Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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.

TWO-YEAR TIME LIMITATION FOR COMMENCING “LEGAL ACTION” BARS PLAINTIFF FROM ARBITRATION

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In this insurance contract case before the Rhode Island Supreme Court, the plaintiff, National Refrigeration, appealed from an entry of summary judgment in favor of the defendant after the plaintiff filed a petition to enforce an arbitration clause in the insurance contract. The lower court granted summary judgment on the grounds that the plaintiff initiated its petition for arbitration years after the two-year limitations provision expressly provided for in the contract between the two parties. On appeal, plaintiffs argued that the trial court erred in ruling that plaintiff’s petition for arbitration was time-barred and that defendant’s actions had not tolled the limitations period. The defendant argued that the contract’s two-year limitation for commencing legal action with respect to damages under the policy applied to petitions for arbitration and that, therefore, plaintiff’s petition was not timely. The Supreme Court affirmed the trial court’s judgment, concluding that a petition for arbitration “fits squarely within the definition of legal action.” The Supreme Court also held that the ongoing settlement negotiations between the parties did not estop the defendant from invoking the time limitation defense. Some other courts have held that the issue of whether arbitration is barred by a limitation agreement is an issue for the arbitrators to decide. See JPD, Inc. v. Chronimed Holdings, Inc., 2008 WL 3876343 (6th Cir. Aug. 22, 2008). Nat’l Refrigeration, Inc. v. Travelers Indemnity Co. of Am., No. 2007-252 (R.I. May 29, 2008).

This post written by Lynn Hawkins.

INSURER HAS NO STANDING TO SEEK A DECLARATORY JUDGMENT ON HYPOTHETICAL CLAIMS

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Tall Tree insured Hewlett Packard, and was reinsured by Munich Reinsurance for amounts Tall Tree was required to pay to Hewlett Packard. Hewlett Packard was involved in litigation under which liabilities arose. Rather than first indemnifying Hewlett Packard, Tall Tree sued Munich Reinsurance in federal district court, seeking a declaratory judgment that Tall Tree was obligated to pay Hewlett Packard and that, in turn, Munich Reinsurance was obligated to pay Tall Tree. The court would not entertain the case: Tall Tree lacked standing to assert its claims. As to the question of whether Tall Tree was obligated to pay Hewlett Packard, the court noted that there was no live controversy before it; Tall Tree “can simply pay HP.” There was also no live controversy on the question of whether Munich Reinsurance was obligated to pay Tall Tree. The “follow the fortunes” doctrine did not apply because Tall Tree had not yet paid Hewlett Packard; there was essentially no “fortune” yet to follow, and the request for declaratory relief hence was premature. The case was dismissed. The Tall Tree Insurance Co. v. Munich Reinsurance America, Inc., Case No. C-08-1060 (USDC N.D. Cal. July 29, 2008).

This post written by Brian Perryman.