Reinsurance Focus

Pioneer Navigation Ltd. entered into a charter contract with Chemical Equipment Labs Inc. to ship road salt from Venezuela to the United States. The charter contained a force majeure clause and an arbitration clause. The vessel bearing the road salt shipment that was the subject of the charter never received authorization to depart from Venezuela. Chemical Equipment Labs communicated to Pioneer that it believed the Venezuelan government’s failure to authorize the salt shipment constituted a force majeure event that excused its performance under the charter. Pioneer disagreed and initiated arbitration.

In a 2-1 decision, the arbitration panel majority found in favor of Pioneer, noting that the “record of events … is replete with on-scene references to the lack of proper export documentation as the reason for the stoppage and offloading of the Vessel’s cargo.” Thus, the majority concluded that the force majeure clause did not apply because Chemical Equipment Labs did not “carr[y] its burden of establishing that an export permit and authorization were in place for this shipment and that the facts and circumstances leading to the Venezuelan Authorities’ intervention were not unforeseeable and not beyond its control.”

Pioneer then petitioned to confirm, and Chemical Equipment Labs moved to vacate, the arbitration award. The magistrate judge issued a report and recommendation recommending that Pioneer’s petition be granted and Chemical Equipment Labs’ motion be denied. Chemical Equipment Labs objected to the report and recommendation and largely recycled arguments that it made before the magistrate judge. Because the magistrate judge’s thorough and well-reasoned report and recommendation did not misstate the law or otherwise contain clear error, the district judge granted Pioneer’s petition to confirm the arbitration award, denied Chemical Equipment Labs’ motion to vacate the arbitration award, and confirmed the final award.

Pioneer Navigation Ltd. v. Chemical Equipment Labs, Inc., No. 1:19-cv-02938 (S.D.N.Y. Mar. 3, 2020).

This case arises from a protracted dispute between Applied Underwriters Captive Risk Assurance Co. and Milan Express Co. over amounts Milan allegedly owed Applied Underwriters under a reinsurance participation agreement. The agreement had an arbitration clause requiring arbitration under American Arbitration Association (AAA) rules. The parties had also executed a separate request to bind coverages and services, which had its own arbitration clause requiring arbitration under JAMS rules and in conformity with the Arbitration Act of the State of Nebraska.

A dispute resulted in Applied Underwriters initiating arbitration before the AAA based on the arbitration clause in the reinsurance participation agreement. That arbitration ended with a final award that the clause was unenforceable due to a Nebraska statute prohibiting arbitration clauses in insurance contracts. Applied Underwriters subsequently initiated a new arbitration, asserting the same claims, only this time before JAMS, based on the binder clause. Meanwhile, Applied Underwriters also commenced this litigation in Nebraska state court, in response to which Milan moved to stop the JAMS arbitration. Citing the AAA award deeming the arbitration clause in the reinsurance participation agreement unenforceable, the lower court granted Milan’s motion to end the arbitration on issue and claim preclusion grounds. Applied Underwriters appealed, relying on certain differences between the two arbitration clauses.

On appeal, the court rejected Applied Underwriters’ contention that the binder clause was enforceable despite the AAA award invalidating the arbitration clause in the reinsurance participation agreement, finding no meaningful distinction between the two clauses as it pertained to their enforceability. Because a panel of AAA arbitrators had already determined the arbitration clause in the reinsurance participation agreement to be invalid and unenforceable under Nebraska law, the appellate court agreed with Milan that the issue of the binder clause’s enforceability was barred from further consideration based on issue and claim preclusion principles. The court therefore affirmed the lower court’s order stopping the JAMS arbitration.

Applied Underwriters Captive Risk Assurance Co. v. Milan Express Co., No. A-18-570 (Neb. Ct. App. Mar. 17, 2020).

In this employment case, Stacy Saunders appealed from the district court’s award of summary judgment in favor of her former employer, Metropolitan Property Management Inc. Saunders’ action against Metropolitan alleged a hostile work environment and retaliation under Title VII of the Civil Rights Act of 1964.

In affirming the district court’s award of summary judgment in favor of Metropolitan on the hostile work environment claim, the Fourth Circuit, focusing on whether an employee’s conduct is imputable to Metropolitan, found that there were no disputed issues of material fact concerning the investigation Metropolitan conducted, as the investigation into the employee’s conduct was reasonably thorough and completed in a timely fashion.

However, after reviewing the record, the Fourth Circuit concluded that there were genuine disputes of material fact with respect to the retaliation claim, mainly whether Saunders would have been fired but for her complaint of sexual harassment. The Fourth Circuit found that there was compelling evidence to support Saunders’ argument that the real reason she was fired was because she engaged in the protected activity of filing a complaint of sexual harassment.

The Fourth Circuit therefore vacated in part the district court’s award of summary judgment and remanded the retaliation claim for further proceedings.

Saunders v. Metropolitan Property Management, Inc., No. 18-2008 (4th Cir. Mar. 18, 2020).

Petitioner, Catalina Holdings (Bermuda) Ltd. was involved in a reinsurance dispute with Legion Indemnity Co., an insolvent insurer, and its liquidator, Robert Muriel, acting director of insurance of the state of Illinois. Following an arbitration hearing, the panel issued an initial award that Muriel/Legion must pay Catalina $76,000 in unpaid premiums. After further briefing, the panel issued a final award granting Catalina an additional $437,501.04 in “costs,” which consisted of attorneys’ fees and expenses. Catalina moved to confirm the award in the Northern District of Illinois. Muriel moved to vacate or modify as it related to the award of attorneys’ fees.

The court denied Muriel’s motion, finding that the panel did not exceed its authority by awarding attorneys’ fees on a noncontractual basis, or any other bases. The arbitration clause at issue allowed the arbitrators to award “interest and costs” but was silent as to what “costs” may include. Noting that arbitrators are “pretty much at large in the formulation of remedies” when the arbitration clause is silent in that regard, the court disagreed with Muriel/Legion that the word “costs” left “no possible interpretive route to the award of attorneys’ fees.” The court also distinguished Seventh Circuit cases setting aside awards for lacking a contractual basis, finding that the arbitrators in those cases ignored contract language that was “clear, unambiguous, and not silent.” Under the circumstances here, the court found no basis to vacate. Further, since the panel had specifically invited briefing on the issue of attorneys’ fees before issuing the final award, the court found no basis to modify the final award under section11(b) of the Federal Arbitration Act. Catalina’s motion to confirm was therefore granted, and Muriel’s motion was denied in its entirety.

Catalina Holdings (Bermuda) Ltd. v. Muriel, No. 1:18-cv-05642 (N.D. Ill. Apr. 6, 2020).