Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT GRANTS REINSURANCE INTERMEDIARY LEAVE TO AMEND PLEADING AND ISSUES RULING ON DISCOVERY DISPUTES

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In 2004, General Fire & Casualty, an Idaho insurance company, filed a Complaint against Guy Carpenter, a reinsurance intermediary. After the deadline set forth in the Court’s scheduling order, Guy Carpenter filed a motion with the court for leave to amend his complaint (for the fourth time) to add a statute of limitations affirmative defense. Plaintiffs opposed, arguing that the statute of limitations was inapplicable to the action, and therefore amending the pleadings would be futile. The Court disagreed, concluding that the defendant established good cause for modifying the scheduling order under FRCP 16(b) and therefore should be given leave to amend the pleadings under FRCP 15(a).

The Court also addressed Plaintiffs’ Motion to Compel responses to discovery requests. The requests are too numerous and detailed to explain here. The Court granted a majority of Defendant’s requests relating to: (1) contingent commission/steering claims; (2) “finite” contracts and risk transfer issues; and (3) broker duties and training. General Fire & Casualty Co. v. Guy Carpenter, Case No. CV 05-251-S-LMB (D. Idaho, March 2, 2007).

DISTRICT COURT LACKS JURISDICTION TO ENFORCE ARBITRAL SUBPOENA

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The District Court of Massachusetts recently granted a Motion to Dismiss a Petition to enforce an arbitration panel’s subpoena duces tecum. Liberty Mutual filed a petition to enforce a subpoena issued by an arbitral panel in an arbitration being conducted in Boston, Massachusetts. The subpoena was served on White Mountains, who was not a party to that arbitration, in New Hampshire. The subpoena required White Mountains to produce certain documents to an attorney in New Hampshire. When White Mountain produced some documents, but not everything that Liberty expected, Liberty filed a petition to enforce the subpoena.

The Plaintiff argued that the district court had subject matter jurisdiction and power to grant the relief requested based on the Federal Arbitration Act, 9 U.S.C. §7. The Court concluded that Liberty’s petition failed to satisfy key requirements of §7. Specifically, the court held that to be judicially enforceable, an arbitral subpoena must be for the attendance of a witness before the arbitration panel to testify rather than for pre-hearing discovery, and must be served within the territorial limitations applicable to trial subpoenas. The Court also concluded that White Mountain did not waive objections to judicial enforcement of the subpoena by volunteering to produce certain non-privileged responsive documents. Liberty Mutual Ins. Co. v. White Mountains Ins. Group, Case No. 06-11901-GAO (D. Mass., Feb. 26, 2007).

Further detail regarding the facts of this matter are available in a Memorandum filed by Liberty Mutual in support of its Petition, a Memorandum filed by White Mountains in support of its Motion to Dismiss, and Liberty Mutual's Memorandum in Opposition to the Motion to Dismiss.

Courts decide issues relating to arbitrability of claims and appointment of arbitrators

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Three opinions were issued recently of interest regarding arbitration procedures:

  • In Ancon Ins. Co. (U.K.) Limited v. GE Reinsurance Corp., Case No. 06-2106 (USDC D. Kansas Mar. 30, 2007), one party was five days late in appointing an arbitrator due to a mistake by its run-off manager in reporting when an arbitration demand had been received. The party demanding arbitration sought to enforce a provision in the arbitration agreement, which would have allowed it to appoint an arbitrator on behalf of the defaulting party. The Court refused to enforce the provision, allowing the defaulting party to appoint an arbitrator on grounds of fairness and lack of prejudice.

  • In International Ins. Agency Services v. Revios Reinsurance U.S., Case No. 04-1190 (USDC N.D. Ill. Mar. 27, 2007), the Court granted the motion of a reinsurer to compel arbitration against an employee benefits firm that developed, marketed, administered and underwrote group life insurance programs on a fronted basis. The reinsurance agreement contained an arbitration provision, but the employee benefits firm was not a party to the agreement. The Court held that the firm was estopped to refuse to arbitrate, since it was asserting claims against the reinsurer based entirely upon alleged damage to its reputation arising out of the reinsurer's attempted repudiation of the reinsurance agreement.

  • In Invitrogen Corp. v. Employers Ins. Co. of Wausau, Case No. 06-232 (USDC D. Az. Mar. 9, 2007), the Court granted an injunction prohibiting Wausau from pursuing arbitration against Invitrogen under a reinsurance contract, because it found, as a matter of law, that the claims were barred by a settlement agreement reached in a prior proceeding.

CALIFORNIA COURT FINDS NO ATTORNEY-CLIENT RELATIONSHIP EXISTS BETWEEN REINSURER AND COUNSEL FOR REINSURED

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The issue presented in this case relates to the nature and extent of the duty, if any, owed to the reinsurer by counsel retained by the ceding insurer to protect the interests of the insured under the underlying policy.

In this action for professional negligence, Zenith Insurance Company (“Zenith”) entered into a contract of reinsurance with Royal Insurance Company (“Royal”). Under the contract, Zenith agreed to reinsure 100% of Royal’s exposure under certain liability policies. After claims were asserted against Royal’s insured, Royal retained the law firm of Cozen O’Connor to provide legal services with respect to the defense of such claims. Ultimately, Zenith filed this action for professional negligence against Cozen alleging that an attorney-client relationship existed based on either: (1) an implied in fact contract; or (2) the theory that Zenith was an intended beneficiary of Cozen’s legal services.

The California Court of Appeals disagreed with Zenith for two reasons. First, under the “intended beneficiary” theory, both Cozen and Royal must have intended Zenith to be the beneficiary of legal services Cozen was to render. The Court held that the fact that Cozen’s representation could incidentally benefit Zenith did “not sufficiently satisfy this predicate.” Moreover, the fact that Zenith agreed to reimburse Royal for all legal fees did not change the conclusions. Second, there was no express agreement between Zenith and Cozen, and Zenith did not allege the predicate facts necessary to establish an implied contract between it and Cozen. Zenith Ins. Co. v. Cozen O’Connor, Case No. B184684 (Cal. Ct. App., March 21, 2007).

Delaware Commissioner approves acquisition of Royal Indemnity

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The Delaware Insurance Commissioner has approved an application by Royal and Sun Alliance Insurance Group plc, a British insurance holding company, to sever its relationship with its US subsidiaries. The approval is subject to a number of conditions. The companies involved are Royal Indemnity Company, Security Insurance Company, Guaranty National Insurance Company, and Royal Surplus Lines Insurance Company. In the Matter of: The Proposed Acquisition of Royal Indemnity Company, Docket No. 313 (Del. Insur. Dept. Feb. 20, 2007).