Reinsurance Focus

Dealer Computer demanded arbitration of a contract dispute, and sought to arbitrate on a class basis. The arbitration panel issued a “Clause Construction Award,” which permitted the matter to proceed on a class basis. Respondent, DCS, moved to vacate the award as being in excess of the powers of the panel and in manifest disregard of law. The district court denied the motion, and DCS appealed. Rather than reach the merits of the appeal, the appellate court vacated the district court’s order and remanded with instructions to dismiss for lack of jurisdiction on ripeness grounds. The court determined that, because the attempt at class certification could ultimately fail, the potential harm to plaintiff might never occur. Moreover, even if a class were certified, plaintiff could still obtain judicial review of the certification decision through an interlocutory procedure permitted by the arbitration rules (the AAA Supplementary Rules for Class Arbitrations). Although it thus did not reach the merits, in what appears to be dicta, the Sixth Circuit stated in a footnote that a court “may also vacate an award on non-statutory grounds if the arbitration panel demonstrates a ‘manifest disregard of the law,’” citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (1995), but also citing Hall Street Associates v. Mattel, Inc., 128 S. Ct. 1396 (2008), as contrary authority. Dealer Computer Services, Inc. v. Dub Herring Ford, Case No. 07-1819 (6th Cir. Nov. 18, 2008).

This post written by Brian Perryman.

KX Reinsurance Company (“KX”) arbitrated certain disputes with North Star Reinsurance Corporation (“North Star”) and General Reinsurance Company (“Gen Re”) (North Star and Gen Re had each initiated separate arbitral proceedings against KX, but all parties agreed to consolidate the proceedings as they involved interrelated issues). The arbitral panel ruled against KX on North Star’s and Gen Re’s contract claims, and awarded North Star and Gen Re interest and attorneys fees pursuant to the parties’ respective contracts. The Panel ruled in KX’s favor on North Star’s and Gen Re’s bad faith claims.

During the course of the proceedings, North Star and Gen Re also sought an interim order requiring KX to post security in the form of letters of credit pertaining to certain other potential future contract disputes. KX argued that letters of credit pertaining to potential future claims were beyond the scope of the arbitral submission. North Star and Gen Re argued that their respective submissions broadly included future potential claims. The panel ruled against KX and issued the interim order, which it later incorporated into the final award. It also included in the award an explicit retention of jurisdiction over potential future disputes. KX thereafter sought to confirm the award in the district court, except for that aspect of the final award which purported to allow the panel to retain jurisdiction over potential future disputes under the parties’ contracts, which it sought to vacate.

The district court ruled in KX’s favor, confirming the undisputed aspects of the final award, and vacating the panel’s decision to retain jurisdiction insofar as it exceeded the scope of the submission and was violative of KX’s right under its contracts with North Star and Gen Re to select an arbitrator of its choosing pertaining to any future disputes under the contracts. The Court noted that any contrary interpretation of that contractual right would create arbitral panels with unlimited jurisdiction over the course of the parties’ future contractual relations, a result not supported by the public policy underlying the Federal Arbitration Act. KX Reinsurance Co. v. North Star Reinsurance Corp., Case No. 08-7807 (USDC S.D.N.Y. Nov. 14, 2008).

This post written by John Pitblado.

New York law requires that applications to vacate or modify an arbitration award “be made by a party within ninety days after its delivery to him [or her].” However, New York Civil Practice Law and Rules (CPLR) 7511(a) does not define “delivery” in this context. Petitioner, Lowe, argued that delivery must be construed as the actual receipt of the award. Respondent, Erie, argued that delivery must be interpreted as the mailing of the award. In support of its argument, Erie cited Insurance Department Regulation Section 65-4.10(e)(3), which states that the delivery of the master arbitration award is the date the award is mailed to the parties. However, the court found that New York case law supported Lowe’s argument. Cases cited by the court used the terms “receipt” and “received” in discussing the 90-day period set forth in CPLR 7511(a). Lowe v. Erie Ins. Co., 1145 CA 08-00405 ( N.Y. App. Div. Oct. 10, 2008).

This post written by Dan Crisp.

We previously posted on March 27, 2007 on the Second Circuit’s denial of a motion to dismiss an interlocutory appeal from a federal district court’s denial of a motion to compel arbitration. The motion to compel arbitration was filed by several American Express companies (collectively “Amex”) against plaintiffs who brought a class action suit against Amex and other credit card companies and issuing banks for conspiring to fix certain fees charged to cardholders at excessive rates.

Addressing the appeal on its merits, the Second Circuit Court noted the undisputed fact that, though the plaintiff class had entered into cardholder agreements with other defendants in the class action, including Mastercard, Visa and Diner’s Club, they had no such relationship with Amex. Amex nonetheless sought to compel arbitration under the plaintiffs’ agreements with the other defendant companies on a theory of equitable estoppel. The Second Circuit held that because the only connection between Amex and the cardholders’ agreements with the other defendant companies was the alleged conspiracy, Amex could not establish the necessary condition under a theory of equitable estoppel that plaintiffs intended to be bound to arbitrate disputes with a stranger to their contracts. Ross v. American Express Co., Nos. 06-4598-cv(L), 06-4759-cv(XAP) (2d Cir. Oct. 21, 2008).

This post written by John Pitblado.

Lincoln General reinsured Clarendon National under a quota share reinsurance treaty. Lincoln gave notice of termination of the agreement, and Clarendon demanded that Lincoln provide collateral under a contractual provision requiring collateral if Lincoln’s Best rating became B++ or lower. Lincoln refused to provide collateral due to its purported termination of the treaty, and Clarendon demanded arbitration under the treaty. Lincoln sued in state court, seeking a declaration that it did not have to collateralize or arbitrate due to the termination of the treaty. Clarendon removed and moved to compel arbitration. The district court granted the motion, holding that a challenge to the validity of the contract as a whole was an arbitrable issue, whereas a challenge only to the arbitration provision would have been a judicial issue.

During the course of the dispute, Clarendon appointed an arbitrator, and had demanded that Lincoln do so. Lincoln refused, contending that it did not have to do so pending the dispute as to whether the dispute should be arbitrated. Clarendon then appointed a second arbitrator, under a provision allowing it to do so if Lincoln defaulted in appointing an arbitrator. Lincoln then belatedly named an arbitrator. The court confirmed Clarendon’s first appointment and Lincoln’s belated appointment, under a line of cases which decline to strictly enforce an appointment deadline if there is no prejudice from the delay in making an appointment. Lincoln General Ins. Co. v. Clarendon National Ins. Co., Case No. 08-0583 (USDC M.D. Pa. Aug. 15, 2008).

This post written by Rollie Goss.

In this case, the Eighth Circuit affirmed a district court decision that an arbitrator was qualified to hear a dispute and did not exceed his powers under the arbitration agreement. In 2000, in an attempt to make itself attractive for public financing, the Crawford Group decided to compensate its senior executives with a package that included awards of stock. William Holekamp retired in 2000 after three decades of working for Crawford and its subsidiary, Enterprise Car Rental. In June of 2004, Crawford attempted to buy back Holekamp’s stock by the terms of the Stock Award and Shareholder Agreement. A Missouri state court ruled that there was an issue with respect to the purchase price of the shares and sent the dispute to arbitration in accordance with the agreement. The arbitrator, chosen by Holekamp but approved by AAA (American Arbitration Association) valued Holekamp’s shares at $20.7 million, rather than the $11.4 million figure at which Crawford had valued them. The Eighth Circuit ruled that the AAA had the final determination as to whether or not the arbitrator was qualified, and the court then applied a deferential standard to the arbitrator’s decision, ruling that the award could not be set aside as long as the arbitrator was “even arguably construing or applying the contract and acting within the scope of his authority.” Crawford Group, Inc. v. Holekamp, No. 07-3454 (8th Cir. Oct. 6, 2008).

This post written by John Black.

Plaintiff Louisiana Safety Association of Timbermen – Self Insurers (“LSAT”) filed an action in federal district court in Louisiana seeking to enforce the assignment of a reinsurance contract entered into between its predecessor in interest, Safety National Casualty Corporation (“SNCC”), and SNCC’s reinsurer, Certain Underwriters at Llloyd’s, London (“Lloyd’s”). Lloyd’s refused to recognize the attempted assignment by SNCC to LSAT of SNCC’s rights under the reinsurance contract on the ground that the reinsurance pertained to underlying personal injury claims under workers compensation insurance, and thus were non-assignable rights.

Lloyd’s sought, in response to LSAT’s suit, an order referring the matter to arbitration, as required under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention”). The Convention, an international treaty, requires that courts of signatory states “shall, at the request of one of the parties, refer the parties to arbitration. . .” LSAT contended that a Louisiana statute barring mandatory arbitration provisions in insurance contracts reverse-preempted the Convention, under the McCarran-Ferguson Act. The district court granted summary judgment to LSAT, finding that the Louisiana statute supersedes the Convention. Lloyd’s appealed. The Fifth Circuit reversed, holding that while McCarran-Ferguson reverse-preempted “Acts of Congress,” that term did not encompass international treaties, which controlled in the face of contrary state law. Safety Nat’l. Cas. Corp. v. Certain Underwriters at Lloyd’s, London, et al., No. 06-30262 (5th Cir. Sept. 29, 2008).

This post written by John Pitblado.

Plaintiff, Philip Green, filed a wrongful discharge complaint in federal court in the Southern District of Texas against Defendant, Service Corporation International (“SCI”), an affiliate of his former employer. SCI moved to compel arbitration of the claim under Green’s employment contract, which contained an arbitration clause which explicitly applied to the employer’s “affiliates.” Green objected to SCI’s motion to compel arbitration, arguing that the employment contract left blank the name of the employer, though the cover page of the contract identified SCI. The Court granted SCI’s motion to compel arbitration, finding that the only possible reading of the contract indicated that SCI, as an “affiliate” of Plaintiff’s employer, was clearly covered by the arbitration clause, insofar as Green was plainly aware of the identity of his employer, and SCI was indisputably its affiliate. Reconsideration was denied.

When the panel convened, Green challenged the panel’s jurisdiction, raising the same contract interpretation issue again, which the panel rejected, entering an award against Green. Green moved to vacate the award, raising the same issue yet again to a court which already had rejected the argument twice. Not surprisingly, the Court denied Green’s motion to vacate and confirmed the award. Still not willing to give up, Green has filed a notice of appeal. Green v. Service Corp. Int’l., Case No. 06-833 (USDC S.D. Tex. August 25, 2008).

This post written by John Pitblado.

3M Company (“3M”) and Amtex Security, Inc. (“Amtex”) entered into two agreements, a master agreement and a sub-agreement. While the sub-agreement contained an arbitration provision, the master agreement did not. Despite their titles, the parties agreed that the sub-agreement controlled to the extent the two agreements conflicted. A dispute arose, and Amtex filed a complaint in Texas state court. 3M removed the case to federal district court, demanded arbitration and filed a motion to compel arbitration in federal district court in Minnesota. Amtex then filed an amended complaint that included fraud claims and requested punitive damages. The district court in Texas granted 3M’s motion to stay pending a decision by the court in Minnesota as to whether the disputes should be arbitrated. The Minnesota district court granted 3M’s motion to compel arbitration, and Amtex appealed.

In affirming, the Eighth Circuit ruled that the order compelling arbitration is final and appealable since the motion to compel arbitration was the only matter brought before the Minnesota district court. In affirming the order of the district court, the court reasoned that the definitions of the terms in the arbitration agreement indicated an intent to arbitrate a broad range of disputes. The court then looked to the underlying factual allegations in the amended complaint and determined that the broad scope of the arbitration clause could cover each of Amtex’s claims. 3M Co. v. Amtex Sec., Inc., No. 07-3519 (8th Cir. Sept. 16, 2008).

This post written by Dan Crisp.

In this insurance contract case before the Rhode Island Supreme Court, the plaintiff, National Refrigeration, appealed from an entry of summary judgment in favor of the defendant after the plaintiff filed a petition to enforce an arbitration clause in the insurance contract. The lower court granted summary judgment on the grounds that the plaintiff initiated its petition for arbitration years after the two-year limitations provision expressly provided for in the contract between the two parties. On appeal, plaintiffs argued that the trial court erred in ruling that plaintiff’s petition for arbitration was time-barred and that defendant’s actions had not tolled the limitations period. The defendant argued that the contract’s two-year limitation for commencing legal action with respect to damages under the policy applied to petitions for arbitration and that, therefore, plaintiff’s petition was not timely. The Supreme Court affirmed the trial court’s judgment, concluding that a petition for arbitration “fits squarely within the definition of legal action.” The Supreme Court also held that the ongoing settlement negotiations between the parties did not estop the defendant from invoking the time limitation defense. Some other courts have held that the issue of whether arbitration is barred by a limitation agreement is an issue for the arbitrators to decide. See JPD, Inc. v. Chronimed Holdings, Inc., 2008 WL 3876343 (6th Cir. Aug. 22, 2008). Nat’l Refrigeration, Inc. v. Travelers Indemnity Co. of Am., No. 2007-252 (R.I. May 29, 2008).

This post written by Lynn Hawkins.