Reinsurance Focus

TIG Insurance Company (“TIG”) sued Arrowood Indemnity Company (“Arrowood”) in federal court for breach of a reinsurance agreement. TIG had settled claims with insured Browning Ferris Industries, Inc., and claimed coverage from Arrowood under a facultative reinsurance contract. The parties dismissed their court case without prejudice, agreeing to arbitrate the dispute. The dispute is described in the lawsuit’s Complaint. TIG Ins. Co. v. Arrowood Indem. Co., Case No. 1:10-cv-00465-SM (U.S.D.C. D.N.H. Dec. 29, 2010)

This post written by Ben Seessel.

A federal judge in Illinois compelled arbitration of a defamation suit brought by an ousted board member against other board members of an LLC formed as a joint venture. The LLC was formed by an operating agreement that included a procedure for the designation of governing board members. Plaintiff, the principal of one of the entities forming the joint venture, was designated to the board, but other board members successfully sought to have him removed for reasons they set forth in writing to other members. Plaintiff sued them for defamation. The defendants moved to compel arbitration, citing the operating agreement’s arbitration provision. While the Plaintiff was not a party to the operating agreement, the court still compelled him to arbitration, as it found him to be an agent of one of the signatory companies, citing agency as one of the “five doctrines through which a non-signatory can be bound by arbitration agreements entered into by others.” The court also found the defamation claims to be within the scope of the arbitration agreement, because it pertained to a disagreement “concerning the management or conduct of the affairs” of the joint venture created by the operating agreement. Denari v. Rist, Case No. 10-2704 (USDC N.D. Ill. Jan. 31, 2011).

This post written by John Pitblado.

What happens when an arbitrator is asked to further arbitrate an alleged fraud committed in a prior arbitration in which the same arbitrator presided? In this Special Focus, John Pitblado examines a recent Seventh Circuit decision holding that knowledge acquired in a prior reinsurance arbitration about an alleged failure to disclose material documents did not render the arbitrator impartial, since an arbitration need not follow the pattern of jury trials.

This post written by John Pitblado.

Western Technology Services initiated an arbitration against Cauchos Industriales under the parties’ licensing and service agreements, and was awarded the preliminary injunction it sought terminating the contracts. Cauchos moved to vacate that award, and Westech moved for sanctions, asserting Cauchos’ motion to vacate was frivolous. Both motions were denied. However, after a final arbitration award in its favor, Westech thereafter sought to confirm the award in court, and also sought attorneys fees for its enforcement action, based alternatively on the FAA, as well as the parties’ contract. The court rejected both arguments, finding that Cauchos’ earlier attempt to vacate the award was not frivolous under the FAA’s standard for obtaining attorneys fees in an enforcement action, and finding that entitlement to attorneys fees under the contract had been considered and rejected by the arbitration panel, which decision was entitled to deference. Western Tech. Svcs. Int’l., Inc. v. Cauchos Industriales, S.A., Case No. 09-1033 (USDC N.D. Tex. Nov. 16, 2010).

This post written by John Pitblado.

A federal appeals court affirmed that Louisiana Stadium & Exposition District and the State of Louisiana (“LSED”) waived their right to arbitration by expressing the intent to litigate a dispute with Merrill Lynch, Pierce Fenner & Smith Inc. (“MLPFS”) concerning auction rate securities. LSED, which owns the Superdome, structured $240 million in municipal debt as auction rate securities to finance repairs after Katrina, based on MLPFS’s allegedly misleading advice. After the auctions failed in 2008, LSED filed lawsuits against MLPFS. Following eleven months of litigation, LSED moved to compel arbitration before FINRA. The appeals court affirmed that LSED had waived its right to arbitration by expressing its intent to litigate, finding that MLPFS would be prejudiced because, among other reasons, it would forfeit procedural victories it had won in litigation, including having the cases consolidated with other auction rate securities actions, and lose the opportunity to file a dispositive motion, which are disfavored in FINRA arbitrations. Louisiana Stadium & Exposition District v. Merrill Lynch, Pierce, Fenner & Smith Inc., No. 10-889 (2d Cir. Nov. 22, 2010).

This post written by Ben Seessel.

In a suit brought by FR 8 Singapore, a Singapore company, to compel arbitration with the alleged alter ego companies of Albacore Maritime, a Marshall Islands corporation, the court denied the defendants’ motion to dismiss for lack of subject matter jurisdiction, and held the choice of law provision in the agreement between FR 8 and Albacore applied to defendants’ motion to dismiss for failure to state a claim. The dispute stemmed from a failed purchase of a ship by Albacore from FR 8. The purchase agreement was signed by Albacore in Greece and FR 8 in Singapore, and provided for English choice of law and dispute resolution in London. When the purchase failed, arbitration commenced between FR 8 and Albacore, but Albacore’s parent companies (alleged alter egos) refused to participate. FR 8 sued in the United States under the FAA and the Convention in the Recognition and Enforcement of Foreign Arbitral Awards, to compel the alter egos’ participation. The defendants argued that the refusal to participate by the alter egos, which were non-signatories to the agreement, did not render FR 8 a “party aggrieved” under the FAA. The court rejected FR 8’s argument, questioning whether the FAA applied to compel non-signatories to arbitrate, but holding that FR 8 was a “party aggrieved” because correspondence between FR 8 and the defendants’ counsel constituted “an unambiguous demand to arbitrate,” with which the alter egos refused to comply. The court also resolved conflicting precedent on whether federal common law or the parties’ choice of law would apply to defendants’ motion to dismiss for failure to state a claim, holding the choice of English law provision would apply. FR 8 Singapore v. Albacore Maritime Inc., Case No. 10 Civ. 1862 (USDC S.D.N.Y. Dec. 14, 2010).

This post written by Michael Wolgin.

Exceeding Arbitrator’s Authority:

Controlotron Corp. v. Siemens Energy & Automation, Inc., Case No. 09 CV 03112 (USDC S.D.N.Y. Dec. 23, 2010) (denying motion to vacate award; granting motion to confirm award; arbitrator did not exceed authority by permitting amendment of claim and failing to make formal “written findings of fact and conclusions”)

Twin City Yellow Taxi, Inc. v. Farm Bureau Mutual Insurance Co., Case No. A10-775 (Minn. Ct. App. Dec. 28, 2010) (affirming denial of motion to vacate award; insufficient evidence that arbitrator exceeded powers; no evidence of evident partiality; defense not raised below is waived)

William Shirk v. Chicago Title Insurance Co., Case No. B222195 (Cal. Ct. App. Dec. 28, 2010) (affirming confirmation of award; award not procured by fraud; arbitrator did not exceed powers by reserving jurisdiction to decide future indemnity claims)

Class Arbitration:

Louisiana Health Service Indemnity Co. v. Gambro A B, Case No. 05-1450 (USDC W.D. La. Dec. 21, 2010) (denying motion to vacate order compelling class arbitration or limit order to only individual claims; distinguishing Stolt-Nielsen because panel applied FAA law rather than “policy choices”)

Imperfect Execution:

Ewers v. Genuine Motor Cars, Inc., Case No. 1:10 CV 1247 (USDC N.D. Ohio Dec. 10, 2010) (confirming award; denying motion to vacate or modify award; arbitrator did not imperfectly execute powers for failure to provide reasons for award that exceeded treble damages; “arbitrators are not required to explain their decisions” and agreement provided that no written opinion should issue; no manifest disregard of the law)

Consent Award:

American Heritage Life Insurance Co. v. Southwest Reinsure Inc., Case No. 3:10-cv-01040 (M.D. Fla. Nov. 23, 2010) (confirming $3,500,000 consent award)

Finality:

Sensordynamics AG Entwicklungs – UND Produktionsgesellschaft v. Memsco, LLC, Case No. 08-56803 (9th Cir. Dec. 29, 2010) (denying petition to confirm foreign arbitration award; award subject to change is not final and generally not appealable)

This post written by Michael Wolgin.

OneBeacon Insurance Company filed a motion to vacate an arbitration award in favor of Swiss Re. OneBeacon argued that the award should be vacated because the arbitrators were guilty of misconduct by refusing to permit necessary discovery and hear certain evidence. The dispute between the parties was governed by a Multiple Line Reinsurance Treaty contract which is an excess loss reinsurance contract containing an arbitration clause. The court denied OneBeacon’s motion to vacate and confirmed Swiss Re’s motion to confirm, finding that the arbitration panel acted reasonably in construing the term “occurrence” under the treaty and that the panel’s discovery and evidentiary decisions were within its discretion. OneBeacon American Insurance Co. v. Swiss Reinsurance Am. Corp., Case No. 09-11495 (USDC D. Mass. Dec. 23, 2010).

This post written by John Black.

In a suit over an energy developer’s alleged failure to pay for energy services, a court has granted a motion to compel arbitration based on an arbitration clause in a contract that was made after the transaction in dispute, and despite the contract’s express application to future transactions between the parties. The court reasoned that, despite the bulk of the agreement’s application to future contingencies and dealings, some of the agreement’s provisions, including the arbitration clause, evidenced a present agreement that would take effect immediately. The court further held that, given that the arbitration clause at issue was a broad one and that federal and Oklahoma policies favor arbitration, the clause would apply “despite the fact that the dealings giving rise to the dispute occurred prior to the execution of the agreement.” Warrior Energy Services Corp. v. Last Run, LLC, Case No. CIV-10-0961 (USDC W.D. Okla. Dec. 1, 2010).

This post written by Michael Wolgin.

The Catholic Bishop of Northern Alaska (CBNA) has been directed to arbitrate an insurance dispute. The CBNA filed for chapter 11 bankruptcy relief as a result of sexual abuse lawsuits against it. In the course of its bankruptcy proceeding, it sought a declaratory judgment as against its insurer, Catholic Mutual Relief Society of America, concerning the scope of coverage for the abuse claims. Catholic Mutual asserted that CBNA’s settlement of the underlying claims was without Catholic Mutual’s consent as required by the policies, and therefore voided the policies, relieving Catholic Mutual of any coverage obligation. The policy for one year contained an arbitration provision, and Catholic Mutual moved to compel arbitration of the dispute with respect to all claims potentially covered under that particular policy. CBNA resisted arbitration, claiming the arbitration provision was unconscionable, as it required submission of any dispute to Catholic Mutual’s president, and thereafter, by appeal to the chairman of Catholic Mutual’s board, who would then select a committee from amongst board members, each of whom are archbishops or bishops. The Court held this provision was not unconscionable, since the board members were as likely to align, in terms of any potential biases, with Catholic Mutual’s policyholders, who are also bishops and archbishops, as with the insurer of which they are board members. In re Catholic Bishop of Northern Alaska, No F08-00110-DMD (USDC Bankr. Alaska Dec. 13, 2010).

This post written by John Pitblado.