main image

Archive for 2014

Arbitration and Mediation FAQs: What do the Terms Arbitrable, Arbitrability, and Question of Arbitrability Mean, and Why do they Matter?

March 26th, 2014 Arbitrability, Arbitration and Mediation FAQs, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Existence of Arbitration Agreement, Grounds for Vacatur, Practice and Procedure, Small Business B-2-B Arbitration, United States Supreme Court Comments Off on Arbitration and Mediation FAQs: What do the Terms Arbitrable, Arbitrability, and Question of Arbitrability Mean, and Why do they Matter?

 Arbitrable, Arbitrability and Question of Arbitrability

If you’ve ever been unfortunate enough to be privy to a conversation about arbitration law, you probably heard things like:

“The dispute arguably falls within the scope of the agreement and is therefore arbitrable.”

Oxford expressly pointed out that none of the parties argued that consent to class arbitration is a question of arbitrability.”

“Did the parties clearly and unmistakably agree to arbitrate arbitrability? Because if they did, questions of arbitrability are arbitrable.”

Arbitration-law parlance is probably more arcane and cryptic than it has to be, but it has been with us for several decades and there’s no indication that it is likely to change any time soon. Learning it may be painful, but is usually well worth the modest effort required.

Today we’ll define in plain English some of the most bandied-about arbitration-law terms: “arbitrable,” “arbitrability” and “question of arbitrability.” And in the process we’ll try to explain why these closely-related terms are significant in matters governed by the Federal Arbitration Act (the “FAA”). Continue Reading »

Arbitration and Mediation FAQs: Should I Agree to Mediate Future Disputes Arising out of a Business Contract or Transaction?

March 22nd, 2014 Arbitration and Mediation FAQs, Drafting Arbitration Agreements, Drafting Mediation Agreements, Mediation, Mediation Agreements, Negotiation, Small Business B-2-B Arbitration, Small Business B-2-B Mediation Comments Off on Arbitration and Mediation FAQs: Should I Agree to Mediate Future Disputes Arising out of a Business Contract or Transaction?

Suppose you are a business entity or an individual negotiating a contract that contemplates an ongoing business relationship with another person or entity. You need to consider many things, not the least of which is what kinds of provisions, if any, you might want to include in your contract that deal with the contingency of one or more disputes arising in the future. You might decide, for example, to agree to arbitrate disputes. You might decide that arbitration is too risky in the circumstances and that you would rather have a court resolve your dispute, but that you nevertheless want to include provisions in your contract dealing with choice of law, choice of forum, permissible remedies and the like. These are all important decisions that need to made carefully and often with the help of an attorney having skill and experience in such matters.

But they are not the only things that you might consider or be asked by your counterpart to consider. Whether or not you agree to arbitrate, or to litigate but only in a particular forum under the law of a particular state, there is something else you might want or be asked to consider: an agreement to mediate future disputes arising out of or relating to the contract and the business relationship it creates.

Should you give such an agreement some serious thought? There is no single correct answer to that question because, like most other things, the devil is in the details. But, depending on the circumstances, an agreement to mediate as a precondition to judicial or arbitral dispute resolution might be a very good idea. Continue Reading »

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

March 20th, 2014 Claims Handling, Contract Interpretation, New York Court of Appeals, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part III.A

Continental Casualty Co. v. Stronghold Ins. Co.: Background

In Part II (here) we reviewed New York law pertinent to express conditions and how they can delay the accrual of the statute of limitations if the plaintiff has not satisfied them.

Now let’s turn to the U.S. Court of Appeals for the Second Circuit’s decision in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2d Cir. 1996), a case that features a fairly comprehensive recitation of New York’s reinsurance-related statute-of-limitations accrual rules as they existed in 1996, but did not apply New York’s express-condition rules consistently with controlling, New York Court of Appeals authority. This Part III.A summarizes what transpired in Stronghold and Part III.B will explain why we think the case not correctly decided.

The Stronghold Facts

Stronghold was a dispute between a United States cedent (the “Cedent”) and its London-Market reinsurers (the “London Reinsurers”) that arose under certain excess-of-loss treaties reinsuring medical malpractice liability policies the Cedent had issued to its hospital insureds.

In the 1980s the Cedent settled several medical malpractice liability claims on behalf of its insureds, but did not notify London Reinsurers of the underlying losses that resulted in the settlements, or present their reinsurance claims to the London Reinsurers, until sometime after the underlying claims were settled. The record apparently did not specify the date or dates on which the Cedent first notified the London Reinsurers of the settlements and demanded payment from the London Reinsurers.

The excess-of-loss treaties (the “Reinsurance Contracts”) provided that the London Reinsurers were “liable only for the excess of loss” incurred by the Cedent in excess of specified retentions of “ultimate net loss.” The contracts defined “ultimate net loss,” as “the sums actually paid in cash in settlement of losses [for] which [the Cedent] is liable.” They also featured notice of loss provisions that said “Loss, if any, under” a policy is “to be reported to [the London Reinsurers] as soon as practicable.”

The London Reinsurers denied each of the reinsurance claims during the period 1987-1990, and in 1991 the Cedent commenced an action for breach of contract in the United States District Court for the Southern District of New York. The London Reinsurers defended on late notice and statute-of-limitations grounds.

As respects the date on which the statute of limitations began to run on each reinsurance claim, the London Reinsurers argued that each claim accrued when the Cedent settled the claim with its insured. Each claim was settled more than six years before the Cedent commenced its action. According to the London Reinsurers, the Cedent was entitled to indemnity immediately upon payment of each settlement, even thought it did not demand payment from the London Reinsurers until a much later date. Alternatively, the London Reinsurers argued that even if their indemnity obligation was conditioned on the Cedent’s presentation of a reinsurance claim for payment,  each of the Cedent’s individual breach of contract of contract claims accrued on the date it became entitled to demand payment from the London Reinsurers, and that occurred each time the Cedent settled an underlying claim.

The Cedent argued that the claims accrued when the London Reinsurers allegedly breached the reinsurance contracts by refusing to pay the claims. Since the London Reinsurers did not refuse to pay the claims any earlier than 1987, and the Cedent commenced its lawsuit in 1991, the lawsuit would not be barred by the statute of limitation under the Cedent’s date-of-accrual theory.

Back in 1991, as some readers may recall, the New York Court of Appeals had not yet decided whether a reinsurer could successfully defend on late notice grounds without establishing prejudice. But in 1992, the London Reinsurers’ litigation strategy was dealt a painful blow when the New York Court of Appeals held, in Unigard Sec. Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576 (1992), that unless a late notice provision expressly conditions a reinsurer’s liability for the claim on timely notice—i.e., the late notice provision is an express condition, not simply a promise—a reinsurer must establish prejudice to be relieved of liability based on the cedent’s failure to provide timely notice of a claim or occurrence.

Answering a question certified to it by the United States Court of Appeals for the Second Circuit, New York’s highest Court explained that, to be express conditions, contractual provisions must unambiguously evidence the parties’ intent to make performance of a duty conditional.[1] The New York Court of Appeals also held that the notice provision before it—which required “[p]rompt notice . . . of any occurrence or accident which appears likely to involve this reinsurance’”—was not an express condition, and that accordingly, the reinsurer in that case could not be relieved of liability for the cedent’s late notice of the loss or losses sustained and reported by the insureds, unless the reinsurer could prove it suffered prejudice as a result of the late notice.

Not too long after the New York Court of Appeals’ landmark reinsurance-law decision answering the Second Circuit’s certified question, the Second Circuit issued its own landmark decision in the Unigard case, holding, among other things, that the reinsurers were unable to establish either prejudice—i.e., “economic injury”—resulting from late notice or that the cedent acted in bad faith in failing to provide timely notice (which would have relieved the reinsurer from liability even without a showing of prejudice).[2]

The London Reinsurers apparently concluded that they could not establish the requisite prejudice to prevail on their late notice defense, a decision which apparently prompted the parties to enter into a stipulation designed to facilitate summary judgment on the merits in favor of one party or the other on the statute of limitations issue. To that end the London Reinsurers agreed to waive their late notice and all other defenses other than statute of limitations, and stipulated with the Cedent that: (a) New York law governed; (b) New York’s six-year statute of limitations applied; (c) the Cedent satisfied all conditions of the Reinsurance Contracts; (d) the Cedent had settled its claims with its insureds more than six years prior to commencing the action; and (e) the Cedent had commenced the action within six-years of the London Reinsurers’ earliest denial of any of the claims.

The parties cross-moved for summary judgment, and the district court ruled in favor of the Cedent, holding that no breach of the Reinsurance Contracts occurred until the London Reinsurers refused to pay the Cedent’s claims. The district court granted summary judgment in favor of the Cedent, holding that the Cedent’s causes of action did not accrue until the London Reinsurers denied the Cedent’s claims.

The London Reinsurers appealed to the United States Court of Appeals for the Second Circuit, which affirmed the district court’s judgment. Continue Reading »

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

March 4th, 2014 Claims Handling, Contract Interpretation, Internal Controls, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Arbitration, Reinsurance Claims, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part II

In Part I (here) we determined the probable success of Reinsurer R’s motion to dismiss turns on whether the reinsurance contract expressly makes Cedent C’s presentation of claims a condition precedent to R’s obligation to pay them.  This Part II discusses in some detail New York law pertinent to contract statute-of-limitations accrual as it existed both before and after the Second Circuit’s 1996 decision in Continental Cas. Co. v. Stronghold Ins. Co., 77 F.3d 16 (2nd Cir. 1996), and before the New York Court of Appeals decided Hahn Automotive Warehouse, Inc. v. American Zurich Ins. Co., 18 N.Y.3d 765, 771 (2012).

Parts III and IV will discuss Stronghold and Hahn in some detail, and explain why we believe Stronghold misapplied New York law by concluding that the reinsurance contract before it expressly conditioned the reinsurers’ obligation to pay on the cedent presenting claims for payment. This Part II provides readers with the background required to understand better why we think that is so. Continue Reading »

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

February 24th, 2014 Claims Handling, Contract Interpretation, Internal Controls, New York Court of Appeals, New York State Courts, Nuts & Bolts, Nuts & Bolts: Reinsurance, Practice and Procedure, Reinsurance Claims, Statute of Limitations, United States Court of Appeals for the Second Circuit Comments Off on What is the Statute of Limitations for a Reinsurance Claim under New York Law and When does it Begin to Run?

Part I

Wendy “Bulldog” Worrylittle is a partner in a New York City law firm who has just landed her first reinsurance case. Her client, Cedent C, an insurance company domiciled and licensed to do business in New York, told her that the case involves a single excess-of-loss contract between C and participants in a reinsurance pool fronted by Reinsurer R, which is domiciled in Delaware and has its principal place of business in South Carolina. The reinsurance contract does not contain an arbitration agreement, but provides that “New York shall govern this contract,” and that R consents to personal jurisdiction in any court of competent jurisdiction in New York State.

The dispute concerns three reinsurance claims, which R has not paid. Each arose out of C’s settlements with three of  its insureds, each one of which had commenced a declaratory judgment action against C seeking a declaration of coverage for asbestos or environmental property damage or bodily injury claims brought by third parties. Cedent C tells Wendy that each of the claims was billed a month or so shy of six-years ago, the parties negotiated for a few years and R subsequently informed C in writing that it rejected the claims as presented.

Cedent C asks Wendy to commence an action against R in the United States District Court for the Southern District of New York. Wendy notes that a statute-of-limitations issue may be looming, as she recalls that New York’s statute of limitations for a breach of contract claim is six years and that it runs from the date of the breach. In light of the potential statute-of-limitations problem, she quickly confirms her understanding outline.

Based on what she remembers and has confirmed about the statute of limitations, and on her limited knowledge of the facts, she reasons that, because the reinsurance contract expressly contemplates that C will present claims through a reinsurance intermediary, the statute of limitations cannot have begun to run at any time prior to C billing R. She does not consider whether the statute of limitations might have begun to run at any earlier time, because R could not have breached the contract at any time prior to C presenting the claims, let alone giving R an opportunity to decide whether to pay them.

So Wendy files and serves C’s complaint within the six-year period as measured from the dates on which C presented the claims. Upon the deadline for responding to the complaint, Reinsurer R, represented by Karen “Cardozo” Iknowlaw, files not an answer but a motion to dismiss on the ground that C’s claims are time barred. Before reading the papers, Wendy’s all-to-quick temper flares and she vows to seek sanctions against Karen, who, in Wendy’s view, obviously knows nothing about the law, let alone the facts.

Is Reinsurer R’s Motion to Dismiss Well-founded?

Wendy quite correctly concluded that C’s suit is for breach of contract and that New York’s breach-of -contract statute of limitations is six years, which is ordinarily calculated from the date of breach.[1] But her analysis was off the mark because she did not ascertain and analyze all the potentially relevant facts and law.

Although as a general rule the contract statute of limitations begins to run at the time of the breach, there is an exception that is particularly pertinent in the reinsurance context, and which is somewhat counterintuitive. Recall that C billed R for the claims nearly six years ago. Wendy’s client did not mention, and Wendy did not ask about, the dates on which the claims were settled and the corresponding dates by which C could reasonably have been expected to present each claim to R. Wendy apparently did not consider this information relevant to the statute of limitations issue, but it can be outcome determinative of it. Continue Reading »

Part II.B.2(B): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Will the Arbitration be Administered or Ad Hoc?

January 8th, 2014 Arbitration Agreements, Arbitration Practice and Procedure, Making Decisions about Arbitration, Small Business B-2-B Arbitration Comments Off on Part II.B.2(B): Other Structural Aspects of Pre-Dispute Arbitration Agreements—Will the Arbitration be Administered or Ad Hoc?

Introduction

The last two segments of this Small Business B-2-B Arbitration series have focused on certain key structural aspects of pre-dispute arbitration agreements. Perhaps some might think that an examination of even the most basic structural components of arbitration agreements is too much information for a business person, but most successful business people know about all relevant aspects of the contracts they negotiate, not just the basic structural components of those contracts (e.g., price and performance terms).

Given that an arbitration agreement can fundamentally alter the risk-benefit calculus of a deal, one would naturally expect that successful business people would be familiar with at least the basic structural aspects of such agreements, but in our experience that is not necessarily the case. In fact, were it so, we would expect there would be far fewer arbitration-related disputes that could be traced back to a party’s un- or ill-informed decision about whether to agree to arbitrate, and if so, on what terms.

In Part II.B.2(A) we identified three key structural aspects of pre-dispute arbitration agreements and discussed the first—the scope of disputes to be arbitrated—in some detail. This Part II.B.2(B) briefly discusses the second: how an arbitration under the agreement will be administered and by whom. Continue Reading »

Small Business B-2-B Arbitration Part II.B.2(A): Other Structural Aspects of Pre-Dispute Arbitration Agreements—What am I Agreeing to Arbitrate?

January 2nd, 2014 Arbitrability, Arbitration Agreements, Arbitration Practice and Procedure, Authority of Arbitrators, Awards, Drafting Arbitration Agreements, Making Decisions about Arbitration, Small Business B-2-B Arbitration Comments Off on Small Business B-2-B Arbitration Part II.B.2(A): Other Structural Aspects of Pre-Dispute Arbitration Agreements—What am I Agreeing to Arbitrate?

In the last installment of our B-2-B Arbitration series we focused on one of the most important structural aspects of pre-dispute arbitration agreements: the mutual promise to submit disputes to arbitration, what it means and how its performance by the parties through their post-dispute submission defines and delimits the scope of authority parties actually delegate—as opposed to promise to delegate—to arbitrators to resolve particular disputes.

But there are other important structural aspects of arbitration agreements about which business people should be mindful if they wish to make informed decisions about arbitration. While a comprehensive discussion of them would be far beyond the scope of this post, let’s focus briefly on arbitration-agreement terms that bear on the following questions: Continue Reading »