Reinsurance Focus

In a labor dispute governed by the Labor-Management Relations Act, the U.S. District Court for the Eastern District of Louisiana has vacated a labor arbitration award due to bias and misconduct on the part of the arbitrator. The arbitrator had admitted that he had a prior business relationship with a party affiliated with the plaintiff. The arbitrator also made a request of plaintiffs’ counsel to assist him in recovering money connected with the prior business relationship and implied that plaintiff’s counsel’s compliance would effect the result of the arbitration. The Federal Mediation and Conciliation Service Arbitration Review Board had found that the arbitrator violated the Code of Professional Conduct for this behavior. The court held that “it is crucial that arbitrators remain, and appear, completely unbiased” and the arbitrator’s failure to do so required that the arbitration award be vacated. United Steel Workers AFL CIO v. Murphy Oil USA, Inc., No. 09-7191 (U.S.D.C. E.D. La. Aug. 3, 2010).

This post written by Michael Wolgin.

A Colorado district court granted a Vail resort condominium developer’s motion to compel arbitration under a condominium purchase agreement. Residents brought suit alleging that they were denied promised parking rights at the resort-side condominium they purchased, and were instead secretly substituted with valet parking rights instead, which rights were of lesser value. The residents sued the developer. The developer demanded arbitration under the purchase agreement, which the residents resisted. The developer brought a separate action to compel arbitration. The court found for the developer, rejecting the residents’ arguments that (1) they were not bound by the arbitration provision because they were not parties to the original purchase agreement, but instead were assignees; (2) the claims do not arise out of interpretation of the agreement; (3) the developer waived its right to arbitrate by failing to assert that right as an affirmative defense to the lawsuit brought by the residents, and (4) the residents’ claims under the Colorado Consumer Protection Act were not arbitrable. Stone v. Vail Resorts Development Co., No. 1:09-CV-02081 (USDC D. Col. July 1, 2010)

This post written by John Pitblado.

Aon Benfield Securities has issued its third-annual review of the insurance-linked securities (ILS) market. The review describes the growth that has occurred in the ILS market for the year ending June 30, 2010, including 20 new transactions representing a volume of $4.6 billion. The review also provides a positive outlook for the upcoming year.

Also included in the Aon Benfield review are Aon Benfield’s newly-created indices for its All Bond, BB-rated Bond, U.S. Earthquake Bond, and U.S. Hurricane Bond categories of the ILS market. The indices reflect strong investment returns for 2010, including returns of nearly 13% for both the All Bond and the BB-rated Bond indices, over 15% for the U.S. Hurricane Bond index, and over 7% return for the U.S. Earthquake Bond index. Aon Benfield also provides analyses of the catastrophe bond market and the non-U.S. ILS market, as well as a panel discussion of the ILS market with five active investors.

A report was also issued by Swiss Re that focuses on the ILS market for the first half of 2010. The report provides an overview of new issuance for the first half of the year – which had a volume of $2.5 billion and was comprised of 85% exposure to U.S. Wind risk. Swiss Re’s report also provides analysis of catastrophe bond maturities, trading in the secondary market, and a breakdown of the 3.3% return of its Swiss Re Global Cat Bond Index. Swiss Re’s report also spotlights its recent placement of notes covering U.S. hurricane and earthquake risk for Allianz, and a breakdown of various ILS sector data. Similar to the market review of Aon Benfield Securities, Swiss Re provides a positive outlook for the ILS market.

This post written by Michael Wolgin.

The Second Circuit Court reversed a $34.3 million judgment rendered after a jury verdict against AIG on fraudulent inducement claims asserted by AXA arising from reinsurance facilities the parties entered into in or about 1998. While the Court agreed with a district court ruling that AXA’s claims sounded in fraud and not contract, and thus were properly not referable to arbitration, it nonetheless held as a matter of law that AXA failed to prove the claims were timely brought under the two-year discovery prong of the statute of limitations for fraud. The Court found that AXA was on notice of the alleged fraud as early as 1998, when it signed wordings which the Court found clearly indicated the manner in which AIG intended to operate the reinsurance facilities. AXA, despite the “storm warnings” of the wordings, and other indications of AIG’s intentions from 1998 through 2000, failed to bring suit until 2005. Because it found the claims were time-barred, the Court reversed the entry of judgment, and remanded with instructions to enter judgment in favor of AIG. AXA Versicherung AG v. New Hampshire Ins. Co., No. 08-2521 (2d Cir. Aug. 23 2010).

This post written by John Pitblado.

We have reported several times on the ongoing developments in the Insurance Brokerage Antitrust Litigation MDL proceeding. In the most recent development, following a third District Court dismissal of the RICO and Sherman Act claims, the Third Circuit Court of Appeals issued a 200 page opinion affirming in part, vacating in part, and remanding for further proceedings. The Court of Appeals vacated the District Court’s dismissal of the Sherman Act claims with respect to defendants alleged to have engaged in bid rigging in the Marsh-centered commercial conspiracy, the dismissal of the RICO claims based on the same issue, and the dismissal of the alleged CIAB enterprise with respect to defendant brokers. The Court also vacated the dismissal of the state law claims. The District Court’s judgment was affirmed in all other respects. The Third Circuit remanded for further proceedings consistent with the opinion. In re: Insurance Brokerage Antitrust Litig., MDL No. 1663 (3d Cir. Aug. 16, 2010).

This post written by John Black.

After a second trip to the First Circuit, a district court has held that remand to a new panel of arbitrators is appropriate where the panel’s vacated award was earlier held to be in manifest disregard of the law. The case involved a storied procedural history involving multiple appeals to the First Circuit. The plaintiff sought confirmation of a NASD/FINRA arbitration award, which the district court granted. After the First Circuit vacated the award as manifestly disregarding the law, and remanded the case to the district court, the district court ordered a remand of the matter to FINRA for rehearing. The defendants appealed again, arguing that the district court’s remand order “tacitly adopted” the plaintiff’s allegedly erroneous assertion that the First Circuit had condoned remand to the original arbitration panel. Although it affirmed the order remanding the case to FINRA, the First Circuit directed the district court to determine whether a new arbitration panel should be constituted, the original arbitration panel should be reconstituted, or FINRA should decide the issue in the first instance. The district court found that remand to a new panel was “most appropriate” because of the First Circuit’s earlier finding that the arbitrators had acted in manifest disregard of the law. Kashner Davidson Securities Corp. v. Mscisz, Case No. 05- 11433 (USDC D. Mass. June 25, 2010).

This post written by Brian Perryman.

The US District Court for the Southern District of Florida recently issued an opinion on defendant Constructora del Litoral’s Motion to Dismiss for Insufficiency of Service of Process by plaintiff Folksamerica Reinsurance. The action arises out of defendants’ alleged failure to indemnify Folksamerica for sums paid in connection with reinsuring surety bonds issued for a construction project in Ecuador. Plaintiff served process pursuant to the Inter-American Convention on Letters Rogatory and Additional Protocol. Constructora alleged in its Motion to Dismiss that service was improper under both Ecuadorian law and under the Convention. The Court concluded that, although defendants had met the burden in establishing that service of process was insufficient, Folksamerica should be given 60 days to perfect service and file proof with the Court. Further background is available in the motion to dismiss, and the opposition to the motion to dismiss. Folksamerica Reinsurance Co. v. Constructora del Litoral, S.A., Case No. 10-20560 (S.D. Fla. June 18, 2010).

This post written by John Black.

The Third Circuit has affirmed a judgment in favor of several foreign reinsurers confirming arbitration awards against the statutory liquidator (the Pennsylvania Insurance Commissioner) for two insolvent insurance companies, but reversed a sanctions award against the Commissioner. Following an arbitration award rescinding three of the four reinsurance treaties at issue, the Commissioner filed a motion in state court to confirm in part, and to vacate in part, the award as part of the liquidation proceedings. The reinsurers removed the case to the District Court for the Eastern District of Pennsylvania pursuant to the Federal Arbitration Act’s removal provision in 9 U.S.C. § 205, and filed a motion to confirm the award. The Commissioner moved to remand the case, arguing that the parties had selected the Pennsylvania Uniform Arbitration Act to govern the arbitration and, thus, that the parties had opted out of the FAA. The district court denied the remand motion and confirmed the award, concluding that the FAA’s vacatur standards applied, not the PUAA’s standards. The district court also sanctioned the Commissioner for filing what the court perceived to be a frivolous remand motion.

On appeal, the Third Circuit initially concluded that removal was proper. That court rejected the Commissioner’s arguments that, first, the parties opted out of the FAA and, second, even if the FAA applies, the arbitration provisions at issue clearly expressed an intent to opt out of the removal provision in § 205. As a matter of law, parties cannot “opt out” of the FAA in its entirety “because it is the FAA itself that authorizes parties to choose different rules in the first place,” and the parties did not agree to waive the right of removal. Not only did the treaties’ arbitration provisions not make any mention of removal, the only provision referring to removal, a service-of-suit provision, stated that nothing in it should be understood to constitute a waiver of the reinsurers’ removal rights.

The Third Circuit next concluded that the FAA supplied the vacatur standards. In the absence of clear intent to the contrary, the FAA’s standards apply to an arbitral award rendered in favor of a foreign party and enforced in the United States. In addition, there was no clear intent to apply the PUAA vacatur standards. Although the treaties stated that “the arbitration shall be in accordance with the rules and procedures established by the [PUAA],” the service-of-suit provision specifically referred to enforcement of the arbitration award in federal courts. The award was thus confirmable under the FAA’s limited vacatur standards.

Finally, the Third Circuit reversed the order granting sanctions for the remand motion, in part because there was no basis in existing law for the district court to conclude that parties could not opt out of § 205 and divest a federal court of jurisdiction. Ario v. The Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, No. 09-1921 (3d Cir. Aug. 18, 2010).

This post written by Brian Perryman.

In In re Mirant Corporation, the Fifth Circuit affirmed the lower court’s finding that the defendant waived its right to arbitrate. The defendant had filed multiple motions to dismiss based, in part, on waiver and estoppel, over a span of eighteen months. The court held that whether a motion to dismiss constitutes a waiver of arbitration as an invocation of the judicial process is a case-by-case determination. Here, the court explained, the defendant’s multiple motions invoked the judicial process by seeking a decision on the merits and a dismissal with prejudice for failure to state a claim. The court was also persuaded by the fact that the defendant did not file its motions to dismiss as an alternative to arbitration, but instead filed them prior to seeking arbitration as a “backup plan.” Lastly, the court held that the plaintiff was prejudiced both legally and financially by the defendant’s tactics. In re Mirant Corp., No. 09-10451 (5th Cir. August 2, 2010).

This post written by Michael Wolgin.

Manifest Disregard:

ABS Brokerage Services, LLC v. Penson Financial Services, Inc., Case No. 09-4590 (USDC D.N.J. July 8, 2010) (denying motion to vacate, granting motion to confirm, no manifest disregard)

Arora v. TD Ameritrade, Inc., Case No. CV-10-01216 (USDC N.D. Cal. July 26, 2010) (denying motion to vacate FINRA award, no manifest disregard).

Dealer Computer Services, Inc. v. Johnson Ford Lincoln Mercury Nissan, Inc., Case No H-10-719 (USDC S.D. Tex. July 26, 2010) (granting motion to confirm, denying motion to vacate, no manifest disregard, and awarding attorneys fees and court costs to plaintiff as defendant had “no legally non-frivolous” basis for its challenge to the award and refusal to pay award was in bad faith)

Alpaca Shop Franchise Co. v. Roxburgh, Case No. 3:05-cv-1203 (USDC D. Conn. July 22, 2010) (granting petition to confirm, no manifest disregard, no ambiguity in award)

The First Baptist Church of Glenarden v. New Market Metalcraft, Inc., Case No. 8:10-cv-00543 (USDC S.D. Md. July 30, 2010) (granting motion to confirm, no manifest disregard).

Evident Partiality:

Hernandez v. Smart & Final, Inc., Case No. 3:09-CV-02266 (USDC S.D. Cal. June 17, 2010) (granting petition to confirm, denying petition to vacate award, no manifest disregard, no evident partiality)

Haddad v. Jackson, Case No. 1:07-cv-01676 (USDC E.D. Cal. July 16, 2010) (granting motion to confirm, denying motion to vacate, no evident partiality)

Procedure / Jurisdiction:

Technologists, Inc. v. Mir’s Ltd., Case No. 09-1339 (USDC D.D.C. July 27, 2010) (granting Rule 60(b) motion to vacate default judgment on petition to vacate, re-opening post-arbitration proceeding to further briefing on confirmation/vacatur)

Cargill Inc. v. Morgan, Case No. 1:10-cv-00088 (USDC E.D. Mo. July 28, 2010) (denying motion to vacate award, no arbitrator misconduct, and failure to exhaust arbitration appeal process under National Grain and Feed Association rules)

Exceed Powers:

Valve Corp. v. Activision Blizzard, Inc., Case No. 09-35800 (9th Cir. July 30, 2010) (affirming order requiring further arbitration proceedings on an offset issue the arbitrator initially refused to decide, finding arbitrator’s refusal to decide properly presented issue exceeded powers)

Samaritan Medical Center v. Local 1199, Service Employees Int’l Union, Case No. 7:09-cv-01072 (USDC N.D.N.Y. July 19, 2010) (denying motion to vacate, granting motion to confirm, arbitrator did not exceed powers by crafting remedy not provided for in collective bargaining agreement)

This post written by John Pitblado.