Reinsurance Focus

On appeal, a circuit court’s denial of a motion to compel arbitration was reversed for several reasons. First, the circuit court erred by allowing submission of parol evidence after determining that language in the arbitration agreement requiring the parties to select their arbitrators from a “nationally recognized arbitration association” was unambiguous. Second, the circuit court erred by finding the arbitration agreement to be invalid based on the argument that the contractually designated nationally recognized arbitration association would not take on the pre-dispute arbitration agreement case and the arbitration agreement was therefore impossible to perform. The appellate court found the impossibility argument to be without merit since the FAA authorizes a court to appoint arbitrators when the parties fail to name them, making arbitration possible even in the event that a designated forum will not take the case. Spring Lake NC, LLC v. Figueroa, No. 2D12-1202 (Fla. Dist. Ct. App. Dec. 14, 2012).

This post written by Abigail Kortz.

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A pro se attorney sued his former clients, Argentina’s economic ministry and a reinsurance company owned by the Argentine government, for malicious prosecution based on the Argentine government’s criminal prosecution of the attorney for allegedly exorbitant fees. In the malicious prosecution action, the Southern District of New York decided it could not exercise subject matter jurisdiction over the defendants because none of the exceptions to sovereign immunity provided by the Foreign Sovereign Immunities Act applied. Although the court acknowledged that defendants’ retention of the attorney in connection with commercial matters qualified as commercial activity, it determined that the commercial activity exception did not apply because the activity in question was the government initiated criminal prosecution. The court also concluded that defendants’ prior consent to arbitrate the issue of alleged overbilling by the plaintiff was not an “unmistakable or unambiguous waiver” of immunity from the separate tort action of malicious prosecution. Moreira v. Ministerio de Economia y Produccion de la Republica Argentina, Case No. 10 Civ. 266 (LTS)(KNF) (S.D.N.Y. Dec. 7, 2012).

This post written by Abigail Kortz.

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Recently, the Second Circuit definitively held that federal common law, not state law, provides the meaning of “arbitration” under the Federal Arbitration Act. In the case, Bakoss and Lloyds entered into a disability insurance certificate which constituted a contract. The contract provided that each party would select its own physician to determine whether the insured was totally disabled and, in the case, the two physicians disagreed; a third physician chosen by the two would make a binding determination as to disability. After coverage was denied, Bakoss filed suit in state court. Lloyds removed the case asserting federal jurisdiction under the FAA and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which, unlike the FAA, provides an independent basis for federal jurisdiction.

The trial court looked to federal case law in determining that the dispute resolution provision regarding total disability constituted an arbitration agreement and thus held that it had jurisdiction to adjudicate the dispute over coverage under the Convention and FAA. The trial court also granted summary judgment on the merits to Lloyds. Bakoss appealed, arguing that the dispute resolution procedure was not an arbitration agreement under state law. The Second Circuit affirmed, holding that “arbitration” under the FAA is defined by federal common law; it also affirmed the grant of summary judgment to Lloyds on the merits. As discussed in the opinion, some federal courts of appeal have held that state law supplies the definition of “arbitration” and others apply federal law. Bakoss v. Certain Underwriters at Lloyds of London, No. 11-4371 (2d. Cir. Jan. 23, 2013).

This post written by Ben Seessel.

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Recent decisions on arbitration process issues:

Motion to Compel Arbitration Appeals

Saleemi v. Doctor’s Associates, Inc., No. 87062-4 (Wash. Jan. 17, 2013) (affirming trial court’s order compelling arbitration in Washington, notwithstanding forum selection clause providing for Connecticut arbitration; appellant failed to seek discretionary appeal, and instant appeal, which came after the arbitration award, required appellant to show prejudice; distinguishing Concepcion in cases not dealing with class arbitration waivers)

13 Parcels v. Laquer, No. 3D12-608 (Fla. Ct. App. Dec. 26, 2012) (reversing denial of motion to compel arbitration; appellants did not waive arbitration, notwithstanding limited motion practice in underlying action and in a prior litigation between the parties)

Marsden v. Blue Cross & Blue Shield of Montana, Inc., No. DA 12-0341 (Mont. Dec. 28, 2012) (affirming granting of motion to compel arbitration; where disputed employment agreement provided for arbitration of “any dispute” arising therefrom, issue for arbitration whether agreement was valid in the first instance)

Agency/Estoppel

James T. Scatuorchio Racing Stable, LLC v. Walmac Stud Management, LLC, Case No. 5:11-cv-00374 (USDC E.D. Ky. Jan. 2, 2013) (denying motion to dismiss where only one out of multiple agreements between parties contained arbitration clause, and only a portion of the claims would thus be submitted to arbitration; certain non-signatories to arbitration agreement who undertook burdens and received benefits under the agreement were bound to arbitrate under estoppel; one-sided arbitration clause not unconscionable where parties at time of contract were represented by counsel)

East Texas Medical Center Regional Healthcare System v. Slack, Case No. 2:12-cv-00307 (USDC E.D. Tex. Jan. 3, 2013) (denying motions to compel arbitration; corporate non-signatory not bound to arbitrate under agency theory merely based on corporate relationship; denying stay of litigation with non-signatory where claims subject to arbitration were not “inherently inseparable” from claims subject to litigation)

This post written by Michael Wolgin.

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In a dispute between two insurance companies and their reinsurer over appointment of an umpire or third party arbitrator in an arbitration proceeding required by their reinsurance treaties, the New York Supreme Court crafted a new approach for appointing the umpire or third arbitrator. The approach blends the “ranking” method and the “strike and draw” method to require each party’s chosen arbitrator to nominate 5 candidates, strike 3 candidates from the other party’s list, and rank the remaining candidates. The candidate with the highest cumulative rating becomes the umpire or third arbitrator, and in the event of a tie between the highest ranking candidates, a coin toss decides the winner. The court also allowed for the appointment of an umpire at the outset of the arbitral proceedings, concluding that the language in one of the treaties requiring the two chosen arbitrators to select an umpire “in the event of the arbitrators failing to agree” does not create a condition precedent to appointment of the umpire. American Home Assurance Co. v. Clearwater Insurance Co., No. 653079/2012 (N.Y. Sup. Ct. Jan. 15, 2013).

This post written by Abigail Kortz.

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The Washington Supreme Court affirmed the denial of a motion to compel arbitration in an insurance dispute, based on a state statute that prohibits insurance contracts from “depriving the courts of [Washington] of the jurisdiction of action against the insurer.” The court analyzed the legislative history of the statute and state court precedent to find that the statute is more than a forum selection provision, but is a requirement for insurance disputes to be litigated in court. The court rejected the argument that a court’s ability to confirm an arbitration award constitutes “jurisdiction of action,” holding that a court’s power to confirm an award reflects only “limited” jurisdiction. The court further held that the state law regulated the “business of insurance” under the McCarran-Ferguson Act, so as to reverse preempt the FAA and preclude any application of Concepcion to this case. This result is similar to that in states which have a statute prohibiting arbitration provisions in certain insurance contracts. Washington Department of Transportation v. James River Insurance Co., Case No. 87644-4 (Wash. Jan. 17, 2013).

This post written by Michael Wolgin.

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Plaintiff USA Chiropractic commenced arbitration proceedings against PIP carrier NJ Re-Insurance Co., seeking coverage under an assignment of rights for medical treatment provided to NJ-Re’s insured. The arbitrator entered an award dismissing the claim, holding that USA Chiropractic lacked standing because it had not complied with the insurer’s appeals process before demanding arbitration. USA Chiropractic sought vacatur and also sued arbitration tribunal NAF in state court, arguing that the arbitrator had misapplied the law. The court denied plaintiff’s claims, holding that USA Chiropractic lacked standing for failure to follow NJ-Re’s pre-arbitration appeals process and, further, that NAF was immune from suit. The appellate court affirmed, finding that the trial court did not exceed its authority in denying USA Chiropractic’s request to set aside the award and that it was thus unnecessary to reach plaintiff’s appeal regarding whether NAF was an indispensable party to the litigation. USA Chiropractic v. NJ Re-Insurance Co., No. A-3108-11T1 (N.J. Ct. App. Dec. 14, 2012).

This post written by Ben Seessel.

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Plaintiff Southwestern Electric Power Company brought suit in Louisiana state court against a number of its insurers, seeking indemnity for damaged heat steam generators. The defendant insurers removed the case to federal court pursuant to the Convention on Recognition and Enforcement of Foreign Arbitral Awards. Plaintiff moved to remand, arguing that the defendants waived their right to removal (1) by written waiver from defense counsel; and (2) by litigating in state court (a motion to stay and compel arbitration was also pending). The court disagreed and denied the remand, noting (1) the purported written waiver was not unequivocal and unambiguous; and (2) the Convention allows removal any time before trial, thus contemplating the possibility of state court litigation before removal. Southwestern Electric Power Co. v. Certain Underwriters at Lloyds, Case No. 12-2065 (USDC W.D. La. Nov. 19, 2012).

This post written by John Pitblado.

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Two recent opinions illustrate the need to assess jurisdiction when proceeding in arbitration-related matters. The Seventh Circuit Court of Appeals recently held that it did not have appellate jurisdiction over an arbitration dispute involving a collective bargaining agreement for interstate truckers. Since appellate jurisdiction was predicted on a jurisdictional grant in the Federal Arbitration Act, 9 U.S.C. §16(a)(1), and 9 U.S.C. §1 exempts from the FAA’s scope employment agreements involving interstate commerce, the court found, after a remand for fact finding, that it did not have jurisdiction under 9 U.S.C. §16 because the dispute involved truckers working in interstate commerce, and dismissed the appeal for lack of jurisdiction. International Brotherhood of Teamsters Local Union No. 50 v. Kienstra Precast LLC, No. 11-2097 (7th Cir. Dec. 13, 2012).

Of perhaps more interest to reinsurance practitioners, one party in a reinsurance arbitration filed an action in United States district court in Wisconsin seeking a declaration that the law firm representing the opposing party could not represent the opposing party in an arbitration pending in New York due to a conflict of interest. Jurisdiction was predicated on diversity of citizenship and amount in controversy. The court raised a question of subject matter jurisdiction on its own, and determined that the amount in controversy was not measured by the amount in dispute in the arbitration, but rather by the cost of replacing counsel, and that there was no good faith basis for believing that the cost of replacing counsel would satisfy the jurisdictional requirement of $75,000. The court therefore remanded the case to state court on its own motion. National Casualty Co. v. Utica Mutual Insurance Company, Case No. 12-657 (USDC WD Wis. Dec. 12, 2012).

This post written by Rollie Goss.

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In a recent opinion, the Fourth Circuit reversed a district court order denying a motion to compel non-class arbitration. The district court applied Maryland arbitration law and concluded that the party moving to compel arbitration waived its right to enforce arbitration because the moving party (1) waited six months from the date the complaint was filed to file a motion to compel arbitration, (2) participated in some discovery, and (3) made a strategic decision to delay seeking arbitration until the law regarding whether it would be forced into class arbitration was more certain (that certainty was provided by the Supreme Court in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. __, 130 S. Ct. 1758 (2010)). The Fourth Circuit determined that the FAA, rather than Maryland law, applied and provides for more limited circumstances that give rise to a waiver of the right to compel arbitration. The only relevant factors under the FAA are the amount of delay and the extent of the moving party’s trial oriented activity, not the moving party’s reason for delay. Applying these factors, the Fourth Circuit found that the non-moving party was not prejudiced by the six month delay or the moving party’s minimal participation in litigation, focusing on the fact that the moving party did not file any dispositive motions. Rota-McLarty v. Santander Consumer USA, Inc., No. 11-1597 (4th Cir. Nov. 28, 2012).

This post written by Abigail Kortz.

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