or correcting an arbitrator’s award”) (Alabama Supreme Court decisions are available only by subscription); Kuest v. Citigroup Global Markets Inc., No. 07-35005 (9th Cir. Aug. 26, 2008) (very short opinion affirming district court’s confirmation of award, in part based on there being no manifest disregard of law, without mentioning Hall Street Associates) (see December 5, 2006 blog post on the underlying district court ruling); DMA Int’l, Inc. v. Qwest Communciations Int’l, Case No. 08-358 (USDC D. Col. Sept. 12, 2008) (articulate but not reach Hall Street Associates impact since the award was not in manifest disregard of law; also rejects claims of arbitrator partiality and arbitrator error); Legacy Trading Co. v. Hoffman, Case No. 07-1383 (USDC W.D. Ok. Aug. 18, 2008) (rejecting manifest disregard of law challenge without mentioning Hall Street Associates; also rejects evident partiality of arbitrator and public policy challenges to the award).
  • Ameritech Corp. v. Int’l Brotherhood of Elec. Workers, No. 05-2574 (7th Cir. Sept. 10, 2008) addressed an interesting scenario in which there were two consecutive arbitrations with differing results, and the question arose as to which award controlled. The parties agreed to participate in a third arbitration under Fed. R. App. Pro. 33, with the result of the resulting arbitration controlling. The court held the parties to that agreement.
  • An award was partially vacated in Verizon Washington, DC Inc. v. Communications Workers of Am., Case No. 07-1460 (USDC D.D.C. Aug. 5, 2008) because the arbitrator had clearly disregarded a contractual provision which limited the duration of back pay awards, awarding back pay for a longer period of time than that provided for in the contract, exceeding the authority granted by the contract. See the opinion and the remand Order.

This post written by Rollie Goss.

FEDERAL JUDGE PRELIMINARILY APPROVES SETTLEMENT AGREEMENT IN SCOR HOLDING AG LITIGATION

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In August, a federal judge preliminarily approved a settlement agreement in a class action against Swiss insurance company, SCOR Holding AG. (See 4/10/2008 blog posting for details on class certification decision). The settlement would resolve claims by U.S. investors that the company’s predecessor, Converium Holding, misrepresented the company’s financial strength to investors during an initial public offering. SCOR has agreed to pay $75 million to resolve claims arising from Converium Holding AG’s IPO in December 2001. Converium’s former parent company, Zurich Financial Services, will pay $9.6 million to U.S. investors who purchased Converium stock on the New York Stock Exchange and the SWX Swiss Exchange. Both SCOR and Zurich have reached separate settlement agreements with foreign investors. Details are available in both the court’s Preliminary Approval Order and in the Memorandum of Law filed by Plaintiffs in support of the approval of the proposed settlement. In re SCOR Holding (Switzerland) AG Securities Litig., Case No. 04 Civ 7897 (S.D.N.Y. Aug. 11, 2008).

This post written by Lynn Hawkins.

INSURED’S MOTION TO COMPEL DOCUMENTS GRANTED

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The plaintiff, Bunge North America, sought liability insurance coverage related to its environmental liabilities from, among others, Travelers Casualty. Bunge moved to compel certain documents from Travelers, which motion was granted by a magistrate judge. United States Fire Insurance Co. v. Bunge North America, Inc., Case No. 05-CV-2192 (USDC D. Kan. June 4, 2008) (magistrate’s order). Travelers sought review of the magistrate judge’s order with the district judge. The motion for review was denied in its entirety. The district court made three rulings affirming the reasoning used by the magistrate judge. First, Bunge was entitled to agreements Travelers had with a broker, and the date and amount of payments made to the broker, relating to Bunge insurance policies. These documents were found to be relevant to the issue of whether Bunge properly notified Travelers of its claims via the broker, Travelers’ putative agent. Second, Bunge was entitled to documents relating to a similar claim paid to a different Travelers insured on the same environmental liability issue. This information was relevant to Travelers’ knowledge of the issues and the consistency of its positions, as well as Bunge’s bad faith claim. Finally, the district judge refused to disallow the possibility that Bunge could collected its fees and costs associated with the motion to compel. Although the magistrate judge had found that the relevance of the requests were not apparent on their face, the district judge stated that relevance can be clarified by a party after the fact, so the issue of whether the opposing party’s objections are “substantially justified” (the standard to avoid the payment of fees and costs) was subject to further litigation before the magistrate judge. United States Fire Insurance Co. v. Bunge North America, Inc., Case No. 05-CV-2192 (USDC D. Kan. July 3, 2008) (district judge’s order).

This post written by Brian Perryman.