The parties to a reinsurance contract disagreed regarding whether certain retrocessional business was part of the reinsurance contracts.  As a result, they entered into arbitration.  As part of the arbitration, the parties entered into a Confidentiality Agreement under which documents and the ultimate findings were subject to confidentiality.  The arbitrators also signed the Confidentiality Agreement.

 

After that arbitration, another dispute arose and the parties again turned to arbitration.  One of the parties selected an arbitrator from the first arbitration. The arbitrator was subject to the Confidentiality Agreement.  While the second party was concerned with the arbitrator's ability to honor the agreement and the arbitrator himself expressed concern that it might be difficult to segrate the information, he was ultimately appointed.

 

At arbitration, the party prevailing in the first arbitration sought to "authorize use of all  materials from the First Arbitration," and prohibit the matters resolved by the first panel from being relitigated.  The common arbitrator did not recuse himself from those deliberations, and the Second Panel determined that the Confidentiality Agreement extended to the second arbitration. The party aggrevied by the first arbitration (and breach of the Confidentiality Agreement) sought to enjoin the second arbitration on the basis that the Confidentiality Agreement was not subejct to arbitration, and that the common arbitrator breached the Confidentiality Agreement by ruling on extending the Confidentiality Agreement.

 

The court held that because the Confidentiality Agreement contained no arbitration clause, the parties could not be forced to arbitrate issues that it did not agree to arbitrate and granted the injunction.

 

A copy of the decision is found here

 

 

 

 

Sawyers v. Herrin-Gear Chevrolet Co., Inc.

(Miss., January 7, 2010)

 

The Mississippi Supreme Court held that it has jurisdiction to consider the merits of an interlocutory appeal regarding whether a claim arising from GAP coverage should be arbitrated.  Plaintiff filed a complaint alleging fraud, breach of contract and bad faith, against an auto dealer and an insurance company who provided “GAP Asset Protection Deficiency Waiver Addendum.”   The defendants made a motion to compel arbitration, which was granted by the trial court.  Plaintiff then filed a petition for interlocutory appeal, which was granted.

 

Plaintiff argued that the arbitration agreement between she and the auto dealer is unconscionable and unenforceable because it is to aid an illegal enterprise of selling and administering unregistered insurance.  In addition, plaintiff argues that the insurer was not a party to the agreement and should not be equitably estopped from pursing her claims against it in court.   The defendants argue that the Court has no jurisdiction to consider the appeal under the Federal Arbitration Act, because the trial court’s order was not final. 

 

The court held that an order compelling arbitration is a final decision and that it had jurisdiction to decide on the merits of the appeal.  Under a de novo review, the Court found that the agreement was enforceable and, relying on a bulletin issued by the Mississippi Insurance Department, determined that the GAP product was not insurance.  The court also held that because the plaintiff relied on the arbitration agreement in her claims against the insurer, the insurer was entitled to arbitration. 

 

A complete copy of the Court’s decision can be found here

 

Kim Whistler and Dan Gerber

 

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

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

Arrowood Surplus Lines Ins. Co. v. Westport Ins. Corp.

(D. Conn. January 5, 2010)

 

Plaintiff’s predecessor, Royal Surplus Lines Insurance Company (“Royal Surplus”) entered into an agreement pursuant to which it assumed the liabilities and acquired the related assets of Connecticut Specialty Insurance’s Company (“Connecticut Specialty”) covered business as of December 31, 2001.  From February 1, 1999 until May 16, 2000, Employers Reinsurance Company (“Employers Reinsurance”) reinsured a class of policies Connecticut Specialty issued, including one to Equity Residential (“Equity”) that went into effect on December 15, 1999 (“Equity Policy”).

 

Equity filed a complaint alleging claims for RICO, breach of fiduciary duty, fraud and conspiracy arising out of its purchase of insurance from Connecticut Specialty.  In an amended complaint, Equity asserted claims for declaratory judgment, breach of contract and reformation of contract against Royal Surplus for losses occurring between December 15, 2000 and December 15, 2002.  Plaintiff paid Equity the sum of $4,100,000 to settle those claims and incurred $2,609,325.55 in claim expense.  Plaintiff sought reimbursement from Employers Reinsurance’s successor, Westport Insurance Corporation (“Westport”) for the settlement payment to Equity and claim expense in connection with losses occurring between December 15, 2000 and December 15, 2002.

 

Westport moved to dismiss plaintiff’s complaint, arguing that it was only liable to indemnify plaintiff for losses occurring in the first year of the Equity Policy and has no liability for losses occurring after December 15, 2000. 

 

The court granted Westport’s motion, holding that the scope of the reinsurance agreement was limited to policies becoming effective on or after the effective date of the reinsurance agreement as a result of occurrences taking place prior to the reinsurance agreement’s termination date.  The reinsurance agreement stated that a policy issued for more than one year was considered as “becoming effective” at each anniversary date of the policy, limiting the coverage period to a year at a time, regardless of the length of the underlying insurance contract.  Accordingly, Westport had no liability for losses occurring after the anniversary date of the Equity Policy, December 15, 2000. 

 

For a copy of the decision click here

 

By Toni Frain and Jeff Kingsley

 

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

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

 

 

Capone v. Aetna Life Ins. Co.

(United States Court Of Appeals, Eleventh Circuit, January 5, 2010)

 

This action arises out of a diving accident wherein policyholder struck his head on the bottom of the ocean while diving in the Bahamas, paralyzing himself from the neck down.  Policyholder sought benefits under the Accidental Death and Personal Loss provision of his employee health insurance policy administered by Aetna.  Aetna denied the policyholder’s claim for benefits and the district court granted Aetna’s motion for summary judgment holding that Aetna properly applied the plan’s “accidental means” and alcohol exclusion provisions which barred recovery.

 

After determining the proper standard of review for guiding a district court’s review of an administrator’s benefits decision was the Williams v. BellSouth Telecomms, Inc., 373 F3d 1132 (11th Cir. 2004) methodology (as modified by Glenn in Metropolitan Life Ins. Co. v. Glenn, 128 S. Ct. 2343 (2008)), the court conducted a de novo review as the first step in ERISA’s heightened arbitrary and capricious standard. 

 

The court noted that Georgia law distinguishes between insurance coverage for “accidental results” and coverage for injures caused by “accidental means,” and held that the policy favored an accidental means interpretation.  Specifically, while Aetna argued that the plaintiff’s dive was intentional, the court noted that in order to recover under an accidental means standard, it was incumbent upon the plaintiff to show that the act preceding the injury was effected by and “unforeseen, unexpected, or unusual event” causing the result to differ from the natural or probable consequence of this voluntary action. 

 

The court noted, here, plaintiff made the dive once without incident, other individual were diving or jumping in a contemporaneous fashion without incent, thus noting that prior occurrences of similar acts that did not result in jury was a strong indicator of changed conditions.  Indeed, plaintiff contended that an unexpected wave created the shallowness that had not otherwise existed causing an unforeseen result.  Moreover, the court concluded that because Aetna simply concluded that plaintiff voluntarily dove into shallow water, the resulting injury was foreseeable, but failed to conduct an adequate and thorough investigation into the circumstances behind the injury.  Specifically, the court noted that the insurer failed to investigate the depth of the water at low and high tides and the tidal conditions at the time of the accident and made no attempts to locate and interview other guests at the scene.  Consequently, the court held that the insurer had the responsibility to fully investigate the policyholder’s claim before denying benefits and Aetna’s failure to adequately investigate plaintiff’s contentions was wrong.

 

As to the applicability of the alcohol exclusion, the court held that while Aetna’ reliance on the toxicology tests was proper, it misapplied this results to the policy conditions.  Specifically, the court held it was unreasonable to conclude that plaintiff’s intoxication caused his injury, as there was no mandate in the policy that “legal intoxication” shall be deemed the cause of the accident based on the plain reading of the provision, and thus did not warrant the presumption of causation outside of the motor vehicle context.  Further, the court concluded that Aetna, as a fiduciary, was required to make a reasoned determination after a diligent investigation, yet failed to do so.  The court noted that there was no investigation regarding the series of events leading up to the dive or the intoxication level of the other divers.  As such, the record was insufficient to connect plaintiff’s decision to dive with his state of intoxication, and therefore the court held that Aetna did not present sufficient evidence suggesting that the consumption of alcohol caused or contributed to the accident and resulting injury.  Thus, the denial of benefits based upon this exclusion was de novo wrong.

 

For a copy of the decision click here

 

Paul Steck and Dan Gerber

 

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

 

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