Action by Greenberg against Spitzer for defamation based on public statements by Spitzer about Greenberg’s stewardship of AIG regarding, among other things, Spitzer’s assertion that Greenberg engaged in fraudulent accounting. Spitzer’s motion to dismiss as to those statements was denied. The court found no documentary evidence sufficient under New York procedural rules to conclude on motion to dismiss that Spitzer’s statements were substantially true as a matter of law. , 44 Misc. 3d 1202 (N.Y.S.C., June 24, 2014).
THIRD CIRCUIT: FEDERAL COURT SHOULD DECIDE WHETHER AN ARBITRATION CLAUSE AUTHORIZES CLASSWIDE ARBITRATION – NOT THE ARBITRATOR
The Third Circuit recently was presented with the question of whether, in the context of an otherwise silent contract, the availability of classwide arbitration is to be decided by a court rather than an arbitrator. The underlying dispute involved a putative class action brought under the Fair Labor Standards Act concerning an employer’s classification of its workers as overtime-exempt employees. The two named plaintiffs each had signed an employment agreement requiring that any dispute relating to their employment be submitted to arbitration, but the agreements did not mention classwide arbitration. A New Jersey federal court granted the employer’s motion to compel arbitration, but held that the arbitrator would have to decide whether the arbitration could include classwide claims. The arbitrator issued a partial award, and addressed the “who decides” issue, ruling that the employment agreements permitted classwide arbitration. The employer then returned to federal court and filed a motion to vacate the arbitrator’s award, and the district court denied the motion. On appeal, the Third Circuit reversed, concluding that the issue of the availability of classwide arbitration should be decided by a court, not an arbitrator.
In reaching its conclusion, the Third Circuit noted that “questions of arbitrability,” such as whether the parties are bound by a given arbitration clause or whether an arbitration clause in a concededly binding contract applies to a particular type of controversy – are “gateway issues” to be resolved by a court. This is in contrast to “procedural” questions that are resolved by arbitrators. The Third Circuit ruled that the permissibility of classwide arbitration is not solely a question of procedure or contract interpretation (which would be decided by an arbitrator) but rather involves a “substantive gateway dispute qualitatively separate from deciding an individual quarrel” (which would be decided by a court). In reaching this conclusion, the Third Circuit followed the Sixth Circuit holding in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), which is the only other circuit court opinion to have squarely addressed the “who decides” issue.
In prior proceedings, Glory Wealth obtained an England arbitration award against Industrial Carriers, Inc. (ICI) and a confirmation of the award in the United States District Court for the Southern District of New York.
Glory Wealth instituted an admiralty case in the Eastern District of Virginia to attach a vessel to satisfy the confirmed arbitration award, naming ICE and Freight Bulk PTE, Inc. (FBP) as defendants. FBP moved to vacate the arbitration confirmation judgment of the Southern District of New York, relying on Rule 60(b)(4), Fed.R.Civ.P., contending the New York judgment was void for lack of jurisdiction. The Virginia district court held that FBP could not collaterally attach the New York confirmation judgment, since FBP was not a party to the New York proceeding. Strong elements of judicial estoppel appear to have influenced the Virginia district court’s decision, since the court noted that FBP had repeatedly denied any status as ICI’s alter ego, yet in the motion at bar to dismiss Glory Wealth’s action, FBP contended it had standing as a party to the New York case to move to vacate the New York judgment. , Case No. 2:13-cv-658 (U.S.D.C., E.D. Va., July 17, 2014).
A New Jersey appellate court recently addressed that state’s “direct action statute,” concluding that it did not prevent judgment creditors from pursuing a coverage action arising out of an LMX reinsurance spiral. The plaintiffs in the underlying action were former shareholders of certain insurance companies, and they sued the insurers’ managing general agent for professional negligence. The MGA, now defunct, failed to answer. On the eve of the damages hearing, the MGA’s professional liability and excess carriers (Travelers and ERSIC) asserted a variety of coverage defenses, and denied the claim. The plaintiffs obtained a $92 million judgment against the MGA.
After obtaining their judgment, the plaintiffs filed suit in New Jersey against Travelers and ERSIC seeking coverage under the two policies. The trial court dismissed the coverage case due to lack of standing. The trial court based its decision, in part, on New Jersey’s so-called “direct action statute,” N.J.S.A 17:28-2. That statute requires that certain types of policies (those addressing injury to a person and certain loss or damage to property) contain a provision “that the insolvency or bankruptcy of the person insured shall not release the insurance carrier from the payment of damages for injury sustained or loss occasioned during the life of the policy, and stating that in case execution against the insured is returned unsatisfied in an action brought by the insured person because of the insolvency or bankruptcy, then an action may be maintained by the injured person against the [insurer] under the terms of the policy.” The trial court accepted the defendants’ argument that the statute authorizes a direct action against an insurer only for the particular personal injury and property damage risk specified in the statute.
The appellate court disagreed, first noting the general principle that after an injured plaintiff obtains a judgment against an insured tortfeasor that remains unsatisfied due to insolvency, the plaintiff “stands in the shoes” of the insured with respect to the insurance policy and thus acquires standing to pursue an action against the insurer. The court rejected the “direct action statute” argument, holding that just because the statute mandates that certain specifically identified types of policies must contractually provide for the right to a post-judgment action, it does not follow that no such right exists in connection with other types of policies. The appellate court noted that “direct action statute” is a misnomer because the statute does not actually authorize direct actions. Rather, it prohibits insurers from contractually disclaiming, in the specifically enumerated policy types, an injured party’s right to sue the insurer for an unsatisfied judgment. The statute does not provide that derivative or post-judgment actions are available only in regard to those certain types of policies. Accordingly, the plaintiffs had standing to pursue their coverage action. , Case No. A-3530-12T3 (N.J. Super. Ct. App. Div. August 4, 2014).
This post written by Catherine Acree.
Alaska’s Division of Insurance has released a bulletin notifying licensees, surplus lines insurance companies in the State of Alaska, and other interested parties that it has adopted regulations modifying surplus lines requirements to conform to Alaska statutory changes due to the federal Nonadmitted and Reinsurance Reform Act of 2010. The regulations include modifications to diligent search requirements, additional requirements for the notice of nonrenewal and premium increases, and additional fees for certain licenses. All affected parties must comply with the new requirements as of September 4, 2014, the effective date of the regulations. (Aug. 13, 2014).
A New York state court approved a stipulation entered into among the parties in a reinsurance dispute which set forth the terms and conditions upon which the parties agreed produce and exchange confidential and/or proprietary documents and information. The agreement permitted the parties to designate documents and information as confidential and thereby restrict their use and dissemination outside the scope of the litigation. , Index No. 654494/2013 (N.Y. Sup. Ct. Aug. 4, 2014).
COURT REJECTS CLAIMS OF PRIVILEGE, WORK PRODUCT, AND THE COMMON INTEREST DOCTRINE TO REINSURANCE INFORMATION
In a discovery dispute between insurer Progressive and the FDIC, as receiver of the insured bank, a federal district court has rejected all claims of attorney-client privilege and work product protection to reinsurance information the court had previously directed Progressive to produce. , the court had compelled Progressive to produce certain reinsurance information to the FDIC, including communications with its reinsurers regarding potential coverage of the FDIC’s lawsuit against the bank’s directors and officers. Progressive then redacted portions of the communications on the grounds of attorney-client privilege and/or protected work product. The FDIC challenged both grounds. The court first found that the reinsurance information was not protected by work product because the information was created in the ordinary course of business and not “prepared or obtained because of the prospect of litigation.” The court then found that even if the documents contained attorney-client communications, any privilege was waived when Progressive voluntarily disclosed the documents to its reinsurers and broker. Progressive had argued that the common interest doctrine applied to the communications and, therefore, the attorney-client privilege was preserved. The court disagreed, finding the doctrine applied only when the parties shared a common legal interest, not a commercial or financial one. Further, there was no evidence establishing a joint strategy or legal enterprise, which is “central” to the common interest doctrine.
The court did reject the FDIC’s other claims as to alleged deficiencies in Progressive’s production, including Progressive’s failure to produce electronically stored information because Progressive was never previously required to retrieve it. Finally, the court rejected all of the reinsurer’s arguments that it need not comply with the FDIC’s subpoena for documents, including those of privilege, undue burden, and relevance. , Case No. 12-CV-04041 (USDC N.D. Iowa Aug. 22, 2014).
The Court of Appeals for the Second Circuit affirmed a lower court’s ruling in favor of TIG Insurance Company, finding that AIU Insurance Company’s belated notice of claim to TIG under nine certificates of facultative reinsurance issued by TIG barred AIU’s claim. AIU submitted its claim almost four years after it settled with its insured regarding numerous asbestos-related lawsuits. Central to the Second Circuit’s ruling was its conclusion that, under New York’s choice of law rules, the substantive law of Illinois – and not New York – applied to the question as to the legal effect of the late notice. Under Illinois law, TIG was not required to prove it was prejudiced resulting from AIU’s late notice. , No. 13-1580-cv (2d Cir. Aug. 27, 2014).
On , we reported on a dispute surrounding whether a cedent was responsible to compensate a reinsurance broker under a particular broker authorization agreement. The court had denied summary judgment, finding that the agreement was ambiguous in that one provision required the reinsurer to pay the broker, while a separate provision implied that it was the cedent’s responsibility to do so. On June 27, 2014, the court entered an order dismissing the case based on an unopposed motion informing the court of the parties’ settlement. , Case No. 4:13-CV-0133 (USDC W.D. Ark. June 27, 2014).
Lincoln Memorial Insurance Company and Hannover Life Reinsurance Company of America became engaged in a long-running reinsurance dispute, arising from an allegedly fraudulent scheme by Lincoln and others in the sale of pre-need funeral service contracts. Hannover reinsured some of those contracts. The matter was arbitrated, and Lincoln claim that Hannover wrongfully accused Lincoln of fraud and intentional misconduct during the court of that arbitration.
Ultimately, Lincoln became insolvent and entered into receivership in Texas. Lincoln asserted that Hannover’s conduct in the arbitration was a factor in driving it to insolvency. The Texas Department of Insurance appointed a receiver and issued a permanent injunction, which, among other things, enjoined further arbitration against Lincoln, before the arbitrator ever issued an award.
The Special Deputy Receiver, Jo Ann Howard & Associates, thereafter brought claims in federal court against several entities alleging, among other things, RICO, breach of fiduciary duty, and gross negligence, which purportedly caused or contributed to Lincoln’s insolvency.
As we , one of the defendants in the action brought by the receiver, National City Bank, subpoenaed the arbitrator in the Hannover Re arbitration, seeking his un-issued award. National City also asserted several special defenses to the receiver’s suit, including failure to mitigate damages. The receiver moved to quash the subpoena and to strike National City’s failure to mitigate affirmative defense. The court granted both motions.
National City thereafter moved for reconsideration and clarification of the Court’s order. Construing the motion as a Rule 60(b) motion to amend, the Court held that National City was not entitled to the “extraordinary relief” available under that rule, as it had not met the high burden of demonstrating “exceptional circumstances” warranting the correction of any error, even if a substantial error had been made, which, the Court duly noted, was not the case. (USDC E.D. Mo. July 15, 2014).
This post written by John Pitblado.