Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

UK COURT RULES ON SCOPE OF CONFIDENTIALITY OF ENGLISH ARBITRATIONS

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Due to the relationships between the UK and US insurance and reinsurance markets, and the fact that different reinsurance agreements in a reinsurance program may involve both UK and US arbitration provisions, there are frequent overlaps between the two jurisdictions when things go awry. In a lengthy opinion, the UK Court of Appeals has engaged in an extensive discussion of the basis for the confidentiality of UK arbitration materials, and the circumstances under which such materials may be disclosed in other proceedings. Noting the strong tradition of confidentiality, the Court noted that exceptions “are still in the process of development on a case-by-case basis,” but that the principal instances in which disclosure may be appropriate are: (1) where there is consent, express or implied; (2) by court order (with courts not having general discretion to waive confidentiality); (3) where reasonably necessary for the protection of the legitimate interests of an arbitrating party; and (4) where required in the interests of justice, and perhaps the public interest. This may become a very influential opinion in this area of English jurisprudence. Emmott v. Michael Wilson & Partners Limited [2008] EWCA Civ 184 (Mar. 12, 2008).

This post written by Rollie Goss.

U.S. SUPREME COURT FINDS FAA PREEMPTS CALIFORNIA STATE LAW

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The U.S. Supreme Court ruled that when parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act (“FAA”) supersedes state laws that refer certain state-law controversies to a judicial forum or administrative agency. This case arose out of a contract dispute between a former Florida trial court judge (currently appearing as “Judge Alex” on Fox television) and his attorney regarding the payment of certain fees. The Petitioner sought to arbitrate the dispute. In response, the Respondent, Ferrer, petitioned the California Labor Commissioner for a determination that the contract was invalid because if violated a California state law known as the Talent Agencies Act (“TAA”). Ferrer also filed a state court action seeking a stay of the arbitration proceeding. The lower courts held that the statutes vested exclusive jurisdiction of the dispute with the Labor Commissioner.

The Supreme Court reversed that decision. The Court stated that “the dispositive issue… is not whether the FAA violates the TAA wholesale. The FAA plainly has no such destructive aim or effect. Instead, the question is simply who decides whether Preston [violated the TAA].” The Court concluded that because the contract contained an arbitration provision, the FAA superseded California state law, lodging jurisdiction elsewhere. blank”>Preston v. Ferrer, No. 06-1463, 552 U.S. _ (Feb. 20, 2008).

This post written by Lynn Hawkins.

UPDATE: GEN RE/AIG FINITE REINSURANCE CRIMINAL ACTION

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As reported in a March 3, 2008 post, the Court had scheduled sentencing in the finite reinsurance matter in US District Court in Connecticut for May 15, but sentencing has been continued pending the submission of certain expert reports. The court has ruled upon motions for acquittal or a new trial filed by the defendants, denying the motions. United States v. Ferguson, Case No. 06-cr-137 (USDC D. Conn. May 15, 2008).

This post written by Rollie Goss.

REINSURERS GRANTED TRANSFER OF VENUE IN CASUALTY COVERAGE DISPUTE

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The plaintiff, Huntsman, took out a casualty insurance policy with the defendant, International Risk Insurance Company (“IRIC”), a captive insurer that had been formed for the sole purpose of insuring Huntsman’s companies through the reinsurance market. IRIC then entered into separate reinsurance agreements with a group of reinsurers. After a fire at its ethylene plant, Huntsman submitted claims to the reinsurers and received payments totaling $305 million. However, a dispute arose concerning Huntsman’s right to receive additional payments under the casualty policy and the reinsurance certificates, and the reinsurers filed a lawsuit in the United States District Court for the Southern District of Texas seeking an order compelling arbitration or, in the alternative, declaring that Huntsman was not entitled to coverage for certain claimed items. After the reinsurer’s lawsuit was filed, Huntsman filed its own lawsuit in the state district court for Jefferson County, Texas, seeking a judicial declaration that IRIC was obligated to pay the amounts demanded by Huntsman. In turn, IRIC tendered the defense of Huntsman’s state court lawsuit to the reinsurers. When this tender was rejected, IRIC filed a third-party petition against the reinsurers in the state suit. The reinsurers then removed the state suit to the United States District Court for the Eastern District of Texas, and moved to transfer the removed suit for consolidation with its own ongoing suit in the Southern District of Texas.

The motion to transfer venue was granted. The court cited the “first-to-file” rule, which states that when related cases are pending before two federal courts, the court in which the case was last filed may refuse to hear it if the issues raised by the cases substantially overlap. The court found that both lawsuits involved the same parties, same loss and same underlying insurance policy. The central dispute in both cases was whether Huntsman was due additional sums under the policy and reinsurance certificates. Each case also involved an interpretation of the dispute resolution provision contained in the certificates. The court rejected Huntsman’s argument that the first-to-file rule should not apply because the reinsurer’s suit was filed in anticipation of Huntsman’s suit. The court observed that the first-to-file rule not only determines which forum may decide the merits of the case, but also which forum should decide whether a later suit should be dismissed, stayed or transferred and consolidated. Huntsman Corp. v. International Risk Insurance Co., Case No. 08-CV-029 (USDC E.D. Tex. Apr. 22, 2008).

This post written by Brian Perryman.

ARBITRATION MATTER REMANDED TO ARBITRATIOR FOR CLARIFICATION OF AWARD

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A district court has granted a motion to dismiss an action filed by a postal workers union against the United States Postal Service that sought to enforce an arbitration award. The arbitrator ruled in favor of the union on the merits of the dispute, included remedial provisions in his award, but expressly retained jurisdiction for the implementation and interpretation of the award. The court found that the complete arbitration rule did not apply because although the award was a final determination on the merits of the dispute, it did not fully complete the adjudication of the remedial aspects of the dispute. The award hence was not final as to its remedy. Finding that there was additional discretion to remand an arbitration award concerning an employment agreement compared to other arbitration awards, the court found that it had authority to remand to the arbitrator for clarification if it determined that the award was ambiguous, which it held meant that the award was subject to at least two differing interpretations. The court found two ambiguities in the award, and remanded for clarification of the remedies to be implemented. The court cautioned that the arbitrator did not have authority to revisit the merits of the dispute, which he had conclusively determined. Pittsburgh Metro Area Postal Workers’ Union v. United States Postal Service, Case No. 07-781 (USDC W.D. Pa. Apr. 16, 2008).

This post written by Rollie Goss.