Reinsurance Focus

A group of reinsurers recently lost both their application for a partial stay of litigation pending arbitration and application to appoint an umpire pursuant to the Federal Arbitration Act. The underlying dispute between the parties concerned a disagreement regarding whether the parties’ commutation agreement covered certain reinsurance contracts purchased from various non-party insurance companies. The plaintiff (CNA) filed an action for a declaratory judgment, alleging that the commutation agreement did not apply to the non-party reinsurance contracts. The reinsurers (collectively, SCOR) argued that the commutation settled and terminated those reinsurance contracts, and that the dispute over one of the reinsurance contracts was already the subject of pending arbitration between the parties. The court declined to order a stay in the case since CNA’s claim – a request for a declaration of rights under the commutation agreement – did not fall within any enforceable agreement to arbitrate. The commutation itself did not include an agreement to arbitrate. The court also declined to appoint an umpire since both the existence of an enforceable arbitration agreement between SCOR and CNA as well as the commutation of one of the reinsurance contracts was disputed. The court observed that appointing an umpire before determining whether the parties are required to arbitrate would be premature. Continental Casualty Co. v. Commercial Risk Re-Ins. Co., Case No. 07-6912 (USDC N.D. Ill. Apr. 16, 2009).

Prior to this ruling, the court had also denied the defendant's Motion to Stay Discovery pending its ruling on the afore-mentioned matters.

This post written by Brian Perryman.

On April 14, 2009, the United States District Court for the District of New Jersey denied Consolidated Services Group’s motion to compel arbitration under the terms of its agreement with plaintiff, Creative Marketing Alliance. The Court determined that although the contract contained an arbitration clause, the agreement was ambiguous as to whether arbitration was the exclusive remedy for all disputes. The Court noted that the agreement acknowledged the possibility of litigation by vesting the District of New Jersey with “sole and exclusive jurisdiction to resolve and interpretation, construction, breach, dispute or other controversy arising” out of the agreement. The arbitration provision failed to state “in clear and unmistakable terms” that the parties elected arbitration for all disputes and waived their right to litigation. Creative Mktg. Alliance, Inc. v. Consolidated Servs. Group, Inc., Case No. 09-518 (D. N.J. April 14, 2009).

This post written by John Black.

On October 6, 2008, we reported on a Texas district court entering orders, over a period of several months, confirming two arbitration awards, granting partial final judgment under Rule 54(b), denying a stay without bond, and denying a Rule 59 motion to set aside the partial final judgment.

Halliburton Energy Services, Inc. (“Halliburton”) has since moved for relief under Rule 60(b), for discovery relating to its Rule 60(b) motion, and for a protective order on discovery into its assets. Halliburton claimed that documents recently discovered in its own files conclusively establish a key issue determined in the arbitration and sought discovery into the opposing party’s knowledge of these documents. The court, after declining to rule on the issue of the motion’s timeliness, denied the motion for relief under Rule 60(b), holding that Rule 60(b) was not available to vacate the award and, on the merits, finding that Halliburton presented no evidence of fraud or misconduct, could not show that these documents would have changed the proceedings, could not show that the judgment was inequitable, had the opportunity to fully and fairly present its case, and could not show due diligence in its search for documents. Finally, the court denied the motion for discovery related to the Rule 60(b) motion and granted the motion for a protective order, finding that discovery into Halliburton’s assets was not supported by the record. Halliburton Energy Servs., Inc. v. NL Indus., Case No. 05-4160 (USDC S.D. Tex. Mar. 31, 2009).

This post written by Dan Crisp.

UBS AG named Ramy and Michel Lakah (the “Lakahs”) as respondents in an arbitration proceeding, despite Michel never signing the arbitration agreement and Ramy only signing on behalf of Lakah Funding Ltd. and the guarantors, not in his personal capacity. The Lakahs petitioned the state court to stay the arbitration, and UBS removed the petition to federal court seeking to pierce the corporate veil. While the action was pending, the arbitration panel chairman informed all parties that the panel would address the question of jurisdiction over the Lakahs, and the Lakahs subsequently moved for a preliminary injunction. The court granted the petitioners’ motion for injunctive relief, stating that, unless the agreement clearly provides otherwise, courts decide the question of whether the parties agreed to arbitrate, and, without addressing the merits, the court found that petitioners would be irreparably harmed if the panel addressed the issue due to the cost of and time spent litigating before a body lacking the authority to decide this issue. Lakah v. UBS AG, Case No. 07-2799 (USDC S.D.N.Y. Mar. 6, 2009).

Symetra National Life Insurance Co. and Symetra Life Insurance Co., (collectively “Symetra”), obligors on structured settlement payments and nonparties to the transfer agreement that contained the arbitration clause, appealed from a trial court’s confirmation of an arbitration award that directed Symetra to pay Rapid Settlements, Ltd., instead of the original payee. In reversing the trial court’s judgment and vacating the arbitration award, the court held that the arbitration award violated public policy as set forth in the Texas Structured Settlement Protection Act (“TSSPA”) because no court had preapproved the transfer agreement. The court also held that Symetra had standing to contest the arbitration award because, first, the TSSPA gave Symetra an interest sufficient to contest any attempt to force the company to make payments, in the absence of court approval, to anyone other than the payee and, second, Symetra could be subject to double liability if payments were ever made to the wrong party. Symetra Nat’l Life Ins. Co. & Symetra Life Ins. Co. v. Rapid Settlements, Ltd., Case No. 14-07-00880 (Tex. App. Apr. 21, 2009).

This post written by Dan Crisp.

The Ninth Circuit recently concluded that a district court improperly dismissed a consumer class action pursuant to an arbitration agreement between a wireless provider and its customers, holding that the agreement’s class action waiver was unconscionable and therefore unenforceable under Oregon law. The court found that the waiver was substantively unconscionable for two reasons. First, the waiver was unilateral in effect: “It can hardly be imagined that T-Mobile or its suppliers would ever want or need to bring a class action against T-Mobile’s customers.” Second, the class action waiver created a disincentive to litigate since the actual damges alleged were below $700 a year. Given the small size of the individual claims covered by the agreement, the waiver made it impracticable for customers to vindicate their rights in court. The court also found that under the arbitration agreement the class action waiver was not severable since the agreement itself included a provision prohibiting severance of the waiver. Chalk v. T-Mobile USA, Inc., No. 06-35909 (9th Cir. Mar. 27, 2009).

This post written by Brian Perryman.

In an action arising out of a services agreement related to the construction of low-income tax-credit housing, plaintiff, The Youngs Company, filed a breach of contract action in the Northern District of Texas. Defendant, Continental Realty, moved to compel arbitration and stay discovery asserting that the arbitration clause in the services contract controlled. While the existence and application of the clause was not in dispute, the district court determined that the defendant had defaulted in proceeding with arbitration where the plaintiff had originally initiated arbitration proceedings, set an arbitration hearing, and served discovery requests on the defendant. Continental Realty refused to respond or participate in the arbitration, and failed to file a reply to the opposition to the present motion. Accordingly, Continental Realty’s motion to compel was denied. Continental Realty has since filed a Notice of Appeal to the U.S. Court of Appeals for the Fifth Circuit. Don Youngs & Judy Youngs v. Haugh, Case No. 4-08CV-528 (USDC N.D. Tex. Mar. 18, 2009).

This post written by John Black.

This case arose out of a severance agreement, containing an arbitration clause, between an employer and employee. Following the employee's death, his widow, who was aware of the agreement's arbitration provision, sued the employer in court alleging that the employer breached the severance agreement. After ten months of litigating in court, the plaintiff moved to compel arbitration. The district court denied her motion, finding that she waived her right to arbitrate by having invoked the judicial process to such an extent as to have prejudiced the employer. The plaintiff appealed the decision, but the Fifth Circuit Court of Appeals affirmed, finding that, while disfavored, a court may nonetheless find that a party has waived its contractual right to arbitration by substantially invoking the judicial process to its opponent’s detriment, despite awareness of its contractual right to arbitrate, and that the trial court therefore did not abuse its discretion in denying the motion to compel arbitration. Nicholas v. KBR, Inc., No. 08-20140 (5th Cir. April 15, 2009)

This post written by John Pitblado.