Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

UK COURT DETERMINES THAT UNDERWRITING AGENCY DOES NOT HAVE AN ENTITLEMENT TO CONDUCT RUN-OFF

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Following the termination of an underwriting agency agreement, Temple Legal Protection sought to continue managing the run-off of the business originated under the agreement. The other party to the agreement contested the right of Temple to manage the run-off. An arbitrator found that Temple was not entitled to manage the run-off. On appeal, the Commercial Court found that the agreement did not provide a clear answer to the issue, but considering the agreement, custom and practice and other factors, the court concluded that while the arbitrator's analysis was faulty, the correct result had been reached. Temple Legal Protection Limited v. QBE Insurance (Europe) Limited [2008] EWHC 843 (Comm. Apr. 23, 2008).

This post written by Rollie Goss.

SIGNATORY TO AGREEMENT CONTAINING ARBITRATION PROVISION MAY NOT EVADE ARBITRATION BY SUING NON-SIGNATORIES

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A corporate signatory to a written partnership agreement that requires international arbitration of their commercial disputes may not escape arbitration of such disputes by naming as defendants two non-signatories, on the basis that there was no written agreement to arbitrate with those defendants, according to the First Circuit.

The plaintiff in this case, Sourcing Unlimited, entered into a partnership agreement with Asimco Technologies, Inc. (“ATL”) that contained an agreement to arbitrate. When the business relationship soured, Sourcing Unlimited filed suit in a Massachusetts court naming only one of ATL’s subsidiaries and corporate officer of ATL, but not ATL itself. The defendants argued that, under the doctrine of equitable estoppel, the plaintiff should not be permitted to evade its obligation to arbitrate under the contract by suing two non-signatories for matters that clearly arose from the agreement. The First Circuit agreed, stating “[t]he present dispute is sufficiently intertwined with the…Agreement for application of estoppel to be appropriate” and concluded that “[t]he fact that the defendants are not signatories is not a basis on which arbitration may be denied.” Sourcing Unlimited v. Asimco International, No. 07-2754 (1st Cir. May 22, 2008).

This post written by Lynn Hawkins.

ELEVENTH CIRCUIT HOLDS MEDIATION IS NOT ARBITRATION

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The Eleventh Circuit has held that for the purposes of the Federal Arbitration Act (“FAA”), mediation is not arbitration. Specifically, the court held that a party cannot use § 3 of the FAA to enforce a contract clause requiring an aggrieved party, prior to filing a lawsuit, to institute mediation or non-binding arbitration. The court noted that while the FAA does not define “arbitration”, classic arbitration is characterized by submitting a dispute to a third party for a binding decision. Furthermore, the court said, the “FAA clearly presumes that arbitration will result in an ‘award’ declaring the rights and duties of the parties.” Thus, a dispute resolution procedure that does not result in an award is not arbitration “within the scope of the FAA.”

While some in the ADR circuit may believe this decision represents a clear understanding of the differences between arbitration and mediation, others may feel the court unnecessarily denigrated the mediation process by implying that it is little more than a speed bump on the way to the courthouse. Advanced Bodycare Solutions, LLC v. Thione International, Inc., No. 07-12309 (11th Cir. Apr. 21, 2008).

This post written by Lynn Hawkins.

FOLLOW THE SETTLEMENT DOCTRINE DOES NOT APPLY TO CLAIM BY PRIMARY INSURER TO EXCESS INSURER'S REINSURER

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This lawsuit addresses the responsibility of several insurers to cover the settlement of a medical malpractice claim. Texas Farmers Insurance provided primary coverage, Ordway Indemnity provided excess coverage and Lexington Insurance provided reinsurance to Ordway. Texas Farmers contended that it had paid amounts in excess of its coverage, and sought reimbursement from Lexington, as Ordway's reinsurer. Texas Farmers contended that the follow the settlements doctrine applied, and required reimbursement by Lexington. The court disagreed, finding that the doctrine did not apply since Lexington was not Texas Farmer's reinsurer, and found in any event that the entire settlement amount fell within the limits of Texas Farmer's coverage. Since the primary coverage was not exhausted, the excess cover was not triggered, and Lexington had no payment obligation. Texas Farmers Insur. Co. v. Lexington Insur. Co., Case No. 06-8220 (USDC C.D. Cal. Apr. 21, 2008).

This post written by Rollie Goss.

FOLLOW THE SETTLEMENT DOCTRINE DOES NOT APPLY TO CLAIM BY PRIMARY INSURER TO EXCESS INSURER’S REINSURER

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This lawsuit addresses the responsibility of several insurers to cover the settlement of a medical malpractice claim. Texas Farmers Insurance provided primary coverage, Ordway Indemnity provided excess coverage and Lexington Insurance provided reinsurance to Ordway. Texas Farmers contended that it had paid amounts in excess of its coverage, and sought reimbursement from Lexington, as Ordway's reinsurer. Texas Farmers contended that the follow the settlements doctrine applied, and required reimbursement by Lexington. The court disagreed, finding that the doctrine did not apply since Lexington was not Texas Farmer's reinsurer, and found in any event that the entire settlement amount fell within the limits of Texas Farmer's coverage. Since the primary coverage was not exhausted, the excess cover was not triggered, and Lexington had no payment obligation. Texas Farmers Insur. Co. v. Lexington Insur. Co., Case No. 06-8220 (USDC C.D. Cal. Apr. 21, 2008).

This post written by Rollie Goss.