Reinsurance Focus

Since reinsurance disputes are sometimes multi-jurisdictional we occasionally post on appellate UK and US court opinions dealing with the relationship between proceedings in different countries. The latest example of this involves two parties which entered into a contract concerning a hydroelectric plant in Kazakhstan. The contract is governed by Kazakh law but contains a London arbitration clause. When a dispute arose one party filed suit in Kazakhstan and secured a judgment from the Kazakh Supreme Court invalidating the arbitration provision. The other party filed suit in a UK court seeking a declaration that the arbitration provision was valid and enjoining the action in Kazakhstan. The UK trial court and Court of Appeals ruled that the Kazakh judgment was not binding, upheld the validity of the arbitration provision and enjoined the parties from proceeding with the Kazakh action. The UK Supreme Court agreed, and dismissed the appeal (the UK equivalent of affirming). The UK Supreme Court held that the refusal of the Kazakh court to enforce the arbitration provision compelled it to act to preserve the right to arbitrate. It is perhaps notable that no one had sought to commence an arbitration proceeding. The UK courts were acting to preserve the right of the parties to arbitrate, should they desire to do so. Ust-Kamenogorsk Hydropower Pland JSC v. AES Ust-Kamenogorsk Hydropower Pland LLP, [2013] UKSC 35 (June 12, 2013).

This post written by Rollie Goss.

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MacDermid Offshore Solutions LLC (“MacDermid”) sued Niche Products Limited (“Niche”) in Texas for misleading advertising. Soon thereafter, Niche sued MacDermid in the Patents County Court (“PCC”) in England under the British cause of action for malicious falsehood. Both intellectual property proceedings turned on whether a particular type of oil product was different. MacDermid filed an application with the PCC, requesting that the proceedings be heard in Texas. The PCC dismissed the application, and MacDermid appealed.

The High Court of Justice, Chancery Division, dismissed the appeal on the grounds that the judge had applied the correct test in holding that the claim should be heard in the English jurisdiction, despite a concurrent action in Texas. The High Court noted that the test remains whether the foreign jurisdiction is clearly more appropriate. The existence of prior foreign proceedings is not decisive, though it may be a factor to be taken into account, and the weight to be attached to such proceedings is a matter of judgment. MacDermid Offshore Solutions LLC v. Niche Products Ltd, [2013] EWHC 1493 (Ch) (May 6, 2013).

This post written by Brian Perryman.

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A federal district court granted in part and denied in part various motions to dismiss filed by defendants HSBC and private insurers Genworth, Republic, and Mortgage Guaranty. Plaintiffs alleged that HSBC Mortgage, through HSBC Reinsurance, conspired with various private mortgage insurers to create a captive reinsurance scheme. The scheme, which involved private insurers paying HSBC reinsurance premiums for little, if any, assumption of risk allegedly circumvented the kickback prohibitions of the Real Estate Settlement Procedures Act. Plaintiffs further alleged that the premium payments were made by the private insurers for business referrals. Though the RESPA allegations would otherwise be barred by the statute of limitations, the court declined to dismiss those claims, citing the doctrine of equitable tolling. The court also declined to dismiss plaintiffs’ additional claim for unjust enrichment. Only United Guaranty’s motion to dismiss was granted, as plaintiffs failed to show that United Guaranty actually insured the mortgages in question. Moriba BA v. HSBC USA, Inc., Case No. 2:13-cv-00072-PD (USDC E.D. Pa. June 27, 2013).

This post written by Brian Perryman.

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Plaintiff Insurance Company of the State of Pennsylvania (“INSCOP”) brought suit in New York state court against TIG, its reinsurer, alleging it breached six different facultative reinsurance agreements. TIG removed to federal court. INSCOP moved to remand, citing the service of suit clause which, though not quoted in the opinion, presumably authorized service of suit in New York. TIG argued that only some of the agreements contained the clause, but the court found there were no competing service of suit clauses for other jurisdictions, and that the absence of the clauses in some of the treaties did not overcome the presumption in favor of remand where the limits of federal court jurisdiction are at issue. Insurance Co. of the State of Pennsylvania v. TIG Insurance Co., No. 12-CV-6651 (USDC S.D.N.Y. March 11, 2013).

This post written by John Pitblado.

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A Connecticut federal court put to bed a case which started out as a petition to confirm an arbitration award between reinsurer and retrocessionaire, but “transmogrified over the years to become the antithesis of the speedy, inexpensive dispute resolution process that the Federal Arbitration Act (‘FAA’) intends.”

Trustmark and Arrowood were parties to certain retrocession agreements. Trustmark disputed its payment obligations and submitted the dispute to arbitration. After the arbitration panel found that Trustmark was not responsible for some $9.4 million of disputed payments, Trustmark petitioned the court to confirm the award. The court confirmed the award in 2003. Some three years later, Arrowood moved for contempt, alleging Trustmark had an obligation arising from the Court’s order to pursue set offs on Arrowood’s behalf, and that it failed to do so with regard to certain insolvent insurers. Ultimately, the Court kicked the issue back to the panel, which found that Trustmark may have an obligation to pay Arrowood the $9.4 million, if it was unsuccessful in pursuing payment from the insurers, but that the factual issues that would determine that issue were beyond the scope of the arbitration. Thus, the parties went back to court, and built an evidentiary record on the issue of whether Trustmark adequately fulfilled its duties to pursue setoff on Arrowood’s behalf. Accepting the factual record, but not the recommendations of the magistrate who handled the hearings, the Court denied Arrowood’s motions for enforcement and contempt. Arrowood Indmenity Co. v. Trustmark Insurance Co., No 3:03-cv-01000 (USDC D. Conn. Mar. 29, 2013).

In an arbitration related to an uninsured motorist insurance claim, the insured twice challenged the arbitrators’ discovery rulings by filing declaratory relief actions in state court. The first time, the appellate court affirmed the lower court’s dismissal of the action for failure to first challenge the subject order with the arbitrators. The second time, after the appellant unsuccessfully challenged the orders with the arbitrators, the lower court dismissed the suit for lack of subject matter jurisdiction over interlocutory arbitration orders. On appeal, the appellate court affirmed the result, but disagreed with the lower court’s reasoning. The court held that a declaratory relief action is indeed a “justiciable” matter under state law, notwithstanding that the underlying issue involved interlocutory arbitration orders. The court ultimately concluded, however, that based on the legislative history of the Uniform Arbitration Act, the action still should have been dismissed for lack of ripeness. The court explained, “The meaning of [the legislative history] could not be clearer: if there is a dispute about an issue that is subject to the arbitration agreement, then the courts cannot review the arbitrator’s ruling on that issue until after the arbitration process is complete.” Klehr v. Illinois Farmers Insurance Co., Case No. 1-12-1843 (Ill. Ct. App. Jan. 22, 2013).

This post written by Michael Wolgin.

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An Illinois federal court sua sponte ordered R&Q Reinsurance Co., the plaintiff in a newly filed case, to provide copies of the contracts at issue, based on the complaint reflected that neither party resided in Illinois for jurisdictional purposes, although the complaint alleged that the contracts were negotiated and would be administered in Illinois. The Court ordered production of the contracts under the suspicion that they contained forum selection or choice-of-law clauses. R&Q Reinsurance Co. v. Sentry Insurance, No. 12 C 9788 (USDC N.D. Ill. Dec. 12, 2012).

This post written by John Pitblado.

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Pine Top Receivables LLC (“PTR”) was formed when a buyer purchased the assigned rights under certain reinsurance contracts from the Illinois liquidator handling the Pine Top Insurance Company receivership. PTR then brought suit against reinsurer Banco De Seguros Del Estados, which had entered into reinsurance contracts with Pine Top. PTR alleged that Banco owed more than $2,000,000 in overdue balances on the contracts. PTR’s suit sought to compel arbitration. Banco filed a motion to dismiss on jurisdictional grounds. PTR moved to strike the motion, on the grounds that Banco had not paid prejudgment security under Illinois’ statute requiring security by a nonresident reinsurer. Banco resisted the motion, asserting that the Foreign Sovereign Immunities Act prohibited the assessment of any “attachment” on a foreign governmental entity. The Court agreed with Banco, finding that it is a government instrumentality of the Republic of Uruguay, and that pre-judgment security under the statute was effectively an “attachment” as the term is used in the Act. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estados, No. 12 C 6357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by John Pitblado.

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A pro se attorney sued his former clients, Argentina’s economic ministry and a reinsurance company owned by the Argentine government, for malicious prosecution based on the Argentine government’s criminal prosecution of the attorney for allegedly exorbitant fees. In the malicious prosecution action, the Southern District of New York decided it could not exercise subject matter jurisdiction over the defendants because none of the exceptions to sovereign immunity provided by the Foreign Sovereign Immunities Act applied. Although the court acknowledged that defendants’ retention of the attorney in connection with commercial matters qualified as commercial activity, it determined that the commercial activity exception did not apply because the activity in question was the government initiated criminal prosecution. The court also concluded that defendants’ prior consent to arbitrate the issue of alleged overbilling by the plaintiff was not an “unmistakable or unambiguous waiver” of immunity from the separate tort action of malicious prosecution. Moreira v. Ministerio de Economia y Produccion de la Republica Argentina, Case No. 10 Civ. 266 (LTS)(KNF) (S.D.N.Y. Dec. 7, 2012).

This post written by Abigail Kortz.

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The Washington Supreme Court affirmed the denial of a motion to compel arbitration in an insurance dispute, based on a state statute that prohibits insurance contracts from “depriving the courts of [Washington] of the jurisdiction of action against the insurer.” The court analyzed the legislative history of the statute and state court precedent to find that the statute is more than a forum selection provision, but is a requirement for insurance disputes to be litigated in court. The court rejected the argument that a court’s ability to confirm an arbitration award constitutes “jurisdiction of action,” holding that a court’s power to confirm an award reflects only “limited” jurisdiction. The court further held that the state law regulated the “business of insurance” under the McCarran-Ferguson Act, so as to reverse preempt the FAA and preclude any application of Concepcion to this case. This result is similar to that in states which have a statute prohibiting arbitration provisions in certain insurance contracts. Washington Department of Transportation v. James River Insurance Co., Case No. 87644-4 (Wash. Jan. 17, 2013).

This post written by Michael Wolgin.

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