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Avoiding Undue Risk on Reinsurance Arbitration Clauses

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This is a presentation on Avoiding Undue Risks on Resinsurance Arbitration from Underwriting to Claims

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GOLDBERG SEGALLA LLP Philadelphia New York Buffalo Rochester Syracuse Albany White Plains Long Island Princeton Hartford Avoiding Undue Exposure on Arbitration Clauses from Underwriting to Claims Daniel W. Gerber Esq. Goldberg Segalla LLP dgerber@goldbergsegalla.com www.goldbergsegalla.com
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Arbitrator Issues What's an Honorable Engagement Anyway? The arbitrators shall interpret this Contract as an honorable engagement and not as merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law.
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Arbitrator Issues How Flexible May Arbitrators Be? Rules of Evidence? Applicable Cases? Ambiguous Terms in Contract? i.e. 30 day submission
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Arbitrator Issues Do Arbitrators Have Boundaries? Although the arbitrators [are] not bound to follow legal procedures strictly, they are not, because of such freedom, released from the obligation to be guided by the basic agreement of the litigants. Garamendi v. California Comp. Ins., 2005 Cal. App. Unpub. LEXIS 11799 (Cal. App. Unpub. Opinions 2005). They must apply the contract. Manifest Disregard of Law Doctrine Hall Street Associates v Mattel (US Supreme Court)
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Broadly Interpreted Cover all disputes not specifically exempted Consider Scope Interpretation vs. Formation of Agreement Consider specificity Words arbitration clause can be enough
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Interaction with Service of Suit Clause Two clauses usually held in harmony and interpreted as specifying juridiction Service of Suit may trump on failure to pay as it is more specific clause than any dispute language of arbitration clause Failure to Pay vs. Enforcement
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Interaction with Choice of Law Provisions Examine the jurisdictions arbitrations procedure as courts may apply it by default when ambiguous. In other words, procedural law may apply in addition to substantive.
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses What then is the solution? Include a slightly more detailed arbitration clause in the placement slips, perhaps largely boilerplate, familiar to the parties, which leaves room for amendments to be made when the actual treaty is finalized. If a dispute arises before consummation of the treaty, or if the treaty is never drafted and signed, the boilerplate provisions in the placement slip will control.
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration in Run-Off Receivers often enjoy favored status in liquidation court Great Variation with Three outcomes: Arbitration clause void (NY Rule) Receiver stands in the shoes of insolvent company and can be compelled to arbitrate Hybrid
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Purpose Prevent Second Guessing Promote Good Faith Settlements
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Traditional Application Applied When There Is Good Faith Payment Made After Reasonable Investigation Payment is not Ex Gratia
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Will a Court Enforce the Doctrine in Absence of Express Policy Terms? Maybe? Yes - Aetna v. Home Ins (SDNY 1995) No North River Ins Co. v. Employers Reinsurance (SD Ohio 2002)
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Does the Doctrine Apply Where the Cedant Acts in Bad Faith? No
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Does the Follow the Settlements Doctrine Apply to a Reinsureds Allocation of Settlement Payments? 1995 ------- 1997 1998 ------- 2001
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Does the Follow the Settlements Doctrine Apply to a Reinsureds Allocation of Settlement Payments? Allstate v. American Home (1st Dept. 2007) Multiple Occurences and Inconsistent Litigation Position Granite State v. Ace American Reinsurance (1st Dept 2007) Initial Disclaimer Under Pesticide Exclusion. Policies exhausted and exceeded Shifted Remainder to Disclaimed Policy
GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT A Final Word on Arbitration Costs Cost vs. Benefit Arbitrator Selection (US Arias) Consider Mediation alternatives Honorable Engagement and Award of Fees Some courts hold clause trumps award of fees and precludes it Courts may narrowly construe treaty that says each side will bear its costs.
GOLDBERG SEGALLA LLP Philadelphia New York Buffalo Rochester Syracuse Albany White Plains Long Island Princeton Hartford Avoiding Undue Exposure on Arbitration Clauses from Underwriting to Claims Daniel W. Gerber Esq. Goldberg Segalla LLP dgerber@goldbergsegalla.com www.goldbergsegalla.com

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Avoiding Undue Risk on Reinsurance Arbitration Clauses

  • 1. GOLDBERG SEGALLA LLP Philadelphia New York Buffalo Rochester Syracuse Albany White Plains Long Island Princeton Hartford Avoiding Undue Exposure on Arbitration Clauses from Underwriting to Claims Daniel W. Gerber Esq. Goldberg Segalla LLP dgerber@goldbergsegalla.com www.goldbergsegalla.com
  • 2. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT
  • 3. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT
  • 4. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Arbitrator Issues What's an Honorable Engagement Anyway? The arbitrators shall interpret this Contract as an honorable engagement and not as merely a legal obligation; they are relieved of all judicial formalities and may abstain from following the strict rules of law.
  • 5. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Arbitrator Issues How Flexible May Arbitrators Be? Rules of Evidence? Applicable Cases? Ambiguous Terms in Contract? i.e. 30 day submission
  • 6. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Arbitrator Issues Do Arbitrators Have Boundaries? Although the arbitrators [are] not bound to follow legal procedures strictly, they are not, because of such freedom, released from the obligation to be guided by the basic agreement of the litigants. Garamendi v. California Comp. Ins., 2005 Cal. App. Unpub. LEXIS 11799 (Cal. App. Unpub. Opinions 2005). They must apply the contract. Manifest Disregard of Law Doctrine Hall Street Associates v Mattel (US Supreme Court)
  • 7. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Broadly Interpreted Cover all disputes not specifically exempted Consider Scope Interpretation vs. Formation of Agreement Consider specificity Words arbitration clause can be enough
  • 8. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Interaction with Service of Suit Clause Two clauses usually held in harmony and interpreted as specifying juridiction Service of Suit may trump on failure to pay as it is more specific clause than any dispute language of arbitration clause Failure to Pay vs. Enforcement
  • 9. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses Interaction with Choice of Law Provisions Examine the jurisdictions arbitrations procedure as courts may apply it by default when ambiguous. In other words, procedural law may apply in addition to substantive.
  • 10. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration Clauses What then is the solution? Include a slightly more detailed arbitration clause in the placement slips, perhaps largely boilerplate, familiar to the parties, which leaves room for amendments to be made when the actual treaty is finalized. If a dispute arises before consummation of the treaty, or if the treaty is never drafted and signed, the boilerplate provisions in the placement slip will control.
  • 11. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Arbitration in Run-Off Receivers often enjoy favored status in liquidation court Great Variation with Three outcomes: Arbitration clause void (NY Rule) Receiver stands in the shoes of insolvent company and can be compelled to arbitrate Hybrid
  • 12. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Purpose Prevent Second Guessing Promote Good Faith Settlements
  • 13. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Traditional Application Applied When There Is Good Faith Payment Made After Reasonable Investigation Payment is not Ex Gratia
  • 14. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Will a Court Enforce the Doctrine in Absence of Express Policy Terms? Maybe? Yes - Aetna v. Home Ins (SDNY 1995) No North River Ins Co. v. Employers Reinsurance (SD Ohio 2002)
  • 15. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Does the Doctrine Apply Where the Cedant Acts in Bad Faith? No
  • 16. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Does the Follow the Settlements Doctrine Apply to a Reinsureds Allocation of Settlement Payments? 1995 ------- 1997 1998 ------- 2001
  • 17. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT Follow the Fortunes/ Follow the Settlements Does the Follow the Settlements Doctrine Apply to a Reinsureds Allocation of Settlement Payments? Allstate v. American Home (1st Dept. 2007) Multiple Occurences and Inconsistent Litigation Position Granite State v. Ace American Reinsurance (1st Dept 2007) Initial Disclaimer Under Pesticide Exclusion. Policies exhausted and exceeded Shifted Remainder to Disclaimed Policy
  • 18. GOLDBERG SEGALLA LLP NEW YORK NEW JERSEY PENNSYLVANIA CONNECTICUT A Final Word on Arbitration Costs Cost vs. Benefit Arbitrator Selection (US Arias) Consider Mediation alternatives Honorable Engagement and Award of Fees Some courts hold clause trumps award of fees and precludes it Courts may narrowly construe treaty that says each side will bear its costs.
  • 19. GOLDBERG SEGALLA LLP Philadelphia New York Buffalo Rochester Syracuse Albany White Plains Long Island Princeton Hartford Avoiding Undue Exposure on Arbitration Clauses from Underwriting to Claims Daniel W. Gerber Esq. Goldberg Segalla LLP dgerber@goldbergsegalla.com www.goldbergsegalla.com