Reinsurance Focus

William Smythe invested funds with Morgan Keegan & Co, Inc. He brought a FINRA arbitration against Morgan Keegan alleging improper investments. Pursuant to FINRA rules, the parties named potential arbitrators, and Morgan Keegan objected to certain of them, two of whom were appointed to the panel over its objections. The panel found in favor of Smythe, and Morgan Keegan brought an action in Tennessee state court seeking to vacate the award based on the alleged “evident partiality” of two of the arbitrators. The trial court agreed with Morgan Keegan and vacated the award and remanded for a new FINRA arbitration. Smythe appealed. The appellate court lacked jurisdiction to hear the appeal, noting that while the Federal Arbitration Act specifically grants the right to appeal vacatur of an arbitration award, the comparable Tennessee arbitration statute allows for appellate review of vacatur only if unaccompanied by an order to remand for a new arbitration. Morgan Keegan & Co. v. Smythe, No. CH092353 (Tenn. Ct. App. Nov. 14, 2011)

This post written by John Pitblado.

Pacific Employers Insurance Company entered into a quota share reinsurance agreement with AXA Belgium in the 1970s, when Pacific was a California domiciliary. The agreement was never formalized so it included no terms concerning exclusive jurisdiction, service of suit, choice of law or forum selection. Pacific moved its offices to Pennsylvania in the early 1990s. Pacific continued to bill AXA on occasion, and AXA paid claims and submitted billings to Pacific at its Pennsylvania office. The parties then became engaged in dispute over AXA’s continuing obligations. Pacific brought suit in Pennsylvania federal court. AXA challenged personal jurisdiction. Pacific produced evidence in support of its claim of jurisdiction, including billings AXA sent to it in Pennsylvania, and the fact that AXA representatives had conducted an audit of Pacific at its Pennsylvania offices. It also contended that AXA directed numerous written and telephone communications to Pacific in Pennsylvania. Finally, Pacific argued that AXA did other substantial business in Pennsylvania, in support of its “general jurisdiction” claim. The Court rejected all of Pacific’s claims, and granted AXA’s Rule 12(b)(2) motion to dismiss. Pacific Employers Ins. Co. v. AXA Belgium, S.A., No. 09-5211 (USDC E.D. Pa. April 27, 2011).

This post written by John Pitblado.

Plaintiff White Mountains Re, successor in interest to MONY Re, filed an action in the New York Supreme Court against Travelers asserting claims for declaratory judgment and breach of contract arising out of a dispute concerning certain reinsurance contracts. Travelers removed the action to the US District Court for the Southern District of New York and subsequently filed a motion to transfer this action to the District of Connecticut. There are a number of related cases concerning the reinsurance contracts pending in the US District Court for the District of Connecticut, although White Mountains Re is not a party in any of the Connecticut actions. The District Court denied Travelers’ motion, concluding that although the action could have been filed in the District of Connecticut originally, White Mountain Re’s choice of forum is “given great weight.” Further, the Court concluded that while the current action is related to those in the District of Connecticut, White Mountain Re’s suit was not filed in response to a direct threat of litigation in the other forum. Accordingly, Travelers failed to show that transfer was appropriate. White Mountains Reinsurance Co. of Am. v. Travelers Casualty and Surety Co., Case No. 11-390 (S.D. N.Y. Apr. 13, 2011).

This post written by John Black.

National Casualty is one of several reinsurers providing reinsurance to Munich Re under a single treaty. Munich Re submitted claims under the treaty that were denied by National Casualty and another reinsurer, Wasau. The treaty provided disputes would be submitted to arbitration and that if more than one reinsurer was involved in the same dispute, all the reinsurers would constitute and act as one party. Wasau refused to submit to the arbitration, however, and National Casualty refused to proceed without Wasau, taking the position that the treaty’s “act-as-one” clause prohibited the arbitration from going forward without Wasau as a party. Munich Re successfully moved to compel. The district court held that whether the “act-as-one” provision prohibited a separate arbitration against National Casualty was a threshold procedural issue for the arbitrators to decide. Munich Reinsurance America, Inc. v. National Casualty Co., Case No. 10 Civ. 5782 (USDC S.D.N.Y. April 26, 2011).

This post written by Ben Seessel.

Last year, we reported that the Southern District of New York had confirmed an arbitration award made by the China Maritime Arbitration Commission against Pactrans Air & Sea, Inc. (“Pactrans”), notwithstanding Pactrans’ argument that the award was being challenged before the proper authorities in China. The judgment recognizing the award was subsequently appealed by Pactrans on jurisdictional grounds. The Second Circuit Court of Appeals remanded the case, instructing the district court to determine whether it decided the issue of its personal jurisdiction over Pactrans, and, if not, to enter an order to show cause why it should not dismiss the case for lack of personal jurisdiction. China Nat’l Chartering Corp. v. Pactrans Air & Sea, Inc., No. 09-4956 (2d. Cir. Jan. 19, 2011).

This post written by Ben Seessel.

On January 27, 2011, we reported on a court’s application of the “nerve center” test to dismiss for lack of diversity of citizenship a case seeking the return of excess reinsurance deposit. The insurer alleged its domicile in the complaint, but failed to allege the location of its principal place of business. The nerve center was the “single place” where direction, control and coordination originated. The court earlier found that to be the state where the insurer’s president, secretary, and director were located, and not the state where most of the insurer’s board of directors and board meetings were located. The court has now denied the plaintiff’s motion to reconsider that finding, holding that plaintiff’s motion was “nothing more than a request for a second bite at the apple.” Health Facilities of California Mutual Insurance Co., Inc. v. British American Insurance Group, Ltd., Case No. CV 10-3736 (USDC C.D. Cal. April 5, 2011).

This post written by Michael Wolgin.

Pearl Seas Cruises, LLC (“PSC”), a Marshall Islands company whose members are Connecticut residents, petitioned a Connecticut federal district court to vacate a partial final arbitral award issued by a panel of arbitrators in connection with its dispute against Canadian corporation, Irving Shipbuilding Incorporated (“ISI”). ISI moved to dismiss, arguing that the court lacked personal jurisdiction over it and that PSC’s petition was premature because no final arbitration award had been issued yet by the panel. The court held that because ISI’s sales pitch, contract negotiations, and several meetings to resolve issues regarding contract performance occurred in Connecticut, ISI had the required minimum contacts with Connecticut to subject it to the court’s jurisdiction. However, the court held that PSC’s petition was not justiciable because the panel had not yet issued a final arbitral award. Pearl Seas Cruises, LLC v. Irving Shipbuilding, Inc., Case No. 10-1294 (USDC D. Conn. Feb. 9, 2011)

This post written by Ben Seessel.

On August 24, 2010, we reported that Folksamerica Reinsurance (n/k/a White Mountains Reinsurance) had been given 60 days to perfect service against Constructora Del Litoral in an action arising out of Constructora’s alleged failure to indemnify Folksamerica for sums paid in connection with reinsuring surety bonds issued for a construction project in Ecuador. In the latest development, the parties agreed to a joint stipulation of dismissal of the action with prejudice, although Folksamerica will not be precluded from pursuing claims against the defendants in Ecuador. The district court entered an order dismissing the case on February 25, 2011. Folksamerica Reinsurance Co. v. Constructora Del Litoral, S.A., Case No. 10-20560 (S.D. Fla. Feb. 25, 2011).

This post written by John Black.

A Wisconsin federal district court has held that it may not interfere with an insurance rehabilitation case proceeding in state court. On January 18, 2011, the federal court ruled that it lacked jurisdiction to consider the legality of a state court’s order made in the context of an insurance rehabilitation proceeding. The state court enjoined the United States from taking certain actions against the claims-paying assets of the segregated accounts of Ambac Assurance. Shortly thereafter, the United States commenced a collateral attack against the state court and others, seeking to enjoin the state court from enforcing its rehabilitation plan or any injunction insofar as it affected the United States. The federal court once again ruled it lacked jurisdiction, holding that the McCarran-Ferguson Act “reverse-preempted” I.R.C. § 7401 (which authorizes injunctions for enforcement of internal revenue laws), the federal-question statute, and the federal-tax-issue jurisdiction statute. An injunction would “impair” or “supersede” state laws authorizing the state court to issue rehabilitation orders. The court also rejected the United States’ argument that the McCarran-Ferguson Act cannot preempt sovereign immunity. The case was dismissed for lack of subject matter jurisdiction. United States v. Wisconsin State Circuit Court for Dane County, Case No. 11-99 (USDC W.D. Wis. Feb. 18, 2011).

This post written by John Black.

In a recent opinion, the Ninth Circuit Court of Appeals ruled on the novel question of whether a district court had removal jurisdiction under 9 U.S.C. § 205 where a defendant raises an affirmative defense relating to an arbitral award falling under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The case arose from a dispute over medical licensing rights between entities from the British Virgin Islands, Israel, and California. After an arbitration decision finding that Infuturia Global had a valid license to develop, market, and use certain medical techniques, a California federal district court lifted an existing litigation stay on a related state court action. Infuturia moved to remand, arguing that removal was improper under 9 U.S.C. § 205 because defendants were not party to the foreign arbitration agreement. On appeal, the Ninth Circuit affirmed the district court’s ruling, holding that because an arbitration agreement or award falling under the Convention “relates to” an action’s subject matter if it could conceivably affect the action’s outcome, a district court does indeed have jurisdiction. Infuturia Global Ltd. v. Sequus Pharmaceuticals, Inc., Case No. 09-16378 (9th Cir. Feb. 7, 2011).

This post written by John Black.