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Pine Top Receivables, LLC v. Banco De Seguros Del Estado:  The Seventh Circuit Exorcises some Ghosts of Reinsurance Past, but has it Summoned an Erie Ghost of Reinsurance Future?

November 22nd, 2014 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Collateral Requirements for Unauthorized Reinsurance, Contract Interpretation, Convention on the Recognition and Enforcement of Foreign Arbitral Awards, FAA Chapter 3, Federal Courts, Foreign Sovereign Immunities Act, Insolvency Proceedings, Inter-American Convention on International Commercial Arbitration, McCarran-Ferguson Act, New York Convention, Panama Convention, Pre-Answer Security, Reinsurance Arbitration, Reinsurance Claims, Reinsurance Litigation, Security Requirements, Unauthorized Reinsurance, United States Court of Appeals for the Second Circuit, United States Court of Appeals for the Seventh Circuit, United States Supreme Court No Comments » By Philip J. Loree Jr.

Part II: What Transpired in Pine Top?

 

In our last post on  Pine Top Receivables, LLC v. Banco De Seguros Del Estado, ___ F.3d ___, Nos. 13-1364/2331, slip op. (7th Cir. Nov. 7, 2014) (per curiam) (here), we offered our take on the case and what it might mean, particularly as respects the Court’s suggestion that state pre-answer security statutes may be procedural under the Erie doctrine, possibly inconsistent with federal procedural law and thus inapplicable in diversity cases. Now let’s take a closer look at what transpired in Pine Top, for even apart from the Court’s allusion to a possible Erie doctrine issue (our Erie ghost of reinsurance future), it involved a number of classic reinsurance issues (our ghosts of reinsurance past), as well as a notable appellate jurisdiction issue and the question whether the assignee of the insolvent ceding company acquired the right to demand arbitration against the reinsurer.  Continue Reading »

Pine Top Receivables, LLC v. Banco De Seguros Del Estado: The Seventh Circuit Exorcises some Ghosts of Reinsurance Past, but has it Summoned an Erie Ghost of Reinsurance Future?    

November 19th, 2014 Appellate Jurisdiction, Appellate Practice, Arbitrability, Arbitration Practice and Procedure, Contract Interpretation, FAA Chapter 3, Foreign Sovereign Immunities Act, Insolvency Proceedings, Inter-American Convention on International Commercial Arbitration, McCarran-Ferguson Act, Nuts & Bolts: Reinsurance, Panama Convention, Practice and Procedure, Pre-Answer Security, Reinsurance Litigation, United States Court of Appeals for the Seventh Circuit, United States Supreme Court No Comments » By Philip J. Loree Jr.

In Pine Top Receivables, LLC v. Banco De Seguros Del Estado, ___ F.3d ___, Nos. 13-1364/2331, slip op. (7th Cir. Nov. 7, 2014) (per curiam) the United States Court of Appeals for the Seventh Circuit addressed a trio of issues that—once upon a time at least—arose fairly frequently in reinsurance litigation: pre-answer security; immunity from posting security, courtesy of the Foreign Sovereign Immunities Act (the “FSIA”), 28 U.S.C. § 1602-11 (2013); and the effect of the McCarran-Ferguson Act, 15 U.S.C. §§ 1011-­15 (2013), this time whether a state pre-answer security statute can reverse preempt the FSIA.

It did so in the somewhat unusual context of Chapter 3 of the Federal Arbitration Act, which implements the Inter-American Convention on International Commercial Arbitration (a/k/a the “Panama Convention”). That raised an arcane issue of appellate jurisdiction, which appears to have been caused by Congress failing to amend the appellate jurisdiction provisions of Chapter 1 (codified at 9 U.S.C. § 16 (2013)) to reflect Congress’ enactment of Chapter 3.

Throw in an assignment agreement between the insolvent cedent and a contract interpretation dispute over whether the cedent’s assignee purchased the right to compel arbitration under the reinsurance treaties between the insolvent cedent and the Uruguay-owned reinsurance company, and we have something that might appear to resemble a perfect storm of reinsurance and arbitration-related issues. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

November 14th, 2014 New York Court of Appeals, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Retrospectively-Rated Premium Contracts, Statute of Limitations 2 Comments » By Philip J. Loree Jr.

Part IV.C.2

 

Why Hahn Automotive v. American Zurich Ins. Co. is an Important Statute-of-Limitations Accrual Case (Cont’d)

Part IV.C.1 of our New York reinsurance-claim statute-of-limitations feature wrapped up our discussion about the likely influence of  Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012) on statute-of-limitations accrual in cases where a demand for payment is an express condition of the obligor’s duty to perform.  That brings us to the fourth reason (of the seven enumerated in Part IV.B) why Hahn is an important statute-of-limitations accrual case, namely, that Hahn all but forecloses an argument that a court may justify a delay in the statute of limitations by deeming a demand requirement to be an implied condition. Continue Reading »

Small Business B-2-B Arbitration Part II.B.2(C): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Who will the Arbitrators be?  

November 13th, 2014 Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Arbitrator Selection and Qualification Provisions, Drafting Arbitration Agreements, Making Decisions about Arbitration, Nuts & Bolts, Nuts & Bolts: Arbitration, Small Business B-2-B Arbitration, United States Supreme Court No Comments » By Philip J. Loree Jr.

In Part II.B.2(A) we identified three key structural aspects of pre-dispute arbitration, and discussed the first two in that and a subsequent post. This Part II.B.2(C) wraps up our discussion of arbitration-agreement structure by briefly examining a topic that is at least as important as the scope of the agreement: who the decision makers will be and how they will be selected.

As one renowned jurist put it, “selection of the decision maker by or with the consent of the parties is the cornerstone of the arbitral process.”[1] Arbitration allows the parties considerable input into the selection of who the decision makers will be, something that can make it a very attractive alternative to litigation for one or both of the parties. Parties who do not opt out of the court system are left with the luck of draw.

Savvy users of arbitration—and for that matter, most persons with dispute resolution experience in judicial or arbitral forums or both—know that decision makers, whether randomly assigned or selected, are not fungible commodities. Were they fungible, let alone commodities, there would likely be little or no controversy surrounding appointments to the United States Supreme Court.

But differences in judicial philosophy do not have to be based on so-called “liberal,” “moderate” or “conservative” views to be important, and perhaps even outcome-determinative. For example, the composition of a three-judge appellate panel can in many cases significantly influence the outcome of an appeal in many civil cases involving any number of legal and policy issues that are not the subject of discussion, let alone controversy, in the mainstream media.

Presumably many lawyers who argue appeals before three-judge panels (including the author) would scream “halleluiah!” had they the opportunity to select even one member of a three-judge appeals panel—or even if each party got to select one, leaving those two to select a third.

But time and time again, we see situations where parties who could have that opportunity—in the arbitration context, that is— had they negotiated it, or who could have at least participated meaningfully in the selection of one or more arbitrators had they exercised their contract rights with due diligence, end up having little if any meaningful input into the selection process. That type of lost opportunity usually redounds to their detriment, especially when their counterparts not only negotiate arbitrator selection provisions that suit their purposes, but also fully and wisely exercise their arbitrator selection rights. Continue Reading »

Arbitration and Mediation FAQs: Does an Arbitrator Necessarily Exceed His or Her Powers by Making an Award that Conflicts with the Unambiguous Terms of the Parties’ Agreement?

November 11th, 2014 Appellate Practice, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, United States Supreme Court 4 Comments » By Philip J. Loree Jr.

We’ve addressed on many occasions the Enterprise WheelStolt-Nielsen/Oxford contract-based outcome review standard, which permits courts to vacate awards when they do not “draw their essence” from the parties’ agreement. Under that standard the “sole question is whether the arbitrator (even arguably) interpreted the parties’ contract, not whether he got its meaning right or wrong.” See Oxford Health Plans LLC v. Sutter, 133 S. Ct. 2064, 2068 (2013) (parenthetical in original). (See, e.g.,  Loree Reins. & Arb. L. F. posts here, here, here, here, here & here.)

While exceedingly deferential, the standard is not toothless. Arbitration awards that disregard or contravene the clear and unmistakable terms of a contract are subject to vacatur under it. See Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 676 (panel had “no occasion to ascertain the parties’ intention in the present case because the parties were in complete agreement regarding their intent.”) (quotation omitted); United Paperworkers v. Misco, Inc., 484 U.S. 29, 38 (1987) (“The arbitrator may not ignore the plain language of the contract. . . .”). That’s because an arbitrator who makes an award that lacks “any contractual basis” has not even arguably interpreted the contract, and therefore has strayed from his or her task. See Oxford, 133 S. Ct. at 2069 (distinguishing Stolt-Nielsen); Stolt-Nielsen, 559 U.S. at 668-69, 672; Misco, 484 U.S. at 38.

An arbitrator whose award contradicts an unambiguous provision of a contract may—but will not necessarily—exceed her powers. The answer depends on what the agreement says, what the award says and whether the award is at least arguably grounded in the agreement.

Whether or not a contract or contract term is “ambiguous” depends on whether it is reasonably susceptible to more than one meaning. See, e.g., White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007); Greenfield v. Philles Records, 98 N.Y.2d 562, 570-71 (2002). When a contract is unambiguous, a court can interpret it as a matter of law; if it is ambiguous, its meaning is a question of fact for trial.

Can an Interpretation be “Unreasonable,” yet still Colorable or Plausible?

The legal standard for lack of ambiguity is that there be only one “reasonable” interpretation of the contract terms, not that there are no other at least barely plausible or barely colorable interpretations of what the contract might mean. In probably the majority of contract interpretation cases concerning alleged contract ambiguity, each litigant supports its position with good-faith, reasonable arguments for why the disputed contract terms are allegedly susceptible to one or more than one meaning. Whenever courts determine that a contract is unambiguous, that conclusion necessarily means that the losing party’s interpretation of the contract is unreasonable as a matter of law. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

November 5th, 2014 Claims Handling, Contract Interpretation, Insurance Contracts, Late Notice, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Retrospectively-Rated Premium Contracts, Statute of Limitations No Comments » By Philip J. Loree Jr.

Part IV.C.1

 

Why Hahn Automotive v. American Zurich Ins. Co. is an Important Statute-of-Limitations Accrual Case

(Cont’d)

 

 Introduction

Part IV of our New York reinsurance statute-of-limitations feature started out by taking a closer look at Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012). (See Part IV.A.) Part IV.B enumerated the seven reasons Hahn is a very significant development in New York statute-of-limitations law, and discussed the first two reasons,  namely that Hahn:

  1. Creates a new general rule, which effectively extends to a larger universe of contracts a statute of limitations accrual principle that the New York Court of Appeals had applied only to certain specific types of contracts, including contracts of indemnity; and
  2. Demonstrates that, outside the limited context of express conditions, breach-of-contract statute-of-limitations accrual is not exclusively a matter of party intent.

Part IV.B. also set the stage for discussing the third reason, that is, Hahn suggests the New York Court of Appeals—if faced with an accrual question where the obligor’s obligation to perform is conditioned on the obligee’s demand for payment—may deem the statute of limitations to accrue: (a) once the obligee is legally entitled to demand payment; or (b) the earlier of (i) the date the obligee demands payment or (ii) the expiration of a commercially reasonable period measured from the date the obligee became legally entitled to demand payment.

This Part IV.C.1 wraps up our discussion about Hahn’s likely influence on how courts applying New York law will decide cases where—unlike Hahna demand for payment is an express condition of the obligor’s duty to perform, but—like Hahn—the obligee has, for whatever reason, delayed making a demand. The focus of the wrap-up is on why we think that courts will probably permit accrual to be delayed for no more than a brief, commercially reasonable period, and may simply conclude that the Hahn legally-entitled-to-demand-payment rule should govern such cases because the performance of the condition is within the obligee’s control,  the benefits of the Hahn rule far exceed its costs and the costs of a “commercially reasonable time” rule exceed its benefits. Continue Reading »

What Happens when Arbitrators Exceed Clear Limitations on their Authority?

October 24th, 2014 Arbitrability, Arbitration Agreements, Arbitration and Mediation FAQs, Arbitration as a Matter of Consent, Arbitration Practice and Procedure, Attorney Fees and Sanctions, Authority of Arbitrators, Awards, Confirmation of Awards, Contract Interpretation, Drafting Arbitration Agreements, Grounds for Vacatur, Judicial Review of Arbitration Awards, New York State Courts, Nuts & Bolts, Nuts & Bolts: Arbitration, Practice and Procedure, Small Business B-2-B Arbitration, State Arbitration Law, State Arbitration Statutes, State Courts, United States Court of Appeals for the Second Circuit 2 Comments » By Philip J. Loree Jr.

One advantage of arbitration is that parties can define and delineate the scope of disputes they agree to submit to arbitration, the basis on which disputes  can or must be resolved and the scope of the arbitrator’s remedial powers. If parties impose clear limits on an arbitrator’s authority (usually by expressly excluding certain matters from arbitration or expressly providing that an arbitrator cannot or must grant certain remedies), then courts and arbitrators are supposed to enforce those limitations. See, e.g., Stolt-Nielsen S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 680-81 (2010).

Far too frequently, parties simply agree to a broad arbitration agreement that places no limitations on arbitral power, and when they end up on the wrong-end of an award they didn’t expect, they discover to their dismay that they have no judicial remedy. Whether or not they understood that at the time they agreed to arbitrate is, of course, irrelevant. The only relevant consideration is whether their agreement could be reasonably construed to grant the arbitrator that authority, even if it could also be reasonably construed to withhold it. See, e.g., Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 (1995) (“when a court interprets such provisions in an agreement covered by the FAA, due regard must be given to the federal policy favoring arbitration, and ambiguities as to the scope of the arbitration clause itself resolved in favor of arbitration”) (quotation and citation omitted).

But suppose the parties take the time to consider whether they desire to limit arbitral authority, and their arbitration agreement unambiguously expresses an intention to limit arbitral authority to resolve certain disputes or impose certain remedies, or to expressly require that the arbitrators grant certain types of relief, such as fee shifting to a prevailing party. Should a court vacate the award if the arbitrator does not abide by the parties’ unambiguously expressed intentions?  Continue Reading »

National Children’s Center, Inc. v. Service Employees Int’l Union: What Happens when an Arbitrator Interprets a Contract, but does not even Arguably Apply the Interpretation to the Parties’ Dispute?

October 20th, 2014 Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Contract Interpretation, Grounds for Vacatur, Judicial Review of Arbitration Awards, Practice and Procedure, United States District Court for the District of Columbia, United States Supreme Court No Comments » By Philip J. Loree Jr.

Introduction

The deferential Enterprise Wheel/Stolt-Nielsen/Oxford contract-based outcome review standard the U.S. Supreme Court has applied to both labor arbitration awards under Section 301 of the Labor Management Relations Act, and commercial arbitration awards falling under the Federal Arbitration Act, is fairly simple to articulate yet often difficult to apply, especially in close cases.

In National Children’s Center, Inc. v. Service Employees Int’l Union, No. 13-1036, slip op. (D.D.C. Sep’t 19, 2014), United States District Court for the District of Columbia was faced with such a case, and the district court judge had to make a tough call. Applying the sometimes elusive standard, the Court concluded that the award had to be vacated. It was a close call— so close, in fact, that others may disagree and support their conclusions with what may appear to be compelling arguments.

On balance, we think the Court did the right thing given the somewhat unusual circumstances the case presented. But at least on some level it doesn’t matter. The district court judge did exactly what a good judge should do: she followed the law and, faced with the task of applying the law to a rather odd set of circumstances, she did so in the way she thought (and we agree) the law should be applied, even though the result was overturning an award.

It is quite likely that on remand the arbitrator will issue an award reaching the same conclusion and that the second award will be judicially enforced. While some might argue that vacatur should have been denied for expediency’s sake, that would not only have been the wrong decision, but a shortsighted one. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

October 6th, 2014 Choice-of-Law Provisions, Claims Handling, Contract Interpretation, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Reinsurance Arbitration, Reinsurance Claims, Retrospectively-Rated Premium Contracts, State Courts, Statute of Limitations No Comments » By Philip J. Loree Jr.

 Part IV.B

 

 Why is Hahn Automotive v. American Zurich Ins. Co. Important?

 

Introduction

Now that we’ve taken a closer look at Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012), let’s step back a bit and consider what it means both in general and in the reinsurance-claim-statute-of-limitations scheme of things.

As will be explained in this Part VI.B, Part VI.C, and Part VI.D, Hahn:

  1. Creates a new general rule, which effectively extends to a larger universe of contracts a statute of limitations accrual principle that it had applied only to certain specific types of contracts, including contracts of indemnity;
  2. Demonstrates that, outside the limited context of express conditions, breach-of-contract statute-of-limitations accrual is not exclusively a matter of party intent;
  3. Suggests that the New York Court of Appeals, if faced with an accrual question where the obligee’s demand is an express condition to the obligor’s liability, would probably not permit accrual to be delayed for more than a relatively brief period measured from the date on which the obligee was legally entitled to demand payment;
  4. All but forecloses an argument that a court may justify a delay in the statute of limitations by deeming a demand requirement to be an implied condition;
  5. Creates an analytic framework for determining breach-of-contract statute-of-limitations accrual questions that is at least as well-suited to excess-of-loss reinsurance contracts as it is to retrospective premium contracts;
  6.  Will likely be applied to reinsurance contract statute-of-limitations questions, that cedents or reinsurers may in the past have assumed would be governed by Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996); and
  7. If so applied to a situation where, as in Stronghold: (a) the reinsurance contract does not unambiguously condition the reinsurers’ liability on claims presentation; and (b) the cedent settled the underlying insurance claims more than six-years before commencing their action, will, all else equal, likely require a finding that the cedent’s claims are time-barred.

Hahn therefore has some important claims management implications for both cedents and reinsurers, which we’ll discuss in Part IV.E.

But there is, as no doubt many readers have discerned, a proverbial “elephant in the room:” arbitration. Arbitration agreements are exceedingly common in reinsurance contracts, particularly in treaties. In Part V., we’ll discuss the profound effect that the choice between judicial and arbitral resolution of a controversy can have on statute of limitations questions, and how that choice bears on cedent and reinsurer time-bar strategy.

Finally, there is another very important—and all too frequently overlooked— consideration that we would arguably be remiss not to discuss: choice-of-law. Reinsurance disputes, like so many of their other commercial counterparts, frequently cross state and national borders, raising horizontal choice-of-law issues. But in many (indeed, probably most U.S.) jurisdictions, including New York, choice-of-law rules that determine what substantive rules of decision apply (i.e., what rules of decision apply to merits-related issues) do not determine what statute-of-limitations rules apply, and that may be true (as it ordinarily is in New York) even where parties agree that the law of State X governs their agreement.

In New York, that issue is ordinarily determined by New York’s borrowing statute, New York Civ. Prac. L. § 202, many other states have similar (although not necessarily identical) borrowing statutes and at least a few other states may either simply follow the traditional rule that forum law governs statute of limitations or apply substantive choice-of-law rules to determine the applicable statute of limitations. Part VI will thus address choice-of-law questions pertinent to the statute of limitations, focusing on New York’s borrowing statute, and discuss how choice-of-law issues affect time-bar strategy. Continue Reading »

What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

September 19th, 2014 Claims Handling, Contract Interpretation, Insurance Contracts, Late Notice, New York Court of Appeals, New York State Courts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Retrospectively-Rated Premium Contracts, Statute of Limitations, United States Court of Appeals for the Second Circuit No Comments » By Philip J. Loree Jr.

Part IV.A

 

Hahn Automotive v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012): Unless Parties Unambiguously Condition Obligor’s Duty to Perform on Demand for Payment, Statute of Limitations Begins to Run as Soon as Obligee is Legally Entitled to Demand Payment

If you’ve been following this multi-part post from inception, then you know that we think the New York Court of Appeals’ 2012 decision in Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765 (2012) strongly suggests that, if faced today with facts materially identical to those in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996), New York’s highest court would hold that the cedent’s claims were time-barred because: (a) the notice provisions in the reinsurance contracts did not unambiguously condition the reinsurers’ obligation to pay on presentation of claims and demands for payment; and (b) the cedent was legally entitled to present and demand payment for each of its reinsurance claims more than six years before the cedent commenced its action. This Part IV.A discusses what transpired in Hahn, and Part IV.B will analyze Hahn’s likely effect on excess-of-loss reinsurance-claim statute-of-limitations accrual.

Hahn Facts and Procedural History

Hahn was a dispute between an auto parts distributor (the “Insured”), and its two insurers, both members of the Zurich Insurance Group (the “Insurers”).

During each annual period between September 1992 and September 2003, the Insurers provided general liability, auto liability and workers’ compensation coverage to the Insured. The insurance was priced using three types of alternative-risk-finance rating plans embodied in: (a) retrospective premium agreements (the “Retro Premium Agreements”); (b) adjustable deductible policies (the “Adjustable Deductible Policies”); and (c) deductible policies (the “Deductible Policies”). The Insurers also entered into certain claims services contracts (the “Claims Services Contracts”) under which the Insurers provided claims-handling services on a fixed-fee-per-claimant basis. Continue Reading »