Reinsurance Focus

Plaintiff Excalibur Reinsurance Corporation (“Excalibur”) sought a preliminary injunction in the Eastern District of Pennsylvania to enjoin Defendants Select Insurance Company and the Travelers Indemnity Company from proceeding with litigation on the same issues in the District of Connecticut. Excalibur argued that without the injunction, it would need to post security in the Connecticut action, an action that would deplete its corporate assets and seriously affect its liquidity. The district court, however, denied Excalibur’s preliminary injunction because it found that Excalibur would not be “irreparably harmed” if the request were denied. The court found that Excalibur would recover posted funds in Connecticut if it prevailed. It also noted that a sworn statement by its Assistant Vice President was insufficient evidence to demonstrate the potential injury the company faced from posting security in two different matters.

Excalibur Reinsurance Corp. v. Select Ins. Comp., No. 15-2522 (USDC E.D. PA. June 2, 2015)

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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A federal district court has taken under advisement plaintiff’s motion for injunction and defendant’s cross-motion to compel arbitration after conducting a hearing on the matter. The issue to be decided is whether CX can compel Trenwick to participate in an arbitration based upon a reinsurance agreement as to which CX was not a party and which, according to Trenwick, was terminated. At the core of this dispute is a reinsurance agreement under which Trenwick reinsured Commercial Casualty Insurance Company. CX argued the reinsurance agreement included a “cut-through” provision which gave CX the right to collect directly against Trenwick even though CX was not a party to the reinsurance agreement. Trenwick denied liability under this cut-through provision and further denied that the cut-through provision gave its beneficiaries, including CX, any rights under the agreement’s arbitration clause. Additionally, Trenwick argued that the reinsurance agreement was terminated further to a commutation agreement between Trenwick and CCIC’s Liquidator and, as a result, terminated any rights CX may have had under the cut-through provision and any requirement to arbitrate CX’s claims. CX responded that it was not a party to the commutation agreement, which could therefore not extinguish CX’s right to arbitrate. CX also argued that Trenwick’s termination defense must be arbitrated. Trenwick America Reinsurance Corp. v. CX Reinurance Company Limited, Case No. 3:13-cv-01264 (JBA) (USDC D. Conn. Apr. 28, 2014).

This post written by Leonor Lagomasino.

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The Sixth Circuit recently reversed a district court’s decision to stay arbitration proceedings in a dispute concerning allegations of overbilling on a reinsurance program. The arbitration clause from the treaty established a tripartite method of arbitration – one arbitrator selected by each side and one neutral umpire. During the course of the arbitration (and before rendition of a final award), one of the parties contended that its selected arbitrator had been disenfranchised by the other two arbitrators and that inappropriate ex parte communications had occurred. A lawsuit was filed in Michigan state court, seeking to vacate an interim award on the grounds that the two arbitrators had exceeded their authority under the treaty and that the umpire had displayed evident partiality. The case was removed to federal court, where the district court recast the challenge as a breach of contract dispute regarding the rules under which the arbitration was to proceed, and it granted an injunction to stay the arbitration. On appeal, the Sixth Circuit reversed, concluding that the district court erred by prematurely interjecting itself into the private dispute, noting that parties to an arbitration generally may not challenge the fairness of the proceedings or the partiality of the arbitrators until the conclusion of the arbitration and the rendition of a final award. The Sixth Circuit made a point to disagree with the district court’s application of 9 U.S.C. § 2, noting that “[n]othing in the text or history of the FAA suggests that § 2 was intended to displace § 10’s limitation on judicial review of non-final awards.” Savers Property & Casualty Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, PA, Nos. 13-2288/2289 (6th Cir. Apr. 9, 2014).

This post written by Catherine Acree.

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Excalibur Reinsurance provided reinsurance to Travelers Indemnity.  Disputes arose and Travelers filed two lawsuits against Excalibur in United States District Court in Connecticut.  Travelers moved to require Excalibur to post pre-pleading security pursuant to Conn. Gen. Stat. section 38a-27(a).  The statute requires that unauthorized insurers post security.  Excalibur contended that the statute did not apply for three separate reasons: (1) it was authorized in Connecticut when the reinsurance agreements were entered into, although it later cancelled that authorization; (2) the reinsurance agreement was not issued and delivered in Connecticut; and (3) the reinsurance agreements contain a New York choice of law provision.  The courts disagreed, and granted the motions for security.  The statute provides a remedy with respect to insurers which are not authorized at the time that they make a filing in Connecticut courts, rather than when the insurance agreement was entered into.  The courts found that while the statutes provided an exemption for non-Connecticut direct insurance, the statutory exemption did not apply to reinsurance.  Finally, the courts found that the pre-pleading security statute was procedural, not substantive, under the Erie doctrine, resulting in the choice-of-law clause not applying.  Excalibur therefore was required to post security in one case in the amount of $824,591 and in an amount yet to be determined in the other case.  Travelers Indemnity Co. v. Excalibur Reinsurance Corp., Case Nos. 11-1209 and 12-1793 (USDC D. Conn. Mar.11 and 17, 2014).

This post written by Rollie Goss.

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Utica Mutual Insurance Company brought an action in 2013 against Century Indemnity Company (itself and against certain of its named predecessors) for breach of contract and breach of the duty of utmost good faith, as well as a declaratory claim, regarding alleged amounts due to Utica from Century predecessor Insurance Company of North America under certain reinsurance agreements. The court invited the parties to submit their positions regarding mandatory mediation, but received no response. The Court therefore ordered the parties to participate in the mandatory mediation program, further requiring that they complete it by March 31, 2014. Utica Mutual Insurance Co. v. Century Indemnity Co., Case No. 6:14-CV-995 (USDC N.D.N.Y. Jan. 9, 2014).

This post written by John Pitblado.

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A New York federal court declined to seal portions of a reinsurance agreement at the request of intervening reinsurer Battenkill Insurance Co., LLC (“Battenkill”). Battenkill intervened in an interpleader action brought by Wells Fargo Bank regarding the respective of rights of the various defendants to certain trust proceeds. Battenkill sought to introduce its reinsurance agreement with one of the defendants, and moved to have the agreement sealed due to, what the Court deemed to be “boilerplate” concerns about confidential, proprietary information. The Court held that redacting the agreement as requested would eliminate key, relevant terms pertinent to Battenkill’s substantive grounds for intervention, and might also preclude objecting parties from relying on further redacted portions in any response thereto. It therefore held that Battenkill had not met the high threshold necessary to sealing. Wells Fargo Bank, N.A. v. Wales LLC, No. 13-Civ-6781 (USDC S.D.N.Y. Jan. 27, 2014)

This post written by John Pitblado.

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In a putative class action involving captive reinsurance “sham” contracts, and illegal kickbacks in the residential mortgage insurance industry in violation of the Real Estate Settlement Procedures Act, the Middle District of Pennsylvania denied Defendant-insurers’ motion to stay proceedings pending the resolution of a factually similar case, Riddle v. Bank of America Corp., pending in the Third Circuit Court of Appeals. A court may stay proceedings so as to abide by the outcome of another case that may substantially affect it or be dispositive of the issues, but the appropriateness of such a stay is conditioned on the claims from both proceedings being factually indistinguishable. In Riddle, the court imposed a narrow limitation on discovery, allowing discovery only on the issue of whether Plaintiffs engaged in due diligence following execution of their mortgages. The Cunningham court, however, determined that such a limitation was too narrow, ruling that the equitable tolling doctrine is an entangled, “two-pronged [inquiry] into both plaintiffs’ and defendants’ conduct,” the latter of which encompasses Defendants’ attempts to collectively and fraudulently conceal the improprieties of the reinsurance arrangements. The court found that whether the Third Circuit’s decision in Riddle will control or substantially inform the Cunningham court’s outcome is indeterminable, as Defendants’ contention that the record to be developed in discovery will be identical to the record in Riddle is entirely speculative and premature. Cunningham v. M&T Bank Corp., Case No. 1:12-cv-01238-CCC-SES (M.D. Pa. Jan. 14, 2014).

This post written by Kyle Whitehead.

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Addressing the method of appointing a tie-breaking umpire-arbitrator in a series of reinsurance coverage arbitrations commenced by insurer Arrowood Indemnity Company, the Southern District of New York recently ordered that the parties’ already chosen arbitrators follow the steps provided in the “excess of loss” reinsurance agreements in selecting the third arbitrator. Although the relevant reinsurance treaties specified a method for such selection, Arrowood sought an alternative approach, which included the nomination by each party of up to eight candidates and a voir dire-like objection and selection process. However, the Court, acting under authority granted by Section 5 of the Federal Arbitration Act, denied that alternative, ordering that the present arbitrators select an umpire in accordance with the treaties’ requirements. Then, the Court would regard that selection as “presumptively appropriate,” albeit rebuttable, for appointment by the Court as umpire for the remaining arbitrations of the series. Employers Insurance Co. of Wausau v. Arrowood Indemnity Co., No. 12-cv-08005-LLS (USDC S.D.N.Y. Oct. 25, 2013).

This post written by Kyle Whitehead.

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A court recently unsealed certain record documents related to a reinsurance arbitration, at the request of interested nonparties. The documents were originally filed with the court in connection with a petition to confirm the arbitration award and a responsive motion to dismiss. The parties were permitted to file the documents under seal pursuant to an approved confidentiality agreement. In deciding to unseal, the court found that the documents were “judicial documents” relevant to the performance of the judicial function, and thus subject to a “presumption of access.” The weight of the presumption was “high,” in that the documents constituted the heart of the what the court was asked to act upon (notwithstanding that the case settled prior to the court’s consideration of the materials). Neither the existence of a confidentiality agreement, nor the fact that the movant nonparties were engaged in related reinsurance arbitration with one of the parties, could keep the documents protected from public access. Eagle Star Insurance Co. v. Arrowood Indemnity Co., Case No. 1:13-cv-03410 (USDC S.D.N.Y. Sept. 23, 2013).

This post written by Michael Wolgin.

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In a dispute between two insurance companies regarding an underwriting agreement, the arbitrator selection process broke down when the arbitrators could not agree on appointment of the umpire. Each party raised concerns about the qualifications of the other party’s umpire nominees and reached such an impasse that they resorted to the courts for declaratory relief. The trial court entered a temporary injunction ordering the plaintiff to desist from arbitrating or litigating until the umpire selection dispute could be resolved and entered an order compelling arbitration and plaintiff’s participation in the umpire selection process as provided by the arbitration clause in the underwriting agreement. Plaintiff challenged both orders in an interlocutory appeal. The appellate court lacked jurisdiction to review the order to compel arbitration in an interlocutory appeal because the Federal Arbitration Act prohibits such review, but did affirm the temporary injunction. Drobny v. American National Insurance Co., Case No. 01-12-01034-CV (Tex. App. Aug. 29, 2013).

This post written by Abigail Kortz.

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