Reinsurance Focus

Various BCBS healthcare plans and BCS Insurance Company became engaged in a coverage dispute pertaining to certain professional liability coverage issued by BCS to member plan administrators. As per applicable contracts containing arbitration provisions, the parties each named arbitrators. According to the contracts’ governing procedure, when those two arbitrators failed to reach agreement, some of the health plans brought an action in Illinois federal court seeking appointment of a neutral third arbitrator. In the course of that proceeding, BCS cross-moved for an order to compel individual arbitration, rather than class arbitration, which it styled as a motion to compel non-consolidated arbitration. The court ruled first on BCS’s cross-motion, finding that decision on that issue should be made by the arbitrator(s), not the court. BCS immediately appealed that decision. The court, finding BCS’s appeal an improper interlocutory appeal, thereafter appointed the neutral third arbitrator as requested by the plans and ordered the parties to continue the arbitration with the panel so constituted. BCS appealed that order as well, arguing that its previous interlocutory appeal deprived the district court of jurisdiction to enter its order. The Seventh Circuit held that the first appeal was an improper attempt to circumvent proper arbitration procedure under the FAA, and dismissed it as interlocutory. It then held that the dismissal of the first appeal mooted the basis for the second appeal, since the trial court had jurisdiction to enter its order appointing an arbitrator. Blue Cross Blue Shield of Massachusetts, Inc. v. BCS Ins. Co., Nos. 11-2343 & 11-2757 (7th Cir. Dec. 16, 2011)

This post written by John Pitblado.

See our disclaimer.

Petitioners filed a motion to confirm an arbitrator’s decision that an arbitration could be conducted on a class-wide basis and a further order granting class certification. The court denied the request on ripeness grounds, finding that it was premature. The court explained that governing case law permits confirmation of non-final orders only in limited circumstances, such as where the failure to grant review would cause hardship to a party. Petitioner’s stated hardship—that one defendant (of many) was seeking declaratory relief from another federal district court that the arbitration agreements did not permit class arbitration—was insufficient because the referenced case was first-filed and, furthermore, only involved one of many defendants. Pryor v. Overseas Admin. Servs., Ltd., et al., Case No. 10-01930 (USDC N.D. Cal. Dec. 7, 2011).

This post written by Ben Seessel.

See our disclaimer.

In a dispute concerning approximately $250 million in coverage obligations under two reinsurance policies issued by National Indemnity Company (“NICO”), IRB-Brasil Resseguros, S.A. (“IRB”) filed a motion to prohibit NICO from changing its party-appointed arbitrator two-years after appointment, and to stay the second of two pending arbitrations until the arbitrators in the first proceeding decided IRB’s motion to consolidate. The federal district court denied IRB’s request to bar NICO from replacing its appointed arbitrator, reasoning that a party is entitled to an arbitrator of its choice to act as a “de facto advocate for its position” and, furthermore, that, notwithstanding the passage of two-years, no action had been taken in the arbitration because a panel had never been fully constituted. The court granted the motion to stay that later-filed arbitration pending the arbitrators’ decision on the motion to consolidate. The court also denied a motion by NICO to disqualify IRB’s neutral umpire candidate due to alleged impartiality, finding that such challenges cannot be brought under the FAA until after an award is rendered. IRB-Brasil Resseguros, S.A. v. National Indem. Co., Case No. 11-1965 (USDC S.D.N.Y. Nov. 29, 2011).

This post written by Ben Seessel.

See our disclaimer.

The Fourth Circuit Court of Appeals confirmed an arbitration award certifying a nationwide class of plaintiffs alleging violations of Maryland’s Consumer Protection Act. The underlying dispute concerns a debt management program run by defendants. The arbitrator held that Maryland’s consumer protection law could be applied to a nationwide class of plaintiffs based on a choice of law provision in the parties’ debt management agreements. The arbitrator reached this conclusion notwithstanding that no plaintiff resided in Maryland and the Maryland consumer protection law extends only to Maryland residents. The district court confirmed the award. The Fourth Circuit affirmed, holding that the arbitrator did not exceed his powers in construing the choice of law provision in the parties’ contracts to determine that the Maryland consumer protection law applied. The court also held that the arbitrator did not manifestly disregard the law in finding that the Maryland residency requirement did not apply based on the language of the choice of law provision in the parties’ contracts. Amerix Corp. v. Jones, No. 09-2174 (4th Cir. Dec. 9, 2011).

This post written by Ben Seessel.

See our disclaimer.

A federal district court denied Insco’s motion for reconsideration of the court’s order disqualifying Insco’s counsel from further representing it in a pending arbitration because the law firm had improperly procured intra-panel emails from Insco’s appointed arbitrator. On November 1, 2011, we reported that the court had disqualified Insco’s counsel, and, on November 11, 2011, we conveyed that the court had denied Insco’s request to submit a declaration by one of its attorneys in support of its motion for reconsideration. In its order denying the motion for reconsideration, the court reiterated its conclusions that counsel acted inappropriately in obtaining the emails and that the disclosure of the emails tainted the underlying proceedings. Northwestern Nat’l Ins. Co. v. Insco, Ltd., Case No. 11 Civ. 1124 (USDC S.D.N.Y. Nov. 15, 2011), Insco filed a notice of appeal and a motion to stay pending appeal. The district court has entered a rather extensive Order which acknowledges that the disqualification would prejudice Insco but defends its prior decisions and denies the motion to stay, meaning that the arbitration should proceed during the appeal with new counsel for Insco. Northwestern Nat’l Ins. Co. v. Insco, Ltd., Case No. 11 Civ. 1124 (USDC S.D.N.Y. Dec. 6, 2011),

This post written by Ben Seessel.

See our disclaimer.

In what was a putative class action, a federal court recently applied the U.S. Supreme Court’s Concepcion decision and compelled arbitration on an individual basis, despite the potential prohibitive costs of asserting claims individually. A putative consumer class action was brought against AT&T Mobility by a plaintiff who had agreed to arbitrate disputes only on an individual basis – and not as a class action. The plaintiff initially prevailed in avoiding arbitration, relying on California law. Prior to class certification, however, the U.S. Supreme Court decided the Concepcion case, which held the FAA preempts state laws that preclude class action waivers. Arguing that Concepcion conflicts with the court’s initial decision in this case, AT&T renewed its motion to compel arbitration. The court granted AT&T’s motion, rejecting plaintiff’s argument that Concepcion should only be applied where arbitration on an individual basis would be cost effective, i.e., where the plaintiff had substantial individual claims. The court was not persuaded by the plaintiff’s citation to an earlier Supreme Court ruling and a Second Circuit decision predating Concepcion, and noted that plaintiff’s position that a court should conduct a case-by-case cost-benefit analysis was “unworkable.” Kaltwasser v. AT&T Mobility LLC, Case No. 5:07-cv-00411 (N.D. Cal. Sept. 20, 2011).

This post written by Michael Wolgin.

See our disclaimer.

Trustmark Insurance Company challenged in court the impartiality of John Hancock Life Insurance Company’s party-selected arbitrator. As we have reported at each stage, Trustmark’s challenge lost at the district court, lost in the Seventh Circuit, and was denied review by the U.S. Supreme Court. Trustmark then filed a second amended complaint, in an attempt to avoid the issues it lost on appeal, including new fraud allegations. Trustmark also brought a Rule 60(b)(3) motion for relief from the court’s original order, based on alleged fraud by the opposing party. The court dismissed the new claims in the second amended complaint and denied the 60(b)(3) motion, finding it time-barred. Trustmark Ins. Co. v. John Hancock Life Ins. Co., No. 1:09-cv-03959 (USDC N.D. Ill. Nov. 15, 2011).

This post written by John Pitblado.

See our disclaimer.

Arbitration can proceed more quickly and efficiently if one pays appropriate attention to the arbitration process in drafting reinsurance agreements. Tony Cicchetti continues his series of Treaty Tips with advice on how to avoid unnecessary litigation through better agreement drafting, in Nailing Down the Arbitration Process.

This post written by Anthony Cicchetti.

See our disclaimer.

In a shareholder dispute over the alleged improper termination of a company president, a court recently compelled arbitration of issues central to the case, but retained jurisdiction over a collateral issue related to ownership of corporate shares. The underlying shareholder agreement provided that all parties agreed to arbitrate “any controversy relating to [the] Agreement.” The court held that “all issues and claims raised in the plaintiffs’ complaint, relating to defendant’s performance of his duties as president and his alleged breaches of duty to plaintiffs” related to the shareholder agreement and therefore should be referred to arbitration. With respect to an ancillary dispute as to the status of the company shares of a former shareholder who left the United States, the court decided to retain jurisdiction in “the interests of justice and judicial economy.” The court explained that matters relating to the ownership dispute were collateral to the termination dispute, and that at least one pending issue would continue to involve the court “even were the question of share ownership referred to arbitration.” Boz Export & Import, Inc. v. Karakus, Case No. 8738/11 (N.Y. Sup. Ct. Sept. 15, 2011).

This post written by Michael Wolgin.

See our disclaimer.

Homeland Insurance Company recently appealed to the Fifth Circuit Court of Appeals a district court’s remand of a class action to Louisiana state court. The action arose when a medical doctor brought a putative class action in Louisiana state court on behalf of Louisiana medical providers against a number of Louisiana and non-Louisiana PPO providers. One defendant agreed to settle, but before the settlement was approved, another defendant removed to federal court under CAFA. The settling defendant moved for (and was granted) remand to state court based on the local controversy exception to the Class Action Fairness Act. Subsequently, another of the defendants (Homeland Insurance) filed the instant motion to appeal the remand.

The Court of Appeals affirmed the remand order under the local controversy exception, finding that (a) at least two-thirds of the class (business entities incorporated in the state) are Louisiana citizens; (b) at least one of the defendants was a “local” defendant; (c) the principal injuries occurred in Louisiana, and (d) no other class action has been filed alleging similar facts against any of the defendants in the prior three years. Two key facts are important to consider. First, the Court of Appeals noted that even inactive corporations are still citizens of the state in which they were incorporated. Second, class arbitration does not count as a class action for purposes of the CAFA local controversy exception. Williams v. Homeland Ins. Co. of New York, No. 11-30646 (5th Cir. Sept. 19, 2011).

This post written by John Black.

See our disclaimer.