Reinsurance Focus

American International Group, Inc. (“AIG”) and its subsidiary, National Union Fire Insurance Company (“National Union”) moved to compel arbitration of claims brought against them by the plaintiff, Epix Holding Corporation (“Epix”) in New Jersey state court. Epix alleged that the insurers were engaged in an illegal bid-rigging scheme with the broker (the co-defendants Marsh McClennan Companies, Inc. and March USA, Inc.), and other improper tactics, for the purpose of imposing higher premiums and onerous payment conditions on insureds such as Epix. The trial court denied the motions to compel arbitration, but the New Jersey Appellate Court reversed. Epix argued that the dispute primarily pertained to certain premium calculations that were not intended to come within the scope of the parties’ arbitration agreement. It also argued that AIG is not entitled to enforce the arbitration agreement because it was not a signatory to the contract. The Appellate Court rejected Epix’s arguments, finding that, on the threshold standing issue that AIG and National Union (which was a signatory to the contract containing the arbitration clause) were substantially aligned in connection with Epix’s allegations against them, and that AIG’s status as a non-signatory was thus immaterial. It also rejected Epix’s arguments that the dispute was not within the scope of the arbitration agreement, given the wide range of allegations Epix made against the insurers. Epix Holding Corp. v. March & McClennan Companies, Inc., No. A-3059-08T3 (N.J. App. Ct. Nov. 17, 2009).

This post written by John Pitblado.

The Tenth Circuit recently affirmed an arbitration award, but vacated the lower court’s ruling regarding post-award prejudgment interest. In a lengthy opinion, the Court discussed, and ultimately rejected, each of the defendant’s arguments for vacating the award, including: (1) that the arbitrator lacked jurisdiction; (2) that the defendants were not judicially estopped from asserting that the arbitrator lacked jurisdiction; (3) that the arbitrator acted outside the scope of his authority; (4) that he manifestly disregarded the law and violated public policy; and (5) that the district court failed to apply the proper deferential standard of review.

The Defendant first argued that the arbitrator lacked jurisdiction over certain claims heard in the second phase of the bifurcated arbitration. Unlike the “first-phase” claims, which arose directly out a promissory note between the parties (which contained an arbitration provision), all “second-phase” claims occurred after the plaintiff had been released from liability under the note. As such, the defendants argued that there was no meeting of the minds to arbitrate the second-phase claims. The Court disagreed, concluding that note’s arbitration clause applied to all controversies arising out of and related to the note, including defendant’s tortious actions after the note expired.

Next, the Defendant argued that they did not waive their right to have the second-phase claims tried in court, despite having joined in a motion to stay. The Court disagreed, finding that “defendants waived any objection to arbitration and were estopped from asserting that the arbitrator lacked jurisdiction because they had stated, when they joined [the] motion for stay, that this action must be arbitrated.”

Interestingly, in addressing the defendant’s claim of manifest disregard, the Court (which has not previously addressed judicially-created grounds for vacatur after Hall Street) discussed the Supreme Court’s May 2008 decision in Hall Street v. Mattel, but avoided the ultimate question of whether judicially-created grounds for vacatur survive, by stating that manifest disregard was not shown in any event. This fact is significant, as it demonstrates that this Court is sensitive that Hall Street may have eliminated the judicially created bases for vacating awards. Hicks v. The Cadle Co., Case Nos. 08-1306, 1307, 1429, 1435 (10th Cir. Dec. 7, 2009).

This post written by John Black .

A court denied a motion to compel arbitration because the movants’ active participation in the litigation constituted a waiver of the right to arbitrate. Although assuming a contractual right to arbitrate, the court noted that such a right, like any contractual right, can be waived. The movants’ actions were inconsistent with the right to arbitrate because they consented to jurisdiction and venue, appeared before the court to set aside a default certificate and made numerous filings. They also filed a counterclaim and a third-party complaint, and never mentioned the right to arbitrate or indicated that they would be seeking an extra-judicial remedy. Seeking affirmative relief through a counterclaim or third-party claim frequyently is found to waive a right to arbitrate. Belcourt v. Grivel, S.L.R., Case No. 2:08-CV-902-TC (USDC D. Utah Nov. 6, 2009).

This post written by Brian Perryman.

In our 11/9/09 post, we reported on the dispute between Employers Ins. and Lloyds of London. In the most recent development, the Lloyds-parties filed a Rule 59 Motion for Reconsideration and Clarification of the District Court’s September 28th opinion and order requesting that the court declare that Wisconsin law applies to the parties’ contracts or in the alternative that irrespective of which law is applied the arbitrators are required to be impartial and disinterested. The District Court denied Lloyds’ Motion for Reconsideration finding that Lloyds had failed to demonstrate that the order and opinion was in error and that the motion at hand failed to specify relief contemplated by Rules 59 or 60. The Lloyds-parties subsequently filed a revised notice of appeal to the Seventh Circuit to include this Order, as well as ones covered by a prior Notice of Appeal. Employers Ins. Co. of Wausau v. Certain Underwriters at Lloyds of London, Case No. 09-210 (W.D. Wisc. Oct. 23; Oct. 29, 2009).

This post written by John Black.

The Ninth Circuit Court of Appeals held that a “new twist” on the previously addressed issue of when an arbitration provision barring aggregation of individual claims is unconscionable did not command a new result. Plaintiffs brought a class action suit in California federal court against AT&T Mobility, LLC, alleging that they were unfairly charged sales tax on the retail price of a new phone that had been offered as “free” with the sign-up of new service. AT&T demanded that the claims be submitted to individual arbitration, as per the arbitration provision of the provider agreement. The plaintiffs pointed to a previous Ninth Circuit decision, Shoyer v. Cingular Wireless Services, Inc., (9th Cir. 2007), which held that a similar arbitration provision was unconscionable in part because it tended to prevent plaintiffs from suing on individual claims due to the disproportionate legal expense of doing so vis-à-vis the small amount of damages at issue. The class action procedure, the Court held in Shoyer, is designed to avoid this problem. However, AT&T’s arbitration clause contained a provision requiring the company to pay $7,500 to any claimant who won an arbitration award in excess of AT&T’s last offer, in order to provide financial incentive for claimants to bring individual claims and to address the inequity identified by the Court in Shoyer. Nevertheless, the Ninth Circuit was not convinced that this new language cured the defect of tending to prevent individual claims from being vindicated, due to the small amount of damages. The Court additionally held that the FAA does not trump California contract law on unconscionability. Laster v. AT&T Mobility, LLC, No. 08-56394 (9th Cir. Oct. 27, 2009).

This post written by John Pitblado.

In the latest development in the Olsen v. United States case, the US District Court for the Eastern District of Washington issued an Order denying Plaintiffs’ Motion for Partial Summary Judgment. Following a complicated procedural history involving a number of arbitration decisions which were ultimately vacated, Plaintiffs initiated the instant action challenging under the APA the National Appeals Division’s resolution of Plaintiffs’ claims for payment of their crop insurance. Plaintiffs asserted two primary arguments: (1) Reinsurer FCIC had no legal right to revise claim determinations made under a private contract of insurance that FCIC was not a party to; and (2) NAD lacked jurisdiction over the issue of whether Plaintiffs had been overpaid by AGIC. The District Court denied Plaintiffs’ Motion, finding that the insurance contract granted FCIC authority to revise the claim and that administrative review of Plaintiffs’ claims by the NAD was appropriate. Olson v. United States, Case No. 08-5012 (USDC E.D. Wash. Sept. 30, 2009).

This post written by John Black.

We previously reported on the en banc decision of the United States Court of Appeals for the Fifth Circuit holding that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (also known as the New York Convention), prevailed over a state law that prohibited arbitration provisions in insurance policies. The Second and Fifth Circuits are now in conflict on this important arbitration issue. We offer a Special Focus view of this decision.

This post written by Rollie Goss.

Following the entry of a $40 million judgment against them at a jury trial on claims of fraudulent inducement with respect to two reinsurance facilities, the AIG defendants appealed to the Second Circuit, arguing in part that that the claims brought by AXA should have been arbitrated because they sound in contract. AXA, while not disputing that contract claims would be subject to arbitration, asserted that their claims sound in fraud and were properly litigated in the District Court. The Second Circuit concluded that the record was not clear as to whether the District Court properly considered whether AXA’s fraudulent inducement claims sounded in contract or fraud or whether AIG had waived its right to arbitration. The Court opined that in this case, it was of paramount importance to weigh the first and third waiver factors (time elapsed and prejudice) to determine whether AIG had indeed waived arbitration. The case was remanded to the District Court. AXA Versicherung AG v. New Hampshire Ins. Co., Case No. 08-2521 (2d Cir. Nov. 6, 2009).

This post written by John Black.

A New York court has affirmed the trial court’s denial of the plaintiff’s motion to stay or enjoin arbitrations pending before the American Arbitration Association. Although noting that the question of arbitrability is generally an issue for judicial determination, the parties’ agreement incorporated the AAA rules, which provide that the arbitration panel had the power to rule on its own jurisdiction. The court therefore found that the scope and validity of the arbitration agreement were properly presented to the arbitators. One justice filed a concurring opinion expressing his view that the United States Supreme Court decision in Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008), rendered unenforceable the agreement’s provision allowing for judicial review of legal errors by the arbitrator. The panel opinion had declined to reach that issue since it was included among the arbitrability issues to be decided by the arbitrators. Life Receivables Trust v. Goshawk Syndicate 102 at Lloyd’s, No. 194N 601244/08 (N.Y. App. Div. Oct. 13, 2009).

This post written by Brian Perryman.

In October, 2007, Alternative Re Holdings Ltd. (“ARH”) commenced separate arbitrations in Bermuda against each of the plaintiffs seeking funds pursuant to Shareholder Agreements. In December, 2008, the plaintiffs brought suit in the Southern District of New York alleging that a 2005 Settlement Agreement was fraudulently induced in that the plaintiffs’ liability for reinsurance more than doubled. Arch Insurance Co. subsequently moved to stay the litigation pending arbitration. ARH and Alternative Re Ltd. also moved to stay, and to compel the plaintiffs to submit their fraud claims to arbitration pursuant to an arbitration clause in the Shareholder Agreements requiring “all disputes” between the parties to be submitted to arbitration in Bermuda. The plaintiffs opposed, arguing that their complaint fell within the parameters of the Settlement Agreement, which specified that the U.S. District Court for the Southern District of New York was the exclusive forum and venue for dispute resolution. The district court summarily granted the defendants’ motions, staying the lawsuit and ordering that arbitration proceed in Bermuda. TPG Group v. Alternative Re Holdings Ltd., Case No. 08-11244 (USDC S.D.N.Y. Sept. 22, 2009).

This post written by Dan Crisp.