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Archive for the ‘Asbestos-Related Claims’ Category

Can a Party Obtain Post-Judgment Relief from a Confirmed Arbitration Award Procured by Fraud?

May 26th, 2015 Arbitration Practice and Procedure, Arbitration Risks, Asbestos-Related Claims, Bad Faith, Confirmation of Awards, Corruption or Undue Means, Definition of Occurrence, Federal Courts, Federal Rules of Civil Procedure, Final Awards, Grounds for Vacatur, United States Court of Appeals for the Second Circuit, United States District Court for the Southern District of New York Comments Off on Can a Party Obtain Post-Judgment Relief from a Confirmed Arbitration Award Procured by Fraud?

Introduction

Relief from an Arbitration Award Procured by Fraud

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Section 10(a)(1) of the Federal Arbitration Act authorizes Courts to vacate arbitration awards that were “procured by fraud, corruption or undue means.”  9 U.S.C. § 10(a)(1). (For a discussion of Section 10(a)(1), see L. Reins. & Arb. Law Forum post here.) But a motion to vacate an arbitration award procured by fraud (or otherwise) is subject to a strict three-month deadline, and Section 10, unlike certain of its state-law counterparts, does not provide for tolling of the three-month deadline on the ground the challenging party did not know or have reason to know it had grounds to allege the arbitration award was procured by fraud. Compare 9 U.S.C. § 10(a)(1) with 2000 Revised Uniform Arbitration Act § 23(b) (Uniform Law Comm’n 2000) (If “the [movant] alleges that the award was procured by corruption, fraud, or other undue means, [then, in that].  .  .   case the [motion] must be made within 90 days after the ground is known or by the exercise of reasonable care would have been known by the [movant].”);  1955 Uniform Arbitration Act § 12(b) (Uniform Law Comm’n 1955) ( “[I]f predicated upon corruption, fraud or other undue means, [the motion to vacate] shall be made within ninety days after such grounds are known or should have been known.”).

Once an award has been confirmed, it has the same force and effect as any other judgment of the court. See 9 U.S.C. § 13. Federal Rule Civ. P. 60(b) provides that “[o]n motion and just terms, the court may relieve a party or its legal representative from a final judgment, order, or
proceeding for the following reasons:.  .  .  (3) fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party.  .  .  .” Fed. R. Civ. P. 60(c) provides that “[a] motion under Rule 60(b) must be made within a reasonable time—and for reasons (1), (2), and (3) [i.e., fraud, misrepresentation or misconduct] no more than a year after the entry of the judgment or order or the date of the proceeding.” Fed. R. Civ. P. 60(c).

So can a challenging party obtain relief from a confirmation judgment if: (a) an award-challenging party contends the Court entered judgment oin an arbitration award procured by fraud; (b) by extension, the judgment confirming the award was itself procured by fraud; (c) the award-challenging party did not know or have reason to know it was at the wrong end of an arbitration award procured by fraud until after the three-month statute of limitations for vacating an award had elapsed; and (d) the award-challenging party makes a timely motion for post-judgment relief under Fed. R. Civ. P. 60(b)? According to a district court judge of the U.S. District Court for the Southern District of New York, the answer is “no.”

 

Arrowood Indem. Co. v. Equitas Insurance Ltd., No. 13-cv-7680 (DLC), slip op. (S.D.N.Y. May 14, 2015)

No Post-Judgment Relief from Arbitration Award Procured by Fraud (Alleged or Otherwise)

Background

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Arrowood arose out of an excess-of-loss treaty Arrowood’s predecessor(s) in interest had entered into with Underwriters at Lloyd’s in the 1960s. The terms of the treaty were apparently part of, or incorporated into, a “Global Slip,” which the Court, without much elaboration, described as “a complex contractual  reinsurance program.” The Global Slip was first negotiated in 1966 and effective January 1, 1967 through December 31, 1968. It was apparently renewed a number of times thereafter, though the court does not say for what period or periods. The renewal agreements were “substantially similar” although they “contain[ed] new contractual language.” Slip op. at 2.

The Global Slip covered (apparently among other things) losses in excess of $1 million incurred under Arrowood’s casualty insurance policies under three different types of coverage. At issue was “Common Cause Coverage,” which covered losses arising out of an “occurrences” during the contract term, provided the occurrence or occurrences were the “probable common cause or causes” of more than one claim under the policies. The Global Slip also contained a “First Advised” clause, which said that “this Contract does not cover any claim or claims arising from a common cause, which are not first advised during the period of this Contract.”

yay-1299629-digitalLike so many other liability insurers, Arrowood began receiving, adjusting and settling asbestos bodily injury claims beginning in the 1980s. Underwriters at Lloyd’s London insisted that Arrowood present its asbestos reinsurance claims on a per claimant per exposure-year basis, absorbing one $1 million retention each year against the total asbestos claim liabilities allocated to that year under the Underwriters’ per claimant per exposure-year allocation methodology.

In 2008 Arrowood, after reviewing the contract language, stopped using exclusively the Underwriters-prescribed asbestos personal-injury claim reinsurance allocation methodology, which it had followed for almost 25 years, and began presenting a number of claims under the Common Cause Coverage provision of the Global Slip . Because those claims were not, “first advised” in the years 1967 or 1968, the Underwriters denied them.

The Arbitration and Confirmation Proceedings

One of the parties demanded arbitration in October 2010, and a tripartite panel was appointed. The Underwriters argued, among other things, that: (a) the parties’s 25-year course of dealing evidenced a binding agreement on how asbestos claims would be presented to the Underwriters; (b) some claims fell exclusively under employer’s liability coverage; and (c) Common Cause Coverage  did not apply because the requirements of the First Advised Clause were not satisfied. Continue Reading »

The Great Debate Over Written Claims Guidelines and Procedures

February 18th, 2010 Asbestos-Related Claims, Bad Faith, Claims Guidelines and Procedures, Claims Handling, Claims Spot, Environmental Contamination Claims, Internal Controls, Late Notice, Reinsurance Claims, Utmost Good Faith 1 Comment »

Our friend and fellow Long Islander Marc Lanzkowsky, Founder and Principal of Lanzko Consulting, Inc., recently launched the blog Claims Spot, which discusses and comments on direct, excess and reinsurance-related claims issues.  Marc has done a great job with Claims Spot and, not surprisingly, his blog is drawing some heavy traffic. 

A controversial issue that Marc has been covering is whether or not insurance companies should have in place written claims guidelines and procedures.  One school of thought is fearful of their use (or abuse) by insureds in coverage actions.  For example, a company employee might mistakenly not follow written guidelines and procedures in the course of handling a claim, and a dispute might arise as a result.  The insured will legitimately be able to argue  that the company’s handling of the claim did not comply with its own guidelines and procedures, and that, accordingly, the company mishandled the claim.  Proponents of this view will say that having claims guidelines and procedures is fine as long as they are merely aspirational and not in writing. 

Others advocate the “damned if you do, damned if you don’t” view.  If a large, professional insurer has no written guidelines and procedures, then the insured’s refrain in a coverage or bad faith action will be that the company is grossly negligent because it lacks the internal or external controls necessary to regulate a very significant portion of its business operations.   But if the company has written claims guidelines and procedures, then surely they will come back to haunt it in the event of litigation.  

Others, including Marc, believe the benefits associated with well-drafted and carefully considered claims guidelines and procedures outweigh the costs associated with formulating and implementing them, and, more importantly, whatever costs might be incurred by the insured’s potential use or abuse of the procedures in the event of a dispute.  Drawing on his experience as a lawyer and a claims executive for two major insurance companies, Marc offers assistance to companies that are interested in implementing written claims guidelines and procedures or improving existing ones. 

Marc recently brought the discussion up to the reinsurance level in his post, “Absence of Procedures to Notify Reinsurance is a Basis for Bad Faith.”   He was kind enough to mention what inspired his thoughtful post — an interesting discussion he and I had about the subject not long ago over a delicious sushi and bento box lunch at Misaki — Manhasset, New York’s best (and only) Japanese restaurant. 

As Marc points out there has been law in the Second Circuit for some time stating that a ceding company’s failure to have in place procedures for notifying reinsurers of claims can constitute bad faith, which may relieve a reinsurer of liability for a late-noticed claim without any showing of prejudice.    That is a pretty good argument for having in place written, ceded-claims handling procedures designed to ensure timely notice to reinsurers.    

In the reinsurance-late-notice context the cost-benefit analysis is probably less challenging than it might be in the direct-insurance-bad-faith context.  If the ceding company does not have in place written guidelines and procedures, and cannot establish by credible and consistent testimony the existence of unwritten guidelines and procedures, then, at least in a case pending in court (as opposed to arbitration), the reinsurer may get a “pass” on a claim based on late notice without any showing of prejudice.  (Prejudice has been defined as “tangible economic injury.”)

On the other hand, if the ceding company has written procedures in place, but they are not followed in a given case, then that, in conjunction with other evidence, may establish that notice was late.  But the reinsurer still has to show prejudice to be relieved of liability.   

So in our hypothetical, counsel for the reinsurer may be able to make some hay at a deposition concerning the cedent’s failure to follow its own guidelines and procedures.  But points scored at depositions can be (and in this case are) ephemeral:  without evidence of prejudice, failure to comply with the guidelines is, for all practical purposes, irrelevant.  

In this day and age of internal controls and corporate responsibility, it seems to us that appropriate written claims guidelines and procedures can benefit insurers, cedents and reinsurers, provided they are carefully drafted, implemented and managed.  We offer the following, very general and non-exclusive list of things companies might consider:   

1.  If written claims procedures are to be adopted and implemented they should be carefully prepared by claims experts and reviewed by experienced counsel.   Poorly drafted and ill-conceived written claims procedures are probably worse than none at all. 

2. Careful thought should be given to privilege issues associated with in-house or outside attorney review of draft guidelines and the involvement of counsel in other aspects of the drafting and implementation process.   The process should be carefully managed and attention should be paid to the company’s document retention policies as respects the maintenance or destruction of drafts.   Remember, in a future litigation or arbitration the insured’s attorneys will likely request prior drafts and depositions of all involved in the preparation and implementation process.  While the insured may or may not be successful in obtaining all the discovery it seeks, it will likely get at least some of it.  

3.  Written claims procedures should be drafted to confer upon claims personnel an appropriate degree of discretion where such discretion is appropriate.   Locking adjusters into particular claims positions without regard to the facts, circumstances and practical realities can cause a myriad of problems. 

4.  To the extent claims procedures provide a certain period of time within which a particular action must be taken, and to the extent that the period is not an inflexible one provided by law or contract, flexibility should be built in to account for minor delays caused by special circumstances or the press of business.   

5.  If written claims guidelines and procedures are to be adopted, the company should ensure claims personnel take them very seriously and do their best to abide by them at all times.   

6.  Written claims procedures should be subject to periodic review by in-house counsel and the claims department to ensure that they comply with current legislation and recent case law developments. 

7.  Outside counsel handling coverage or other, claims-related matters for the company should keep the company’s general counsel apprised of any problems that might be caused or exacerbated by written guidelines and procedures.  

House of Lords Hands Down Landmark Reinsurance Decision: Lexington Insurance Co. v. AGF Insurance Ltd.

August 22nd, 2009 Asbestos-Related Claims, Environmental Contamination Claims, Follow-the-Settlements/Follow-the Fortunes, House of Lords, Reinsurance Allocation, Reinsurance Claims Comments Off on House of Lords Hands Down Landmark Reinsurance Decision: Lexington Insurance Co. v. AGF Insurance Ltd.

Part II of a Two-Part Post

Introduction

In Part I we discussed the controversy surrounding the House of Lords decision in Lexington Insurance Co. v. AGF Insurance Co. [2009] UKHL 40.  The House ruled that two proportional facultative reinsurers were not obligated to indemnify the cedent for their share of the entire amount of a judgment a Washington State court rendered against the cedent in an environmental coverage action.  The judgment, which was based on Pennsylvania law, rendered the cedent liable under the policy jointly and severally for property damage caused by environmental contamination that occurred before, during and after the three-year policy period.  The House ruled that the reinsurers could be held liable only for their respective shares of the loss that occurred during the three-year term of the reinsurance contract (which was concurrent with that of the cedent’s policy), not their shares of the total amount of loss for which the Washington judgment held the cedent liable under the reinsured policy. 

In this Part II we briefly summarize the pertinent background of the case, walk the reader through the House’s reasoning and offer a few parting thoughts.      Continue Reading »

House of Lords Hands Down Landmark Reinsurance Decision: Lexington Insurance Co. v. AGF Insurance Ltd.

August 18th, 2009 Asbestos-Related Claims, Environmental Contamination Claims, Follow-the-Settlements/Follow-the Fortunes, House of Lords, Reinsurance Allocation, Reinsurance Claims Comments Off on House of Lords Hands Down Landmark Reinsurance Decision: Lexington Insurance Co. v. AGF Insurance Ltd.

Part I of a Two-Part Post

Introduction

Effective October 1, 2009 the House of Lords will be replaced by the Supreme Court of the United Kingdom (more information here).  In what may be among its last official acts, on July 30, 2009 the House decided an important reinsurance case concerning the scope of a reinsurer’s indemnity obligation to a U.S. cedent under English law.  See Lexington Insurance Co. v. AGF Insurance Co. [2009] UKHL 40.  The reinsurance contract was back-to-back with the reinsured policy in all but one respect:  it was governed by English law, while the insurance policy was, in the event of coverage litigation, potentially subject to the laws of any number of U.S. jurisdictions, depending on venue, applicable choice of law rules and other considerations.  Relying on a long-line of English law precedent, and distinguishing other precedent, the House ruled that a proportional facultative reinsurer was not obligated to indemnify the cedent for the reinsurer’s share of the entire amount of a judgment a state court in Washington rendered against the cedent.  The judgment resulted from a Washington Supreme Court decision which, applying Pennsylvania law, ruled that the cedent was jointly and severally liable under its policy for property damage caused by environmental contamination that occurred before, during and after the cedent’s three-year policy period.  The House said that, judgment or no judgment, the reinsurer agreed to reinsure only loss or damage occurring during the coterminous, three-year period of the reinsurance contract, and the reinsurer’s obligation was limited to its share of that loss. 

The House’s decision is likely to be controversial.  In this Part I of a two-part post, we shall discuss the controversy and seek to allay it a bit.  In Part II we’ll walk the reader through that reasoning and offer some parting comments. 

The Controversy

Complex environmental-contamination and asbestos-related claims are anything if not costly.  American insurers have been fighting an expensive, multi-front war with their insureds for many years over the scope and extent of their liability for these claims.  They raise a myriad of issues and are potentially governed by the laws of at least fifty different jurisdictions (some sympathetic to insurers, some not).   These jurisdictions have adopted different approaches to resolving the issues (some favorable to insurers, some not), which means that no matter where may be the venue, complex choice-of-law questions are likely to arise.  And the coverage actions usually involve multiple insurers, sites, claimants, years of coverage, and layers of coverage.  The amount at stake and the concomitant expense can be staggering.  For the most part, these claims and coverage disputes — let alone how some courts might resolve them — could not reasonably have been anticipated at the time when most of the occurrence policies on which they arose were written (generally prior to 1980 and sometimes going back to the 1930s).  Continue Reading »

The Art and Science of Mediation: A Brief Recap of the July 14, 2009 Don Philbin/Randall Kiser/Katherine Billingham ABA Teleconference

July 17th, 2009 Asbestos-Related Claims, Mediation, Reinsurance Mediation 1 Comment »

Readers may remember our July 1, 2009 announcement concerning an American Bar Association teleconference on mediation hosted by Don Philbin, Randall Kiser and Katherine Billingham (post here).  The conference took place as scheduled on July 14, 2009, and we thought it was excellent.

Don Philbin and Randall Kiser explained a theory of mediation based on a combination of brain science, psychology, statistical analysis, and computer graphics, which we thought was as inspiring as it was fascinating.  They discussed the results of empirical studies of decisional errors in litigation, comparing last settlement positions of parties who failed to settle to the ultimate outcome of the proceeding.  They explained who did better, who did worst, and what the cost of the error was.  They also described a technique that can overcome psychological barriers to settlement that uses graphically-depicted outcome-scenarios.  Randall discussed a book he is writing, which will explain and advocate a scientific approach to decision making, and which will delve into the legal malpractice considerations associated with poor decision making.  Randall’s book will hit the shelves this fall.

Once upon a time I thought mediation was, to a significant extent, based on “touch” and “feel,” but Don and Randall have proved me wrong.  To some extent it is certainly an art, but science plays an important role, especially when the mediators are trained to use it properly.  

Katherine Billingham discussed a scientific approach to resolve through mediation complex multi-insurer, multi-layer, multi-year asbestos-related insurance coverage disputes, using excellent graphics.  She explained how these disputes can be mediated in a multi-phase process that takes into account nearly every one of the myriad of variables that must be considered.  Her methodology can also be applied to complex reinsurance disputes, which she also mediates.

All in all, there was much useful information packed into the one-hour presentation, and we view it as a springboard for further research and study.  Kudos to all involved!

Travelers Indemnity Co. v. Bailey: United States Supreme Court Holds 1986 John-Manville Bankruptcy Court Injunction Bars Direct Asbestos-Related Claims Against The Travelers

July 8th, 2009 Asbestos-Related Claims, United States Supreme Court Comments Off on Travelers Indemnity Co. v. Bailey: United States Supreme Court Holds 1986 John-Manville Bankruptcy Court Injunction Bars Direct Asbestos-Related Claims Against The Travelers

Introduction

On June 18, 2009 the United States Supreme Court ruled 7-2 that an injunction (the “1986 Injunction”)  incorporated into the 1986 Johns-Manville Corp. (“Manville”) bankruptcy reorganization order (the “1986 Order”) barred claims made directly against Manville’s insurer, the Travelers Indemnity Company (“Travelers”), even though those claims were derivative of Travelers’ alleged wrongdoing, as opposed to that of Manville.  See Travelers Indemnity Co. v. Bailey, ___ U.S. ___ (June 18, 2009) (Souter, J.) (copy available here).  The Court held that:  (a) the claims fell within the terms of the 1986 Injunction; and (b) the claimants were barred by res judicata from collaterally attacking the Bankruptcy Court’s subject-matter jurisdiction to enter the 1986 Order containing the 1986 Injunction.  Slip op. at 1-2 & 9-10. 

The decision should bring some degree of finality to Manville’s insurers’ exposure to asbestos-related claims, which has been a moving target for quite some time.  The effect, if any, the decision may have on reinsurance claims and disputes is not yet clear.  That said, now that Travelers’ liabilities presumably can more easily be quantified, cedents, retrocedents, reinsurers and retrocessionaires whose claims and liabilities are derived from Travelers’ and other Manville insurers’ liabilities might be in a better position to attempt to settle or commute those claims and liabilities.  And, in a more general sense, the decision provides some guidance on how bankruptcy-court channeling-injunctions should be interpreted, and the extent to which, if at all, such injunctions may be collaterally attacked for lack of subject-matter jurisdiction.  Continue Reading »