Reinsurance Focus

Titan Maritime appealed a district court’s decision denying its motion to compel arbitration in an action filed by Cape Flattery Limited for gross negligence in the salvage of a vessel owned by Cape Flattery. Titan argued that the district court erred in refusing to apply English arbitrability law and that, even under federal arbitrability law, the dispute should go to arbitration. The Ninth Circuit Court of Appeal affirmed the district court’s denial of the motion to compel arbitration, noting specifically that under the Supreme Court’s reasoning in First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), non-federal arbitrability law should apply only if there is clear and unmistakable evidence that the parties intended to apply such non-federal law. Accordingly, the Ninth Circuit held that federal arbitrability law did apply and that under federal law, the dispute was not arbitrable. Cape Flattery Limited v. Titan Maritime, LLC, No. 09-15682 (9th Cir. July 26, 2011).

This post written by John Black.

The Fifth Circuit held that two agents and officers of Beacon Maritime, Inc. were not bound to arbitrate claims against Aban Offshore Limited because, although one officer had signed a contract containing an arbitration clause in his capacity as an officer of the company, neither had signed the agreement in his individual capacity. The court reversed a trial court decision compelling the individual officers to arbitrate. Among other authorities, the Fifth Circuit relied on the Restatement (Third) of Agency, which provides that when an agent contracts with another on behalf of a disclosed principal, the agent and the third party become parties to the contract, but the agent does not become a party to the agreement unless the agent and third party agree otherwise. The court also cited state and federal case law holding that nonparties resisting arbitration demands are not be bound by arbitration agreements. Guy Covington v. Aban Offshore Ltd., No. 10-40449 (5th Cir. Aug. 10, 2011).

This post written by Ben Seessel.

The Third Circuit reversed a prior decision and held that, under the Supreme Court’s ruling in AT&T Mobility v. Concepcion, a New Jersey law providing that class arbitration waivers in consumer adhesion contracts are unconscionable is preempted by the Federal Arbitration Act. As we reported earlier on June 1, 2010, the Third Circuit had previously vacated a trial court order compelling individual arbitration holding that, under governing New Jersey law, provisions in adhesion contracts precluding class arbitrations are unconscionable and thus unenforceable. The defendant, Cellco Partnership, d/b/a Verizon Wireless, successfully petitioned for a writ of certiorari to the Supreme Court, which vacated the Third Circuit’s decision after deciding in Concepcion that a similar California law was preempted by the FAA. On remand, the Third Circuit reversed its prior decision and affirmed the trial court’s order compelling individual arbitration of the plaintiffs’ claims. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. June 6, 2011).

This post written by Ben Seessel.

Parties have been ordered to pick proper arbitrators in a reinsurance dispute. Safety National sued Lloyd’s over a dispute pertaining to the parties’ reinsurance agreements covering certain of Safety National’s underlying workers compensation liabilities. A stay was entered to allow the parties to arbitrate. After six months of wrangling over the naming of arbitrators, Lloyd’s moved to lift the stay for the limited purpose of having the court issue an order requiring that the parties select only arbitrators with workers compensation reinsurance experience, as Lloyd’s contended the contracts required – a position which Safety National contested. Citing the policy embodied in the FAA’s provisions authorizing court involvement in the selection of arbitrators to facilitate efficient arbitration, the court ruled for Lloyd’s. It lifted the stay and ordered that the parties select arbitrators with requisite workers compensation reinsurance experience. Safety National Cas. Corp. v. Certain Underwriters at Lloyd’s, London, NO. 02-cv-1146 (USDC M.D. La. Aug. 16, 2011).

This post written by John Pitblado.

Citing the treaty’s honorable engagement clause, a federal district court denied a group of reinsurers’ motion to vacate an arbitration award in which the arbitrators had fashioned a remedy requiring prompt payment of all disputed and undisputed claims. Certain London market reinsurers had entered into a reinsurance treaty with Century Indemnity Company that indemnified Century for certain liabilities arising out of asbestos litigation. The agreement did not contain a “Reports and Remittances” clause dictating when claims should be paid, but provided that the “liability of the Reinsurers shall follow that of the Company in every case.” The treaty also included an “honorable engagement” clause, directing the arbitrators to interpret the agreement to effect its general purpose.

Facing significant losses due to a flood of asbestos litigation, the reinsurers imposed a program in which Century would have to meet documentation requirements before claims were paid. When payments became delayed, Century initiated arbitration. The arbitrators issued an interim order requiring the reinsurers to promptly pay 100% of all undisputed claims and 75% of any disputed claims, finding that arrangement would effectuate the general purpose of the parties’ agreement. After several years of paying claims pursuant to this arrangement, the reinsurers moved to vacate the award when the arbitrators, who had retained jurisdiction over the matter, made the award final. Citing the “honorable engagement” clause, the court denied the motion to vacate and confirmed the award, holding that the arbitrators had the power to fashion the remedy even though it included obligations not explicitly bargained for by the parties. Harper Insurance Ltd. v. Century Indemnity Co., Case No. 10 Civ. 7866 (USDC S.D.N.Y. July 28, 2011).

This post written by Ben Seessel.

Timeliness:

Ohio Farmers Insurance Co. v. City of Akron, Case Nos. 25642, 25725 (Ohio Ct. App. July 20, 2011) (affirming confirmation of award; panel properly found “good cause” for delay in seeking confirmation; rule providing one year to seek confirmation deemed not a statute of limitations).

Partiality:

Grego v. Nexagen USA LLC, Case No. 10-02691 (USDC N.D. Ohio July 15, 2011) (confirming award; denying motion to vacate; allegedly unfair amount of briefing opportunities was a “far cry” from “evident partiality”).

Authenticity of Agreement:

Klima v. Evangelical Lutheran Good Samaritan Society, Case No. 10-01390 (USDC D. Kan. June 21, 2011) (denying motion to dismiss or compel arbitration; ordering trial to determine authenticity of signature on arbitration agreement).

Scope of Agreement:

Adol Owen-Williams v. BB&T Investment Services, Inc., Case No. 06-00948 (USDC D.D.C. July 18, 2011) (denying reconsideration of order confirming award; noting “manifest disregard” is unsettled law in D.C. Circuit);

McGowan Working Partners, Inc. v. Eland Energy, Inc., Case No. 10-02472 (USDC N.D. Tex. July 6, 2011) (confirming award; denying motion to vacate; noting “manifest disregard” no longer viable in Fifth Circuit; panel did not exceed authority for determining issues outside scope of arbitration agreement);

Pocono Medical Center v. SEIU Healthcare Pennsylvania CTW, CLC, Case No. 10-01334 (USDC M.D. Pa. July 14, 2011) (granting SEIU’s motion for summary judgment; award drew essence from collective bargaining agreement; employee wrongly terminated without “just cause”; upholding challenge to application of corporate policy).

Standard of Review:

Roofers Local No. 30 Combined Pension Fund v. D.A. Nolt, Inc., Case Nos. 10-3753, 10-3854 (3d Cir. July 22, 2011) (affirming confirmation of award; de novo standard of review for arbitrator’s legal conclusions; where a court’s “denial of a motion to reconsider is based upon the interpretation of legal precepts” the review of the court’s decision is plenary)

FINRA Awards:

Ruggiero v. Richert, Case No. 10-23539 (USDC S.D. Fla. July 18, 2011) (granting motion for summary judgment; denying petition to vacate FINRA award and sanctions; panel was entitled to schedule hearing and require telephonic attendance, notwithstanding petitioner’s travel schedule);

Aviles v. Charles Schwab & Co., Case No. 10-12216 (11th Cir. July 20, 2011) (affirming confirmation of FINRA award and denial of motion to vacate; noting “manifest disregard” law no longer viable in Eleventh Circuit; no evident partiality);

Mid-Ohio Securities Corp. v. Estate of Burns, Case No. 10-01975 (USDC D. Nev. June 14, 2011) (confirming FINRA award; denying motion to vacate; finding no manifest disregard; panel had authority to interpret FINRA rule relating to timeliness of arbitration, akin to statute of limitations; no record of plaintiff citing law to panel);

Bayme v. Groupargent Securities, LLC, Case No. 10-06213 (USDC S.D.N.Y. July 19, 2011) (denying petition to vacate FINRA award; finding no “manifest disregard” for determination that panel lacked jurisdiction based on finding that petitioner was employed by non-FINRA member);

Kulchinsky v. Ameriprise Financial, Case No. 11-00319 (USDC E.D. Pa. July 13, 2011) (confirming FINRA award; denying motion to vacate; noting validity of “manifest disregard” law still undetermined in Third Circuit; no manifest disregard where no evidence that party informed panel of law).

This post written by Michael Wolgin.

A court has recently compelled arbitration in a pending putative class action lawsuit, based on the U.S. Supreme Court’s AT&T Mobility LLC v. Concepcion decision. The case involved a class action suit against title insurers for alleged price fixing. After the case had proceeded “for some time,” Concepcion was decided, which held that (1) the FAA preempts various state laws that invalidate arbitration agreements and that (2) courts must compel arbitration even in the absence of the opportunity for plaintiffs to bring their claims as a class action. The defendants then moved to compel arbitration. Plaintiffs resisted, arguing that the holding of Concepcion was limited to arbitration agreements that contained an express waiver of class treatment (the agreements in this case were silent on class issues). Plaintiffs contended that defendants had never been barred from seeking class arbitration previously, and had thus waived their right to seek arbitration at that late-stage of the litigation. The court disagreed and compelled arbitration, holding that a demand for class arbitration would have been futile prior to Concepcion due to the Supreme Court’s Stolt-Nielsen decision, which precluded class arbitration unless there was “a contractual basis for concluding that the party agreed to do so.” There may be further decisions sorting out the interplay between these two Supreme Court decisions. In re California Title Insurance Antitrust Litigation, Case No. 08-01341 (USDC N.D. Cal. June 27, 2011).

This post written by Michael Wolgin.

The Fourth Circuit Court of Appeal recently issued its decision concerning Central West Virginia Energy’s consolidated appeal of two judgments affirming an arbitration award handed down by a Charleston, WV arbitration panel in favor of Bayer Cropscience, arising out of actions by two different arbitral panels. The issue was whether the validity of a particular contract should have been decided by a court or the arbitral panels (and if by arbitrators, which ones). Interpreting the recent Stolt-Nielsen decision, the Fourth Circuit upheld the decision of the two district courts and determined that this was a procedural rather than a jurisdictional issue, and as such was subject to decision by the arbitral panels rather than the courts. The Court of Appeal, emphasizing the “highly deferential standard of review due arbitration awards,” upheld the award concluding that the Charleston Panel had not exceeded its powers. Central West Virginia Energy, Inc. v. Bayer Cropscience LP, No. 10-348 (4th Cir. July 14, 2011).

This post written by John Black.

A federal court has ordered party-selected arbitrators to proceed with the umpire selection process “without intermeddling, obstruction, interference, or other direction from the parties or counsel.” Liberty Mutual’s petition claimed counsel for the reinsurer defendants “injected himself” into the umpire selection process, causing unnecessary complication and delay. The reinsurers’ memorandum in opposition claimed that Liberty Mutual’s petition was prematurely filed, and that the selection process had only been shut down by Liberty Mutual’s filing of a petition in court. The main point of contention was whether the reinsurance agreements at issue contained provisions requiring that prospective umpires fill out written questionnaires as part of the selection process. The court’s two-paragraph order avoids any analysis of the issues addressed by counsel, with the apparent implication that the umpire selection issues are to be worked out entirely by the arbitrators. Liberty Mutual Insurance Co. v. Nationwide Mutual Insurance Co., No. 11-10651 (USDC D. Mass. July 6, 2011).

This post written by John Pitblado.

In this Treaty Tip, Tony Cicchetti discusses the significance of “honorable engagement” clauses in reinsurance agreements.

This post written by Tony Cicchetti.