Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT REFUSES TO VACATE ARBITRATION AWARD, FINDING NO MANIFEST DISREGARD OF LAW OR EVIDENT PARTIALITY

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In an arbitration regarding the purchase of securities, the losing party sought to vacate the award on the basis that it was in manifest disregard of law and that the arbitrator was biased. The court denied the motion, finding that the manifest disregard of law claim was not that the arbitrator disregarded the law, but that he simply erred in the application of applicable law, which even if proven does not constitute manifest disregard of law. The evident partiality contention was based upon alleged conduct of opposing counsel, and its potential affect upon the arbitrator, and the arbitrator’s reviewing of documents which he then declined to admit into evidence. The court easily found that such conduct did not constitute evident partiality, which requires a showing of specific facts that indicate improper motives on the part of an arbitrator. Williams Fund Private Equity Group, Inc., v. Engel, Case No. 06-2266 (USDC D.C. Nov. 7, 2007).

This post written by Rollie Goss.

JURY FINDS AMERICAN RE-INSURANCE ACTED IN BAD FAITH AFTER SUMMARY JUDGMENT IS DENIED

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On June 19, 2007, we reported on a decision of a district court that refused to imply a follow the fortunes provision into a reinsurance agreement. Based on that finding, American Re, the reinsurer, moved for summary judgment, contending that the contracts at issue unambiguously provided that it was only obligated to pay claims that fell within the scope of the facultative certificate and it was entitled to summary judgment because Plaintiff could not make that showing. The Court disagreed, finding that because the reinsurance agreement provided the reinsured the right to settle claims in some instances, a genuine issue of material fact existed as to whether the underlying claim was covered by the facultative certificate.

Two weeks after this decision, the case went to trial, and a jury found that American Re breached its duty of good faith and fair dealing in refusing to reimburse its reinsured for the amount paid to settle the claim at issue. American Motorists Ins. Co. v. American Re-Insurance Co., Case No. C 05-5202 CW (USDC N.D. Cal. Dec. 4, 2007).

This post written by Lynn Hawkins.

ARBITRATION AWARD CAN NOT BE CORRECTED TO REFLECT FACTS NOT PRESENTED TO ARBITRATOR; PRE-JUDGMENT INTEREST GOVERNED BY STATE LAW

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Section 11(a) of the Federal Arbitration Act permits a district court to correct an “evident material mistake in the description of any person, thing, or property referred to in an award.” A district court “corrected” an arbitration award under the authority of that section to reflect that the party which lost the arbitration had paid substantially all of the liability prior to the entry of the award, even though it had been stipulated in the arbitration that the payment had not been made. The court of appeals reversed, finding that an award could be corrected under this section only if the arbitrator had made a mistake by “understanding wrongly” or “recognizing or identifying incorrectly.” The court held that ignorance, or lack of knowledge, because the parties did not convey a fact to the arbitrator, did not qualify as a mistake. The court of appeal also reversed a decision of the district court not to award pre-judgment interest, which was based upon federal law, holding that in a matter in which jurisdiction is based upon diversity of citizenship, questions relating to pre-judgment interest are governed by applicable state law. AIG Baker Sterling Heights, LLP v. American Multi-Cinema, Inc., No. 07-10130 (11th Cir. Nov. 28, 2007).

This post written by Rollie Goss.

UK COURT OF APPEALS REVERSES DECISION ON TIMELINESS OF NOTIFICATION OF LOSS

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On December 6, 2006, we reported on the decision of a UK court, which interpreted a provision requiring notice to a reinsurer of a claim. The issue was whether the reinsured had knowledge of a loss when its stock price fell due to accounting restatements. While the Commercial Court decided that such activity did not amount to knowledge of a loss, the Court of Appeals disagreed. The UK Court of Appeal therefore reversed, finding that the notification of loss was late under the requirements of the reinsurance agreement. AIG Europe v. Faraday Capital Limited [2007] EWCA Civ 1208 (Nov. 22, 2007).

This post written by Rollie Goss.

RIGHT TO CLASS ARBITRATION WITHIN PROVINCE OF ARBITRATOR, NOT COURT

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This dispute relates to whether a district court has authority to make a class arbitration determination based on agreements entered into between the respective parties. The court concluded that only the arbitrator had authority to determine whether the arbitration provisions permitted class arbitration.

Respondents filed a class action complaint with the American Arbitration Association against Petitioner, Scout, alleging that Scout failed to properly compensate respondents pursuant to agreements signed between the parties and deceived respondents by engaging in unlawful business practices. All parties are involved in publishing information about high school, college, and professional sports. The complaint was filed on behalf of approximately 300 persons, companies, or other entities that owned or provided content for a website owned by Scout.

Respondents filed a ‘clause construction’ motion with the AAA arbitrator, seeking a ruling that class arbitration was authorized. Scout requested a stay and filed the present petition requesting the district court stay the class proceeding and compel respondents to pursue their arbitration claims individually. Recognizing that the Supreme Court, in Green Tree v. Bazzle, was faced with an arbitration provision that was silent on the issue of whether class arbitration was permitted, the district court concluded that the “dispositive issue before this Court is whether Green Tree applies to the facts of this case.” The court concluded that the present case was factually analogous and granted respondent’s motion to dismiss, leaving the question of whether to permit class arbitration to the arbitrator. Scout.com v. Bucknuts, Case No. 07-1444 (USDC W.D. Wash. Nov. 16, 2007).

This post written by Lynn Hawkins.