Reinsurance Focus

Parties to a reinsurance agreement arbitrated a claims dispute, agreeing that the final award and all “arbitration information” be kept confidential. The prevailing party moved to confirm the award and to seal the award. The court found that there was a strong presumption of access to court records, and that the award should be sealed only if there was a showing that the material was of the kind of information that courts will protect, and that disclosure would work a clearly defined and serious injury to the party seeking closure. Evaluating the factors to be considered in evaluating a request to seal a portion of a court record set forth by the Third Circuit, the court found that the award should be sealed. Century Indem. Co. v. Certain Underwriters at Lloyd's, London, Case No. 08-219 (USDC E.D. Pa. Jan. 12, 2009).

This post written by Rollie Goss.

United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union (“United”) brought an action in the Western District of Pennsylvania to enforce an arbitration award directing Neville Chemical Company to reinstate and make whole an employee it had improperly discharged. This appeal followed the District Court’s Orders granting United’s motion for summary judgment and ordering Neville to pay damages including back pay.

The Third Circuit held that because Neville failed to raise the argument of that the employee was physically unable to work during the arbitration, it had waived the physical limitations defense to the enforcement of the arbitration award. The Third Circuit cited its previous decision in United Food and Chemical Workers Union Local 1776 v. Excel Corp., 470 F.3d 143 (3d Cir. 2006) noting that “‘the long-established federal policy of settling disputes by arbitration would be seriously undermined if parties kept available information from the arbitrator and then attempted to use the information as a defense to compliance with an adverse award.’” The Court further noted that the argument had not been timely raised under Pennsylvania law and that the back-pay damages imposed by the District Court did not amount to a second opportunity to receive unemployment compensation. United Steel, Paper & Forestry, Rubber, Manufacturing, Energy, Allied Industrial & Service Workers International Union v. Neville Chemical Co., No. 07-3554 (3d. Cir. Oct. 30, 2008).

This post written by John Black.

Homestead Insurance Company (“Homestead”) entered into a reinsurance contract with Interstate Guaranty Insurance Company (“Interstate”). Under applicable Georgia insurance regulations, Interstate was required to place funds in a trust for Homestead’s benefit to protect Homestead in case Interstate became insolvent. Thereafter, Homestead, Interstate and Wachovia Bank entered into a trust agreement, with Wachovia serving as Trustee. The trust agreement contained provisions incorporating it into the reinsurance contract. The reinsurance contract contained an arbitration clause mandating arbitration as a condition precedent to a lawsuit where disputes arose concerning either “the interpretation of [the reinsurance] Agreement” or the “rights of either party” thereunder.

After dispute arose between Homestead and Wachovia pertaining to Wachovia’s conduct as Trustee, Homestead filed an action in New Jersey state court (which was ultimately removed and transferred to Georgia federal court) to compel Wachovia to arbitration as required under the reinsurance contract. Wachovia argued that it was not a party to the reinsurance contract, and thus was not bound by the provision mandating arbitration. However, the court agreed with Homestead, citing terms of the trust agreement that indicated the parties’ intent to incorporate it in its entirety into the reinsurance contract, and finding that the Trust Agreement incorporated by reference the arbitration clause of the Reinsurance Agreement. The court found that the interpretation of the Trust Agreement came within the scope of arbitrable issues. After the court denied Wachovia’s motion to reconsider, Homestead dismissed the case with prejudice. Homestead Insurance Company v. Wachovia Bank, N.A., Case No. 07-2821 (USDC N.D. Ga. 2008).

This post written by John Pitblado.

In a February 26, 2008 post, we discussed an opinion of the Sixth Circuit Court of Appeals which held that claims asserted in arbitration by members of a settlement class were barred if they related to the settled claims because the claimants had not opted out of the class-wide settlement of the claims. The case was remanded to the arbitration panel to clarify the basis for the award. The panel confirmed that the award was based solely on the matters that were encompassed by the settlement. In a second appellate round, the court confirmed the vacation of the award due to the bar of the settlement, and also affirmed the dismissal of cross-claims by the district court. Rich v. Spartis, No. 06-1723 (6th Cir. Dec. 16, 2008).

This post written by Rollie Goss.

Petitioners, Insurance Co. of North America and INA Reinsurance (collectively “INA”), and Respondent, Public Service Mutual Insurance Co. (“PSMIC”), came before the Southern District of New York on the question of whether an arbitration proceeding halted in medias res upon resignation of one party-appointed panelist may continue or whether under such circumstances the arbitration must commence anew. Under the terms of the parties’ arbitration agreement, each party was to choose their own arbitrator and then together select a third arbitrator to comprise a three person panel. After the arbitration had commenced and the panel had issued a Summary Judgment Order, one of the arbitrators was forced to withdraw for health considerations. PSMIC demanded that INA appoint a replacement arbitrator; INA demanded the arbitration commence anew. This case followed.

As a general rule, under Marine Products v. MT Globe Galaxy, 977 F.2d 66 (2d Cir. 1992) if a member of a three person arbitration panel dies before the rendering of an award, and the arbitration agreement does not anticipate that circumstance, the arbitration must commence anew with a new panel. The arbitration does not have to start over, however, if the panel has issued a “partial final award” and “was without power to revisit that question.” Here, the court determined that the original arbitration panel’s Summary Judgment Order did not “conclusively decide every point” and instead only rule on the applicability and effect of case law on INA’s primary defense. The court noted that the Summary Judgment Order was an interim decision on a matter of law and did not conclusively deal with all aspects of the case, including liability and damages. Further, the court determined that since the arbitration was fairly straightforward and not, as in Zeiler v. Deitsch, 931 F.3d 157 (2d Cir. 2007), “ongoing and complex arbitration.” As a result, the partial final award exception did not apply, and the court ordered arbitration to commence anew, with each party appointing its own arbitrators. The court further denied PSMIC’s motion to confirm the original panel’s Summary Judgment Order because the order did not “finally dispose of a separate, independent claim.” Ins. Co. of North Am. v. Public Service Mutual Ins. Co., Case No. 08-7003 (USDC S.D.N.Y. Dec. 10, 2008).

This post written by John Black.

On behalf of an aggrieved union member, the International Brotherhood of Electrical Workers brought a grievance against Verizon for declaring the employee medically unfit to drive a company van. A collective bargaining agreement provided for mandatory arbitration for all disputes under the agreement. Verizon alleged in arbitration that the dispute fell under the Federal Motor Carrier Safety Act (“FMCSA”) rather than the Collective Bargaining Agreement. The arbitrator issued an Interim Award ordering the parties to submit to FMCSA dispute procedures before continuing arbitration. The American Arbitration Association cancelled an arbitration hearing and has since administratively closed the parties file. The FMCSA review process remains ongoing.

IBEW subsequently filed suit in the US District Court, alleging that Verizon’s failure to reschedule an arbitration hearing was in breach of the Collective Bargaining Agreement’s arbitration clause. IBEW moved for summary judgment on whether the underlying issue was arbitrable and whether Verizon was in violation of the arbitration agreement. The Court held that the crux of the matter was whether Verizon acted capriciously or arbitrarily when it found the employee medically unqualified to operate the motor vehicle, which would be a violation of the Collective Bargaining Agreement. Disputes under the Agreement are subject to arbitration. The Court also stated that because the arbitrator ordered the parties to submit to FMCSA procedures, arbitration was in fact still ongoing. The Court noted that arbitrators naturally were empowered to consider federal law in making their rulings so the arbitrators’ order to submit to FMCSA procedures was not in error. Int’l Brotherhood of Electrical Workers v. Verizon North, Inc., Case No. 07-3194 (USDC C.D. Ill. Dec. 3, 2008).

This post written by John Black.

Petitioners brought two Financial Industry Regulatory Authority (“FINRA”) arbitration actions against the Respondents, their former employer and a former supervisor, asserting a multitude of claims. The Respondents filed counterclaims. The FINRA panel consolidated all claims and counterclaims into one action. The panel later granted the Respondents’ motion for summary judgment, dismissed Petitioners’ claims in their entirety, and scheduled subsequent hearings for Respondents’ counterclaims. Petitioners then filed a petition in state court to vacate the panel’s decision, but the court stayed the petition pending final resolution of the action. When the FINRA panel issued the final arbitration award requiring one Petitioner to pay eighty percent of Respondents’ attorney fees and costs incurred, the Petitioners filed an amended petition to vacate the award in state court. Respondents in turn filed a motion to confirm the arbitration award. Days later, Petitioners filed a petition to vacate in the federal court. Petitioners then filed an ex parte motion to stay the Respondents from proceeding in state court pending the federal petition to vacate for manifest disregard of the law.

In support of their motion to stay, Petitioners argued an exception to the Anti-Injunction Act applied that allowed the district court to stay the state court proceedings because a stay was necessary in aid of the jurisdiction of the district court to review the federal petition to vacate. Citing the Supreme Court case of Atlantic Coast Line R.R., the district court explained that the exception does not apply unless such relief is necessary so as to prevent the serious impairment of the federal court’s flexibility and authority to decide the case. The existence of a parallel action in state court does not satisfy the level of impairment necessary to permit injunctive relief under the exception. The district court concluded that the requested injunctive relief was not necessary in aid of its jurisdiction and was prohibited by the Anti-Injunction Act. Holland v. Wachovia Securities, LLC, Case No. 08-1772 (USDC S.D. Cal. December 3, 2008).

This post written by Dan Crisp.

Before a Federal Magistrate Judge, subcontractor Ratliff, Inc. (defendant and counter claimant) moved to compel arbitration under a provision of the prime contract that was incorporated by reference into the subcontract between plaintiff and defendant. Plaintiff, Dobson Brothers Construction, argued that the motion must be denied because neither the subcontract nor the prime contract contained an express agreement to arbitrate disputes.

The Magistrate held that, although the subcontract made no mention of arbitration or alternative dispute resolution, a clause in the prime contract which had been incorporated into the subcontract was binding and enforceable by Ratliff as a party to the subcontract. The court noted that Ratliff was not asserting claims as a third party, but rather as a party to the subcontract that was naturally anticipated by the prime contract.

Interpreting the language of the provision at issue, the Magistrate held that “based on the generally accepted description and definition of ‘arbitration,’” an agreement to submit disputes to a neutral forum for “hearing and decision” by “arbitration” refers to a binding arbitration process. Thus, the Magistrate recommended that the Motion to Compel Arbitration be granted. Dobson Brother Constr. v. Ratliff, Inc., Case No. 08-3103 (USDC D. Neb. Nov. 6, 2008).

This post written by John Black.

Founders Ins. Co. entered a Reinsurance Agreement with primary insurer Lyndon Property Ins. Co. which required Founders and Lyndon to arbitrate any insurance-related disputes. A dispute regarding coverage arose, and the parties submitted to arbitration in Boston. The arbitration panel issued a ruling requiring Founders to post a sum in prejudgment security. Lyndon subsequently filed suit in the District of Massachusetts asserting that Founders had failed to comply with the panel’s order and had evidenced no intent to do so. The parties disputed the choice of the District of Massachusetts as an appropriate forum under seemingly conflicting provisions of the Reinsurance Agreement. The arbitration provision provided for the enforcement of arbitration awards in any court of competent jurisdiction, while a choice-of-law and submission-to-jurisdiction provision named Missouri law as controlling and courts in Missouri as being appropriate.

The court held that while “gate keeping” decisions relating to arbitration may be made by courts, disputes regarding the procedure to be followed in the arbitration were to be decided by the arbitrators. Because the issue here was a procedural one – the proper interpretation of the Agreement’s choice of forum clauses – the interpretation was left to the arbitrators. The court determined that the holding in Richard C. Young & Co., Ltd. v. Leventhal, 389 F.3d 1 (1st Cir. 2004), was dispositive in the instant case as it proclaimed that a dispute between the parties over the location of the arbitration raised not a question of arbitrability but a procedural question and was appropriate for the arbitrator and not the court. The case was dismissed so that the arbitrators could decide the dispute. Lyndon Property Ins. Co. v. Founders Ins. Co., Ltd., Case No. 08-11359 (USDC D.Mass. Nov. 20, 2008).

This post written by John Black.

Life Settlements Corp. d/b/a Peachtree Life Settlements (“Peachtree”) entered into a contingent cost insurance contract with Syndicate 102 at Lloyd’s of London (“Syndicate 102”) to insure against the risk that living insureds under life policies which Peachtree purchased might live past his or her projected life expectancy. Some of the purchased life policies were placed by Peachtree with Life Receivables Trust (the “Trust”), an entity created by Peachtree for the express purpose of holding the policies. Syndicate 102 declined a claim by Peachtree after an insured outlived his life expectancy, asserting that the Trust made fraudulent misrepresentations regarding the date on which the underlying life policy was purchased, and also regarding the insured’s life expectancy. Syndicate 102 and the Trust arbitrated the dispute under the parties’ agreement, which commanded arbitration under American Arbitration Association rules.

After Syndicate 102 unsuccessfully attempted to join Peachtree as a party to the arbitration (Peachtree was also a party to the contract containing the arbitration agreement), it successfully sought the arbitrators’ issuance of subpoenas commanding Peachtree to produce certain documents that the Trust was unable to obtain from Peachtree, due to Peachtree’s expressed position that it was not a party to the arbitration, and the arbitrators thus had no jurisdiction to issue orders binding on Peachtree. After Peachtree refused to comply with the subpoenas, Syndicate 102 filed an action in the federal district court seeking to compel compliance. The court ordered Peachtree to comply. Peachtree appealed, and the Second Circuit held – noting a split among the circuits – that the plain language of §7 of the Federal Arbitration Act does not authorize pre-hearing discovery from non-parties, and that a non-party may only be compelled to produce documents or testimony in conjunction with an appearance before the arbitral panel. The Court thus reversed the district court’s ruling ordering Peachtree to comply with the subpoenas. Life Settlements Corporation d/b/a Peachtree Life Settlements v. Syndicate 102 at Lloyd’s of London, No. 07-1197-cv (2d. Cir. Nov. 25, 2008).

This post written by John Pitblado.