Reinsurance Focus

Century Indemnity Company (“Century”) made claim under certain retrocession agreements between it and Certain Underwriters at Lloyd’s, London (“Lloyd’s”) for a portion of the payment Century made to its reinsured, Argonaut Insurance Company (“Argonaut”) in connection with underlying asbestos coverage litigation expenses. Lloyd’s denied the claim, asserting that Century’s payment to Argonaut was not warranted under the reinsurance treaties. Century sued to recover the approximately $2 million in dispute. Lloyd’s moved to compel arbitration. Although it was undisputed that the retrocession agreements did not contain an arbitration clause, the trial court agreed with Lloyd’s that the retrocession agreements incorporated the underlying reinsurance treaties by reference, which treaties did contain arbitration provisions, and therefore granted the motion to compel arbitration. The parties arbitrated, and the three-member panel found in Lloyd’s favor, finding the reinsurance treaties did not obligate Century to pay Argonaut, and therefore Lloyd’s was not obligated to pay Century any portion of the payment to Argonaut. Century moved to vacate the award, contending that the arbitral panel had manifestly disregarded the law and failed to admit evidence which should have been admitted. The district court denied the motion. Century appealed to the Third Circuit Court of Appeals, which affirmed both the decision to compel arbitration, and the decision denying the motion to vacate the award. Century Indemnity Company v. Certain Underwriters at Lloyd’s, London, No. 08-2924 (3d Cir. Oct. 15, 2009).

This post written by John Pitblado.

A court has denied reconsideration of its earlier order holding that an award postponing the determination of a remedy is not final and binding and, thus, is not subject to review. We reported on the earlier order in an August 20, 2009 post. The American Postal Workers’ Union brought a suit alleging that the United States Postal Service breached a collective bargaining agreement by failing to comply with an arbitration award finding liability. On July 14, 2009, the court dismissed the case for lack of jurisdiction. The Union moved for reconsideration, principally arguing that that it should be permitted to move forward to enforce the award because it had been granted final injunctive relief. The court found that the Union was simply regurgitating its earlier, unsuccessful argument. Therefore, the motion for reconsideration was denied. American Postal Workers’ Union v. United States Postal Service, Case No. 08-2200 (USDC D.D.C. Sept. 2, 2009).

This post written by Brian Perryman.

The Fifth Circuit has affirmed en banc a panel decision holding that while the McCarran-Ferguson Act reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. We reported on the panel decision in an October 14, 2008 post. The district court denied a motion to compel arbitration of a contractual dispute among three insurers, finding that a Louisiana statute barring mandatory arbitration provisions in insurance contracts superseded the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. On an interlocutory appeal, the Fifth Circuit panel reversed. Rehearing en banc was granted, vacating the panel opinion. Sitting en banc, the Fifth Circuit concluded that because McCarran-Ferguson does not apply to the Convention or its implementing law (the Convention Act), the district court’s order should be vacated and the case should be remanded for further proceedings. The Court indicated that it “was persuaded that state law does not reverse-preempt federal law in the present case for two related but distinct reasons: (1) Congress did not intend to include a treaty within the scope of an ‘Act of Congress’ when it used those words in the McCarran-Ferguson Act, and (2) in this case, it is when we construe a treaty – specifically, the Convention, rather than the Convention Act – to determine the parties’ respective rights and obligations, that the state law at issue is superseded.” Safety National Casualty Corp. v. Certain Underwriters at Lloyd’s, No. 06-30262 (5th Cir. Nov. 9, 2009).

This post written by Brian Perryman.

Employers Insurance Co. of Wausau brought a petition in Wisconsin Federal Court, in connection with an arbitration proceeding arising from a reinsurance dispute, seeking to have the Court appoint the neutral third arbitrator as the parties’ chosen arbitrators were unable to do so. The respondents cross-petitioned, alleging that (1) enforcement of the arbitration provision was barred by the statute of limitations, estoppel and laches; and (2) the respondents’ party-appointed arbitrator was not impartial and should be disqualified. The Court granted the petition and appointed a neutral third arbitrator, and denied the cross-petition in its entirety, finding that the questions about statutes of limitations and laches should be arbitrated and that there was no showing that the respondents’ selected arbitrator was biased. The cross-petitioners moved for reconsideration of the Order, which motion was denied by Order dated October 23, 2009. The cross-petitioners thereafter filed Notice of Appeal to the Seventh Circuit Court of Appeals. Employers Insurance Company of Wausau v. Certain Underwriters at Lloyds of London, No. 09-cv-201 (W.D. Wis. Sept. 28, 2009).

This post written by John Pitblado.

On October 26, 2009 we posted a brief item on Telenor Mobile Communications AS v. Altimo Holdings & Investments Limited, 07-4974 (2d Cir. Oct. 8, 2009), in which the Third Circuit held that: (1) the district court did not err in not holding a trial to determine whether a dispute before it was arbitrable based upon a dispute as to whether the person who signed the contract containing an arbitration provision had apparent authority to sign the document on behalf of a corporate party, when the factual record clearly demonstrated that the signer had apparent authority to do so; and (2) the district court did not act in manifest disregard of law by confirming an arbitration award that failed to give preclusive effect to a collusive judgment of a Ukrainian court adjudicating an issue before the arbitration panel. Blogmaster Rollie Goss submits a more detailed SPECIAL FOCUS post on this interesting case.

This post written by Rollie Goss.

In a companion opinion to the Second Circuit affirming the district court’s grant of a motion to confirm the final arbitral award in a dispute involving Kyivstar G.S.M. (“Kyivstar”) (see our October 26, 2009 post), a Ukrainian mobile telecommunications company, the Second Circuit has affirmed the decision of the district court finding Storm LLC (“Storm”) and its corporate parents (collectively, the “Respondents”) in civil contempt for the failure to comply with the final arbitration award and denying the Respondents’ motion for an order to amend the contempt order to delay sanctions and eliminate the requirement that Storm deposit its shares of Kyivstar with the court to secure compliance with the award.

In this appeal, Storm’s corporate parents disputed the determination that they were alter egos of Storm, which made them jointly liable for contempt, and the conclusion that the award required Storm’s affiliates to divest their interest from a Turkish telecommunications company rather than Astelit, LLC, a Ukrainian telecommunications company, and asked the circuit court to remand the divestiture question to the arbitration panel for clarification. The Second Circuit affirmed the decisions of the district court, stating that the findings of fact supported the conclusion that the corporate parents were alter egos of Storm and concluding that no support existed for a remand of the divestiture question because the award was unambiguous and the district court’s legal analysis was correct. Telenor Mobile Communications AS v. Storm LLC, No. 07-6929 (2d Cir. October 8, 2009).

This post written by Dan Crisp.

It is not unusual for there to be parallel or serial legal proceedings in arbitration disputes, and the preclusive effect of the first matter to go to a final decision has resulted in a number of opinions addressing the application of the doctrines of res judicata and collateral estoppel in arbitration proceedings. In Telnor Mobile Communications AS v. Altimo Holdings & Investments Limited, 07-4974 (2d Cir. Oct. 8, 2009), the Court held that: (1) the district court did not err in not holding a trial to determine whether a dispute before it was arbitrable based upon a dispute as to whether the person who signed the contract containing an arbitration provision had apparent authority to sign the document on behalf of a corporate party, when the factual record clearly demonstrated that the signer had apparent authority to do so; and (2) the district court did not act in manifest disregard of law by confirming an arbitration award that failed to give preclusive effect to a collusive judgment of a Ukrainian court adjudicating an issue before the arbitration panel.

This post written by Rollie Goss.

On August 24, 2009, the Eastern District of New York ruled on plaintiff Callon Petroleum’s motion to amend its complaint by adding a statutory claim for punitive damages based on defendant National Indemnity’s bad faith failure to make a timely payment following the submission of the bond claim in the action. This action arose out of a judgment Callon obtained against its reinsurer Frontier Insurance Company in the form of a surety bond Frontier issued to Wood Energy Corporation. Defendant moved to dismiss plaintiff’s claims since it was not a party to the surety bond. The motion to dismiss was granted in part and denied in part, and over a year and a half later plaintiff moved to include the statutory claim.

Applying New York’s “center of gravity/grouping of contacts analysis,” the court concluded that New York law should be applied. The court noted that the reinsurance contract was negotiated and entered in New York, the place of performance was New York, and one of the contracting parties (Frontier) is domiciled in New York. Additionally, the arbitration clause in the contract requires all arbitration to take place in New York. Having determined that New York law should apply, the court denied the motion to amend, holding that the claim would be futile under New York law. Callon Petroleum Co. v. Nat’l Indem. Co., Case No. 06-CV-0573, (E.D. N.Y. Aug. 24, 2009).

This post written by John Black.

In the latest development of Guaranteed Trust Life’s (“GTL”) suit for reinsurance benefits from First Student Programs, the Northern District of Illinois granted in full third party defendant American United Life’s (“AUL”) motion to dismiss. After previously granting in part and denying in part AUL’s motion to dismiss, the court invited the parties to readdress the issues of res judicata. In fully granting AUL’s motion in the instant order, the court determined that, even though First Student Programs was not a party to the arbitration between GTL and AUL, it was in privity with GTL. The court concluded that because the two companies’ claims against AUL arose out of the same alleged breach of contract, were based on the same legal and factual arguments, and rested on a contractual relationship between the two companies, Illinois’ privity test was met. Accordingly, First Student Programs’ claim agasint AUL was precluded by the arbitration award against AUL. Guarantee Trust Life Ins. v. First Student Programs, LLC, Case No. 05 C 1261 (N.D. Ill Sept. 9, 2009).

This post written by John Black.

In this case, the plaintiff brought suit against her former employer, Heritage Christian Schools, Inc. (“Heritage”), after being constructively discharged from her teaching position. Heritage then filed a motion to stay proceedings and compel arbitration, and the plaintiff filed a motion to strike the arbitration agreement, which commanded that the parties resolve their differences in accordance with Matthew 18:15-17 and that the arbitration process be conducted in accordance with the Rules of Procedure for Christian Conciliation (“RPCC”), which proclaimed that the Bible shall be the supreme authority governing the arbitration process, though local, state, and federal laws must be taken into consideration. In denying the motion to strike and granting the motion to stay proceedings and compel arbitration, the court found that: (1) no evidence supported the argument that the arbitration provision is vague and ambiguous; (2) the plaintiff had not shown that submission to arbitration under the RPCC will deprive her of the ability to vindicate her statutory rights; (3) the plaintiff failed to articulate how the processes under the arbitration agreement are structurally biased and procedurally inadequate; and (4) despite the RPCC requiring that the plaintiff pay half of the fees and costs of arbitration, the arbitrator still has the power to award fees and costs to a participant and, thus, the plaintiff was not precluded from effectively enforcing her rights. Easterly v. Heritage Christian Schools, Case No. 08-1714 (USDC S.D. Ind. Aug. 26, 2009).

This post written by Dan Crisp.