Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FAA SUPPLIES ABSENT TERMS IN ARBITRATION CLAUSE

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A Virginia district court dismissed a Complaint alleging breach of contract after the defendant sought to enforce the arbitration clause in the contract governing the parties’ relationship. The plaintiff argued that the arbitration clause was too vague and indefinite to be enforced, in that it failed to prescribe a location, a number of arbitrators, procedural rules, or any enforcement mechanism for an arbitration award. However, because the parties agreed that the FAA was the appropriate federal law regarding arbitration, the court concluded that the absent terms were supplied by the FAA. Wolverine Fire Protection v. Atlantic Marine Construction Co., Case No. 2:08cv75 (USDC E.D. Va. April 24, 2008).

This post written by Lynn Hawkins.

REINSURANCE CLAIMS REJECTED; COURT REFUSES TO SEAL CONFIRMATION

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Argonaut Insurance reinsured Global Reinsurance under excess of loss, quota share and facultative reinsurance agreements. A dispute arose as to whether certain commutation payments made by Global and ceded to the reinsurance agreements came within the scope of the reinsurance agreements, and arbitration was demanded. Background is found in the Petition to Confirm the arbitration award (which is redacted). An arbitration panel decided in favor of Argonaut, finding that the commutation payments were not “claims, losses or settlements within the terms, limits and conditions of the Retrocessional Contracts at issue ….” Copies of the reinsurance contracts and the arbitration award are found in a declaration filed in support of confirmation of the award. The award was confirmed with the agreement of all parties. The court denied a request to keep filings in the confirmation proceeding under seal, finding that there had not been a sufficient showing to overcome the presumption that filings in US District Courts are public. Global Reinsur. Corp. v. Argonaut Insur. Co., Case No. 07-8350 (USDC S.D.N.Y. 2008).

This post written by Rollie Goss.

UNDERLYING INSURED LACKS STANDING TO SUE REINSURER

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An underlying insured lacks standing to maintain an action against a reinsurer under a contract to which it is not a party, according to a Louisiana district court. Plaintiff, LaSalle Parish School Board, was the insured on a policy of insurance issued by Property Casualty Alliance of Louisiana (“PCAL”). PCAL in turn entered into a contract of reinsurance with Allianz Global Risks. LaSalle Parish School Board filed a complaint against Allianz (and Eagle Adjustment Services) after Allianz failed to pay LaSalle more than $800,000 for tornado damage to LaSalle High School. The complaint alleged claims for breach of contract, detrimental reliance, and negligent misrepresentation. Allianz and Eagle moved to dismiss all claims.

The court granted Allianz's motion to dismiss the breach of contract claim, finding that “LaSalle has no standing to sue Allianz under the reinsurance contract, absent an intent to stipulate an advantage for LaSalle.” The Court also concluded that none of the state statutory exceptions allowing an insured to proceed directly against a reinsurer of its own insurer applied. The court denied the defendants’ motion to dismiss the detrimental reliance and negligent misrepresentation claims due to Allianz’s direct involvement in working with the insurance adjuster who dealt directly with the school system in adjusting the claim. LaSalle Parish School Board v. Allianz Global Risks U.S. Ins. Co., Case No. 1:07-cv-00399 (USDC W.D. La. April 24, 2008).

This post written by Lynn Hawkins.

COURTS ADDRESS ARBITRATION AWARDS

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There have been a number of decisions recently addressing different issues with respect to the confirmation or vacation of arbitration awards:

  • Modifying a final award: There have been two decisions under the functus officio doctrine, which addresses whether an arbitrator exceeds his/her powers by making substantive changes to the merits of an award. In Transtech Industries, Inc,. v. A & Z Septic Clean, No. 05-5246, the Third Circuit held that modifications to an award were permissible since they “clarified” ambiguity resulting from the initial award stating “relatively little” with respect to an issue. In Eastern Seaboard Concrete Constr. Co. v. Gray Constr. Inc., Case No. 08-37 (USDC D. Me. Apr. 18, 2008), a magistrate judge held that an arbitrator exceeded his authority when he modified the substantive portion of an earlier award to address an “additional” issue. The line between clarifying an award that does not address an issue and changing an award to initially address an issue may be a fine line.

  • Scope of arbitration issues: The Third Circuit held in Greenwich Services, Inc. v. District 1199C, No. 06-4951 (3d Cir. Apr. 11, 2008) that an arbitrator has the authority to interpret and determine the scope of the issues in the arbitration, based upon the submissions of the parties and the applicable contract. Finding that the arbitrator's determination drew its essence from the contract, the court affirmed the confirmation of the award.

  • Timing of seeking vacation of award: In Employers Ins. Co. of Wausau v. Paladin Reinsurance Corp., Case No. 08-42 (USDC S.D.N.Y. Feb. 21, 2008), the court confirmed an arbitration award finding that the claims asserted with respect to 19 facultative reinsurance certificates were time barred, when the party seeking to vacate did not make the request within the time allowed by the Federal Arbitration Act. The Petition to Confirm the award sets forth pertinent background facts.

  • Merits of awards: In Delgado v. A. Korenegay Senior House HDFC, Case No. 07-7761 (USDC S.D.N.Y. Mar. 21, 2008), the court affirmed an award over a number of complaints relating to procedure and evidence, finding that the arbitrator had found that the party seeking to vacate the award was not a credible witness, which is not a basis for vacating an award.

This post written by Rollie Goss.

DOCUMENTS RELATING TO RESERVE AND REINSURANCE INFORMATION ORDERED TO BE PRODUCED

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The defendant municipality requested an order compelling further responses to requests for production of documents relating to reserves set by the plaintiff insurer on the defendant’s claims, and documents relating to reinsurance of the plaintiff’s policies. The court granted the request, finding that while setting reserves does not constitute an admission of liability, it may be relevant as to plaintiff’s state of mind for the potential for coverage and, therefore, duty to defend. Similarly, non-privileged communications with reinsurers may be relevant for the same reason. The court denied as irrelevant, however, a request for an order compelling further responses to requests for admission concerning hourly rates paid to a law firm in connection with matters not related to the litigation. Insurance Co. of the State of Pennsylvania v. City of San Diego, Case No. 02-CV-693 (USDC S.D. Cal. Apr. 4, 2008).

This post written by Brian Perryman.