Reinsurance Focus

The United States Supreme Court has invited the U.S. Solicitor General to file a brief in an arbitration case in order to assist the Court in deciding whether to grant a petition for a writ of certiorari. The case, which is the subject of a December 7, 2009 Special Focus post in this blog, presents an FAA jurisdictional question with implications for an international treaty. Petitioners are seeking review of a Fifth Circuit decision, which held that the McCarren Ferguson Act of 1945 does not authorize state law to ‘reverse-preempt’ the Convention on the Recognition and Enforcement of Foreign Arbitral Awards or its implementing legislation (Convention Act). The Court has asked the Solicitor General to offer the government’s views on whether the FAA is a federal law that seeks to regulate insurance, and thus overrides any conflicting state law on insurance regulation. Louisiana Safety Association of Timberman Self Insurers Fund v. Certain Underwriters at Lloyd’s London, No. 09-945.

This post written by Lynn Hawkins.

In 2009, the parties in this matter were ordered to proceed in arbitration, pursuant to the terms of an arbitration clause contained in an insurance policy which was the subject of the dispute. Each side selected a party-appointed arbitrator, but the two arbitrators were unable to reach agreement on an umpire. The arbitration agreement provided that if the party-arbitrators could not agree, then “either [arbitrator] or either of the parties may apply to the appointer for appointment of a third arbitrator.” The ‘appointer’ was further defined as the President of the Chartered Insurance Institute or the Vice President of the Institute if the President is unavailable.

Despite this language, the Petitioner in this case alleged that an ambiguity existed in the process and requested that the Court establish a method for the appointment of the third arbitrator. The Court declined to do so, finding that the agreement “set forth a clear method.” As such, the Court denied the motion and dismissed the matter sua sponte. R.A. Wilson & Assoc. v. Certain Interest Underwriters at Lloyd’s London, 10-cv-2232 (USDC EDNY May 26, 2010)

This post written by Lynn Hawkins.

In an unpublished disposition, the Third Circuit vacated an order compelling arbitration of a putative class action against Verizon Wireless based on Verizon’s alleged unlawful imposition of
administrative charges on class members’ cell phone accounts. The arbitration clause in the customer agreements prohibited class arbitrations. The plaintiffs argued that arbitration provisions in contracts of adhesion that prohibit use of a class action mechanism for low-value claims are unconscionable under New Jersey law. Verizon countered that Third Circuit precedent held that the Federal Arbitration Act preempted such laws. The appellate court concluded its prior cases on the question could not be read as establishing a blanket prohibition on unconscionability challenges to class arbitration provisions since the Federal Arbitration Act permits the use of generally applicable contract defenses to attack arbitration agreements. The order compelling arbitration was vacated and the case remanded to the district court. Litman v. Cellco Partnership, No. 08-4103 (3d Cir. May 21, 2010).

This post written by Brian Perryman.

On November 30, 2009, we reported on a state appellate court ruling that the arbitration panel had the power to rule on its own jurisdiction, pursuant to the American Arbitration Association rules incorporated into the parties’ agreement. The New York Court of Appeals has since ruled that this order should be affirmed with costs, stating that the parties agreed to arbitrate questions of arbitrability, including whether the agreement itself is invalid according to Hall St. Assocs., L.L.C. v. Mattel, Inc., or whether the offending provision could be severed from the remainder of the agreement. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 138 SSM 12 (N.Y. May 4, 2010).

This post written by Dan Crisp.

Phillip Hill sued his former employer in federal court, alleging retaliatory discharge. His former employer, Ricoh Americas Corp., answered the complaint, and the parties engaged in a Rule 26 pre-trial conference to set discovery and trial deadlines. Shortly thereafter, and approximately four months after suit had been filed, Ricoh moved to compel arbitration based on a provision in Hill’s original employment contract with Ricoh’s predecessor-in-interest. The district court denied the motion to compel on waiver grounds and Ricoh appealed. The Tenth Circuit found no waiver, quickly disposing of Hill’s argument that Ricoh failed to raise “arbitration and award” as an affirmative defense with its answer, as Hill asserted was required under Rule 8, noting that the provision only applies to completed arbitrations. The Tenth Circuit then analyzed several factors to determine whether Ricoh had waived its right to arbitrate, and found that on balance of the factors, it had not. Key to this analysis was that Ricoh had engaged in “minimal litigation activity,” and that there was “no evidence in the record that Ricoh intentionally and knowingly relinquished its right to demand arbitration.” It remanded with instructions to compel arbitration. Hill v. Ricoh Americas Corp., No. 09-3182 (10th Cir. April 19, 2010).

This post written by John Pitblado.

As reported in our December 3, 2009 post, the Second Circuit recently reversed and remanded a $40 million jury verdict against New Hampshire Insurance Company on claims made by AXA Versicherung AG. The remand instructed the trial court to determine whether the claims should have been arbitrated. In a thorough opinion, the lower court ruled on remand that (1) the claims were not arbitrable; and (2) even if the claims were arbitrable, New Hampshire waived its right to arbitrate them. The basis for the court’s first conclusion was that each of AXA’s claims generally sounded in fraud, rather than a dispute over interpretation of the parties’ reinsurance agreement. Because the agreement only required arbitration over disputes pertaining to the interpretation of the agreement, the fraud claims were non-arbitrable. The court also held that, even assuming any of the claims were arbitrable, New Hampshire waived its right to arbitration by (1) failing to seek arbitration of similar claims in separate litigation involving a different plaintiff; and (2) delaying any attempt to compel arbitration in the AXA litigation of non-fraud claims until after discovery and summary judgment briefing. AXA Versicherung AG v. New Hampshire Ins. Co., 05-10180 (USDC S.D.N.Y. April 29, 2010).

This post written by John Pitblado.

In the latest development in the dispute between B.D. Cooke & Partners and Lloyd’s of London, the Southern District of New York stayed litigation pending arbitration of the dispute. B.D. Cooke was directed to inform the Court within 30 days and every three months thereafter as to the status of the arbitration proceedings. If no timely response is received, the Court may dismiss the action pursuant to Fed. R. Civ. P. 41(b). B.D. Cooke & Partners Ltd. v. Certain Underwriters at Lloyd’s London, Case No. 08-3435 (S.D.N.Y. Apr. 13, 2010).

This post written by John Black.

The issue of arbitrator bias has been of particular interest. Two decisions were issued by judges of the same court recently, both involving Trustmark, that shed light on this issue in the context of the actual or potential breach of confidentiality provisions due to a single arbitrator participating in multiple arbitrations. Our Special Focus article explores these decisions.

This post written by John Pitblado.

The United States Supreme Court issued a long anticipated opinion last week addressing the circumstances under which parties may be compelled to arbitrate disputes on a class-wide basis. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., 2010 WL 1655826 (Apr. 27, 2010). Although we posted a brief item about this case earlier this week, this opinion is important enough that we are posting a longer Special Focus piece today describing the Court’s reasoning in more detail. This post also notes that the Court had the opportunity to address the issue of the continued viability of manifest disregard of law as a basis for vacating arbitral awards in this opinion, but declined to do so. More on that issue next week, as the Eleventh Circuit last week joined the debate on that issue.

This post written by Rollie Goss.

A party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so, according to a recent decision from the United States Supreme Court. The parties in the case stipulated that the arbitration provision was silent on the issue of whether an arbitration could be brought on a class-wide basis, and they had reached “no agreement” on that issue. On this basis, the Court concluded that the parties could not be compelled to submit their dispute to class arbitration. The decision is based on the long-standing principle that arbitration is a matter of consent, not coercion, that private agreements to arbitrate are enforced according to their terms, and that arbitrators must give effect to the contractual rights and expectations of the parties. The Court noted that class arbitration “changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”

The decision also clarifies the Supreme Court’s decision in Green Tree Financial Corp. v. Bazzle (2003). The Court confirmed that “Bazzle did not yield a majority decision,” and that the parties wrongly believed “the judgment in Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration.” In fact, Bazzle did not establish the rule to be applied in deciding whether class arbitration is permitted. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 08-1198 (U.S. Apr. 27, 2010).

This post written by Brian Perryman.