Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

District Court Confirms $220 Million Award, Finds No Manifest Disregard of Law

by

The Seneca Nation of Indians moved under Section 10 of the Federal Arbitration Act (FAA) to vacate certain arbitration awards issued in favor of the state of New York, finding that Seneca must pay the state millions in revenue-sharing pursuant to an exclusive gaming compact. The issue before the Western District of New York was whether the awards “manifestly disregarded” the Indian Gaming Regulatory Act (IGRA). The state cross-moved to confirm.

At the outset, Seneca’s petition to vacate was deemed timely. The court ruled that a partial award issued by the panel regarding liability only was not “final” and thus did not trigger the three-month filing period for a petition to vacate an arbitral award, as the partial award did not “definitively resolve” all the issues submitted to arbitration. The state relied on a Second Circuit decision finding a partial award to be “final” under the FAA, but the court found the case to be factually distinguishable here. Nonetheless, both the partial and final awards were confirmed. First, the court found no statutory basis for vacatur pursuant to Section 10 of the FAA. It also found no basis for vacating the awards based on a manifest disregard of the law, noting that the extreme deference afforded to arbitration awards “essentially bars review of whether an arbitrator misconstrued a contract.” Citing a recent decision by the Second Circuit and applying a two-step analysis, the court agreed with the state that this is not one of the “exceedingly rare instances where some egregious impropriety on the part of the arbitrator is apparent,” as is required for a finding of “manifest disregard.” As such, Seneca’s petition to vacate was denied, and the state’s cross-petition to confirm was granted.

Seneca Nation of Indians v. State of N.Y., No. 1:19-cv-00735 (W.D.N.Y. Nov. 8, 2019).

Court Confirms Arbitration Award as Not in Manifest Disregard of the Law

by

Metso Minerals Canada Inc. and Metso Minerals Industries Inc. entered into a contract with ArcelorMittal Exploitation Miniere Canada and ArcelorMittal Canada Inc. to supply a specialized mill to a mining mill that ArcelorMittal operated in Quebec, Canada. The contract contained an arbitration clause requiring the parties to submit all disputes arising from the contract to arbitration. ArcelorMittal initiated an arbitration proceeding asserting causes of action under Quebec law, including contract-based claims and a claim for breach of the duty to inform. The breach-of-duty-to-inform claim was based on the allegation that Metso knew of a potential defect in the mill but did not inform ArcelorMittal.

The panel granted an award in favor of Metso stating that the mill met the design criteria in the contract, and therefore a duty to inform about possible defects was meaningless. Metso moved to confirm the arbitration award against ArcelorMittal, and ArcelorMittal cross-moved to vacate the award. The court confirmed the award. The court explained that courts may vacate an arbitration award on four narrow grounds under 9 U.S.C. § 10. In addition, an award can be vacated for “manifest disregard of the law.” “Manifest disregard” is one of “last resort” and is limited to “exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent.” In evaluating a motion to vacate an award based on manifest disregard of the law, a court looks to three questions: (1) whether the law that was allegedly ignored was clear and explicitly applicable to the matter before the arbitrator; (2) whether the applicable law was in fact improperly applied resulting in an erroneous outcome; and (3) whether the arbitrator intentionally disregarded the law. The court explained that despite the fact that the law regarding the duty to inform was potentially unclear, it was plausible for the panel’s majority to find that the undisclosed risks ArcelorMittal identified were insufficiently important to warrant disclosure and that the only facts Metso had to disclose were those regarding whether the mill could meet contractual design criteria and fulfill ArcelorMittal’s expectations under the contract. As such, the court confirmed the award in favor of Mesto.

Metso Minerals Canada, Inc. v. ArcelorMittal Exploitation Miniere Canada, No. 1:19-cv-03379 (S.D.N.Y. Nov. 4, 2019).

New York Appellate Division Declines to Enjoin Baltimore Orioles’ Arbitration Against Washington Nationals

by

Two professional baseball teams — the Washington Nationals and the Baltimore Orioles — were parties to a partnership agreement granting exclusive broadcast rights to their baseball games to a third entity. The agreement had a multistep dispute resolution process. After an unsuccessful mediation, the parties were required to arbitrate before the commissioner of Major League Baseball, unless MLB had an ownership or financial interest in one of the parties to the dispute when it arose. In that event, any dispute was required to be arbitrated before the American Arbitration Association (AAA), pursuant to AAA rules.

The question on appeal was whether the MLB commissioner, the AAA, or a court should decide the gateway issue of whether MLB had a financial interest at the time the dispute arose between the parties. The Appellate Division, First Department, acknowledged that AAA rules were expressly incorporated in the relevant agreement by reference. Under AAA rules, threshold arbitrability questions are clearly and unmistakably delegated to the arbitrator. For this reason, the court held that it possessed “no power” to override the arbitration agreement between the parties. It also emphasized that the arbitration clause here broadly encompassed “any dispute” and expressly stated that if MLB has a potential interest in a dispute, AAA rules shall apply, notwithstanding any powers MLB may ordinarily grant the commissioner in the dispute resolution process. The court therefore vacated an interim stay of arbitration instituted pending appeal and denied the Nationals’ motion for a preliminary injunction enjoining a AAA proceeding commenced by the Orioles.

In re WN Partner, LLC v. Baltimore Orioles Ltd. P’ship, No. 652052/2019 (N.Y. App. Div. Nov. 19, 2019).

Court Dismisses Reinsurance Litigation in Favor of Prior Pending Action

by

The plaintiffs, U.S. Fire Insurance Co. and North River Insurance Co., issued 12 umbrella and excess umbrella liability policies for a combined coverage of $244 million to a manufacturer of respiratory protection equipment and asbestos-containing personal protective products. The plaintiffs subsequently entered into reinsurance contracts that covered the 12 policies. Beginning in March 2017, the plaintiffs billed the reinsurers for amounts they claimed were due under the reinsurance contracts as a result of the plaintiffs’ payments for settling liability under the umbrella policies.

When certain reinsurers refused to pay a portion of the reinsurance billings, the plaintiffs brought this lawsuit in the District of New Hampshire, alleging breach of several of the reinsurance contracts and seeking a declaratory judgment arising out of the reinsurers’ refusal to pay certain billings. However, less than an hour before the plaintiffs initiated the lawsuit, the plaintiffs’ reinsurers (mostly the same reinsurers in the initial action, as well as additional reinsurers) sued the plaintiffs in a New Jersey court. There, the reinsurers alleged that they had made payments to the plaintiffs pursuant to the reinsurance contracts under a reservation of rights and sought reimbursement of those amounts. The reinsurers then moved to dismiss or stay the New Hampshire case, arguing, inter alia, that the court should defer to the New Jersey action pursuant to the prior-pending-action doctrine or the related first-filed doctrine. While this motion was pending, the reinsurers filed a notice of an order issued in the New Jersey action denying U.S. Fire and North River’s motion to dismiss or stay on comity, forum non conveniens, and other grounds.

The New Hampshire court granted the reinsurers’ motion to dismiss. The court based its ruling on the prior-pending-action doctrine, which holds that the pendency of a prior action, in a court of competent jurisdiction, between the same parties, predicated upon the same cause of action and growing out of the same transaction, and in which identical relief is sought, constitutes a good ground for abatement of the later suit. The court cited to the interests of judicial efficiency and avoiding inconsistent judgments. The court found that the New Jersey action involved the same issues presented in this case: “the various reinsurers’ obligations to provide payments to plaintiffs under the Reinsurance Contracts.” The court explained: “As the [reinsurers] seek not only the return of payments they previously made to North River, but also a declaratory judgment as to the parties’ respective rights and obligations under the Reinsurance Contracts, the controlling issues in this litigation will be determined in the New Jersey Action.” The court further found that U.S. Fire and North River already moved to dismiss the New Jersey action, and the court in that case denied the motion and made several rulings that directly impacted the arguments raised by the parties in the New Hampshire case. The court concluded that “principles of comity and the convenience of the parties and witnesses weigh in favor of dismissal of this case in favor of the New Jersey Action.”

U.S. Fire Insurance Co. v. Equitas Ins. Ltd., No. 1:18-cv-01205 (D.N.H. Oct. 24, 2019).

Court Denies Motion to Set Aside Confirmation of Arbitration Award, Rejecting Arguments of Excusable Neglect, Manifest Disregard of the Law, and Exceeding Powers

by

The case involved a dispute over an automobile equipment supply contract. The parties’ disagreement was arbitrated, and the prevailing party filed in federal court for confirmation of the award. The supplier, after losing the arbitration, failed to timely respond to the petition for confirmation due to the unexpected death of the husband of the firm’s paralegal. The death “caused unexpected disruptions in the paralegal and legal assistant’s schedules, leading to the [supplier’s] inadvertent failure to meet the award confirmation response deadline.”

The court noted that “the Sixth Circuit has considered excusable neglect in different contexts and repeatedly underscored that it is a difficult standard to satisfy.” The standard is so high that it is “met only in extraordinary cases.” In this case, the court found that the supplier acted in good faith but held that all three of the other factors weighed against a finding of excusable neglect. “Respondent must demonstrate more than just good faith to establish excusable neglect, and it has not done so here.”

Although the court had already determined the supplier had not met the standard to set aside the judgment for excusable neglect, it nevertheless went on to consider the grounds the supplier advanced for vacation of the arbitration award. The court rejected the supplier’s argument that the arbitrator manifestly disregarded the law by, among other things, failing to apply the Uniform Commercial Code and prohibiting the introduction of parol evidence allegedly showing that the supplier did not anticipatorily breach the contract at issue. The court found that the “arbitrator made clear that the contract was unambiguous and fully integrated as written, eliminating the need for parol evidence under the UCC.” The court also rejected the supplier’s argument that the arbitrator exceeded his powers when the arbitrator found that the supplier did not meet the standard to allege fraudulent misrepresentations outside the contract. The court explained that the arbitrator cited the exact case upon which the respondent was relying before the arbitrator had made his ruling. The court further found no basis for the supplier’s argument that “the award [was] not well-reasoned.”

Thyssenkrupp Presta Danville, LLC v. TFW Indus. Supply & CNC Machine, LLC, No. 2:19-mc-50863 (E.D. Mich. Oct. 31, 2019).