The Insurance and Reinsurance Report

NEBRASKA STATUTE INVERSE PRE-EMPTS FEDERAL ARBITRATION ACT

Datacor, Inc. v. Heritage Warranty Insurance Risk Retention Group

(E.D. Mo., December 16, 2009)

 

The plaintiff purchased a contractual liability policy from the defendant.  The parties also entered into an agreement which required the defendant to reimburse the plaintiff for monies expended for warranty claims.  The agreement contained an arbitration provision, and a choice of law provision.  The choice of law provision designated Nebraska as the applicable law. 

 

A dispute arose between the parties, and the plaintiff filed suit.  The defendant sought to compel arbitration based upon the Federal Arbitration Act. The plaintiff claimed that the McCarran-Ferguson Act, 15 U.S.C. §§ 1101 et seq., which prevents the inadvertent federal pre-emption of state insurance statutes, trumped the FAA.  More specifically, the plaintiff claimed that the FAA could not override Nebraska Uniform Arbitration Act, which exempts “any agreement concerning or relating to an insurance policy” from the rule that a written agreement to arbitrate “is valid, enforceable, and irrevocable.” See  Neb. Rev. Stat. § 25-2602.01(f)(4).

 

The court agreed, and held that the FAA was reverse pre-empted by the Nebraska statute, and that defendant could not compel arbitration.

 

For a copy of the decision click here

 

Sarah Delaney and Sharon Angelino

 

http://www.goldbergsegalla.com/attorneys/Delaney.html

http://www.goldbergsegalla.com/attorneys/Angelino.html

Self-Funded Plans Are Classified As Reinsurance Under Texas Law

American Nat’l Ins. Co. v. Texas Dep’t. of Ins.

Ct. App. TX, December 16, 2009

 

This dispute involves the appeal of insurers against a ruling by the Texas Department of Insurance finding that stop-loss insurance policies that were sold to self-funded employee benefit plans should have been characterized as direct insurance instead of reinsurance.

 

The insurers contend that the self-funded plans are insurers as defined by the insurance code and thus qualify under the contextual definition of former article 3.10(a) to buy reinsurance like any other insurer, allowing the insurers to classify the insurance they sold to the plans as reinsurance. 

 

The Court of Appeals held that by selling the stop-loss policies at issue in this case to self-funded benefits plans and reporting their sale to the Texas Department of Insurance as a sale of assumed reinsurance, the insurers did not violate the insurance code and self-funded plans are classified as reinsurance under Texas Law.

 

For a copy of the decision click here

 

Sarah Fang and Jeffrey Kingsley

 

http://www.goldbergsegalla.com/attorneys/Fang.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

Multiple Claims from Same Product Defect Constitute Multiple Occurences for Purpose of Excess Trigger

Bausch & Lomb, Inc. v. Lexington Insurance Company

(W.D.N.Y December 28. 2009)

Bausch & Lomb brought an action against defendant Lexington Insurance Company seeking a declaration that Lexington was obligated to provide insurance coverage to Bausch & Lomb with respect to claims made against it by consumers for alleged injuries arising out of the use of Bausch & Lomb contact lens solutions. Bausch & Lomb claimed that it purchased umbrella liability insurance policies from Lexington for yearly periods from January 1, 2004 through January 1, 2007, and that during this time, thousands of claims were made against the company for alleged injuries arising from consumers’ use of certain ReNu brand contact lens solutions. Bausch & Lomb maintained that it sought liability coverage from Lexington for these claims pursuant to the Lexington policies, as well as coverage for defense costs associated with these claims, but that Lexington denied coverage for all but a portion of the claims.

 

According to the policyholder, Lexington denied coverage because it deemed each alleged injury sustained by users of the solutions as separate “occurrences” under the terms of the policy, and as a result, agreed to provide coverage only when specified limits of liability have been met for each occurrence. Bausch and Lomb contends that Lexington improperly characterized the injuries as arising from multiple occurrences, and in doing so, ignored the portions of the Lexington Policies which specifically provide for grouping of claims. According to the policyholder, the grouping provisions of the Lexington policies required Lexington to treat the several injuries allegedly suffered by consumers as arising from a single occurrence.

 

Lexington maintained that its policies should be construed so as to provide that each alleged injury sustained by users of contact lens solutions be treated as a separate occurrence. According to Lexington, pursuant to such an interpretation, it would only be obligated to provide insurance coverage once certain liability thresholds (as stated in the policies) have been met in each individual case. Lexington further contended that because those thresholds had not been reached, and were not likely to be reached, it was not obligated to provide a defense for every claim, and was not obligated to insure liability losses that do not reach the policy thresholds.

 

The court found that the claims constitute separate occurrences under the terms of the Lexington policies, and as a result, Lexington was not obligated to insure B & L for losses arising from those claims, or defense costs arising from those claims, absent a showing that B & L has met the liability limits set forth in the policies. Relying upon the unambiguous definition of occurrence, the court reasoned that it is the exposure by consumers to the product that constitutes the “accident.”

 

For a copy of the decision click  here

 

By Daniel W. Gerber and Jeffrey L. Kingsley

 

http://www.goldbergsegalla.com/attorneys/Gerber.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

 

 

 

 

DRI Life, Health & Disability Seminar April 28-30, 2010 (Chicago)

DRI’s Life Health, Disability and ERISA Claims Seminar returns to Chicago and promises to bring with it practical guidance for claims and legal professionals. This seminar provides unparalleled presentations by distinguished inside and outside counsel, as well as judiciary and medical experts. The expert faculty will focus on practical pointers, checklists and best practices that can be utilized daily. The 2010 seminar offers more continuing legal education than ever before. The first day of this program includes three parallel tracks of focused programming (Life, Health and ERISA). Attendees may choose to attend one track or move between them at one hour increments. Networking opportunities will abound. Join colleagues for dine-arounds led by in-house counsel and committee leadership in some of Chicago’s finest restaurants. Attend one of the counsel meetings being held by several insurance companies, including: Guardian/Berkshire, Combined Life Insurance, Assurant Employee Benefits, Sun Life, Standard Insurance, American General Life, Hartford, Met Life, and Reliance Standard. Meet the Chief Counsel for the Illinois Department of Insurance, who will speak at a breakfast meeting for inside counsel. Walk away having attended the preeminent seminar for the life, health and disability industry.

Click here for brochure

“Aggregate” Limits of Multi-Year Commercial Excess Policies do not Apply on an Annual Basis

Union Carbide Corp. v. Affiliated FM Ins. Co.

(NY App. December 15, 2009)

A commercial policyholder sought a declaration that the stated aggregate limits of liability for multi-year excess policies apply on an annual basis. Each of the excess policies contained a declaration that specified a dollar amount as the "limit of liability" and states that the limit applies to each occurrence and "in the aggregate." The policyholder contended that, because the excess policies are silent as to whether the limit of liability is annualized, the court must look to the underlying policy due to the "follow form" clause. Rejecting this argument and finding in favor of the insurers, the New York appellate court held that "[a]s the phrase ‘in the aggregate’ is unambiguous, it is of no moment that the excess policies do not contain language elaborating on the phrase that expressly negates in annualization."

For a copy of the decision click here

Bryan Richmond and Joseph Oliva

http://www.goldbergsegalla.com/attorneys/Richmond.html

http://www.goldbergsegalla.com/attorneys/Oliva.html

 

CASEWATCH: INSURANCE DECEMBER 23, 2009 EDITION IS NOW AVAILABLE

For a free copy of this publication click here

To receive this publication directly, kindly contact Sarah Delaney at sdelaney@goldbergsegalla.com

Cases for December 23, 2009 CaseWatch: Insurance

Cases provided with the permission of Lexis.

Download Align Technology, Inc. v. Federal Ins. Co. 

Download Auto Owners Ins. Co. v. Omni Indemn. Co.

Download Busey Truck Equip., Inc. v. American Family Mut. Ins. Co. 

Download Century National Ins. Co. v. Garcia 

Download Cincinnati Ins. Co. v. Trosky 

Download Dumas v. American International Specialty Lines Ins. Co. 

Download Estate of Tinervin v. Nationwide Mutual Ins. Co. 

Download Gillund v. Meridian Mutual Ins. Co. 

Download Hastings Mut. Ins. Co. v. Safety King, Inc. 

Download Jacaruso v. Lebski 

Download Keck v. American Family Mut. Ins. Co. 

Download Kim v. Allstate Ins. Co., Inc. 

Download Lexington Ins. Co. v. Sentry Select Ins. Co. 

Download Lightell v. State Farm Fire & Casualty Co.

Download O'Keefe v. State Farm Fire & Casualty Co. 

Download Panasia Estates v. Hudson Ins. Co. 

Download Wilcox v. Webster Ins., Inc.

Direct Action Allowed to Proceed Against Reinsurer

Felman Production, Inc. v. Industrial Risk Insurers

(S.D. W. Va. October 19, 2009)

 

After a power failure at plaintiff’s metals plant resulted in physical damage and business interruption loss, plaintiff sued its direct insurers and their reinsurer, Swiss Reinsurance.  Swiss Reinsurance moved to dismiss plaintiff’s complaint arguing that no claim could be asserted against it because an insured party cannot maintain a direct action against a reinsurer. 

 

The court noted that there are two exceptions to this rule.  A reinsurer may become directly liable to the insured based on the terms of the reinsurance contract.  Additionally, a reinsurer may become directly liable to the insured via conduct, generally by directly handling an insured’s claim.  The court ruled that the terms of the original insurance contract were ambiguous as to Swiss Reinsurance’s role under the policy.  The court noted that Swiss Reinsurance pointed to pages entitled “Syndicate Policy” where another insurer was identified as plaintiff’s insurer and Swiss Reinsurance was identified as the reinsurer.  However, plaintiff pointed out: (1) each of the additional signature lines provided in the policy were signed by the “Attorney-In-Fact and Chief Underwriting Officer” of “The Member Companies of Industrial Risk Insurers”; (2) that the insurer was referred to as “the Companies” throughout the policy; (3) that “the Companies” was defined as “[t]he members of Industrial Risk Insurers . . . as hereby applicable to this policy”; and (4) that the “Insurer” was identified as “Industrial Risk Insurers” in the body of the policy. 

 

Because Swiss Reinsurance is a member company in the “Industrial Risk Insurers” association, the court held that the policy was ambiguous as to Swiss Reinsurance’s role under the policy and it was reasonable for plaintiff to expect Swiss Reinsurance to act as a direct insurer.  The court held that plaintiff’s complaint provided sufficient facts to state a plausible claim that Swiss Reinsurance was directly liable to plaintiff under the policy, and denied Swiss Reinsurance’s motion to dismiss.

 

A copy of the decision can be found here

 

Toni Frain and Dan Gerber

 

http://www.goldbergsegalla.com/attorneys/Frain.html

http://www.goldbergsegalla.com/attorneys/Gerber.html

 

District Court Grants Respondents’ Motion Compelling Arbitration Of Parties’ Rights Under Reinsurance Contracts, Staying Pending Litigation Affirming A Prior Award

Sun Life Assurance Co. of Canada v. Liberty Mut. Ins. Co. et. al.

(United States District Court, Southern District California, December 9, 2009)

 

This action arises from a dispute between the parties over their obligations under two reinsurance contracts.  The petitioner, Sun Life, seeks the confirmation of a prior arbitration award, whereas respondents contend that in seeking confirmation of the award Sun Life also seeks substantive rulings regarding the rights and liabilities of the parties that the arbitration panel did not address.  Thus, respondents filed a motion to compel further arbitration and a stay of the litigation arguing that the determination of these substantive rulings are subject to the parties’ arbitration agreements and, therefore, must be arbitrated pursuant to the two reinsurance contracts.

 

In granting the respondents motion to compel further arbitrations and whether Sun Life owed any interest on the prior award, the court noted that, under the Federal Arbitration Act (FAA), arbitration agreements should be rigorously enforced.  The court further noted that while the arbitration agreements between the parties are undoubtedly broad (covering any dispute “arising with respect” to the reinsurance contracts), any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration.  Moreover, the court found that, while Sun Life seeks to avoid this dispute by confirming the arbitration award and “terminating the relationship between the parties,” under these circumstances, it would not be proper for the court to terminate the relationship of the parties, because they are expressly defined by the reinsurance contracts which contain the arbitration agreements. 

 

Specifically, the court concluded that because it would have to interpret the reinsurance contracts to decide whether Sun Life owes interest and whether the relationship should be terminated, the issues must be decided via arbitration.  The court also discounted Sun Life’s argument that the reinsurance contracts were affirmatively terminated when Sun Life paid the commutation amount and therefore there were no operative contracts requiring arbitration.   The court, in citing 9th Circuit precedent, concluded that whether a contract has terminated and whether its arbitration clause therefore still applies is a question for the arbitrator, as it requires interpretation of the contract itself.  On this basis and rationale, the court granted respondents motion compelling arbitration.

 

For a copy of the decision click here

 

Paul Steck and Jeffrey Kingsley

 

http://www.goldbergsegalla.com/attorneys/Steck.html

http://www.goldbergsegalla.com/attorneys/Kingsley.html

Feature Article: New York Attorney General's Office Files Suit Against Law Firms Based Upon Alleged Process Service Malfeasance

This is an interesting article regarding the recent Attorney General lawsuit regarding alleged process service malfeasance by law firms.  For a free copy click here

Any questions regarding this subject, contact Albert D'Aquino at ajdaquino@goldbergsegalla.com