Court Finds No Coverage For Prosecuting Counterclaims

The Massachusetts Supreme Judicial Court recently weighed in on the perennial issue of whether an insurer’s obligation to defend extends to the prosecution of counterclaims on behalf of the insured.  In Mount Vernon Fire Insurance Co. v. Visionaid, Inc., 477 Mass. 343 (2017), the state’s highest court ruled that the duty to defend does not require insurers to fund an insured’s counterclaim, even when it may be intertwined with the defense of a covered claim. The insurer in Visionaid issued an employment practices liability policy to the insured, a manufacturer of lens cleaning and eye safety products.   Under this “claims-made” policy, the insurer had a right and duty to defend, and was obligated to pay 100% of the defense costs for a covered claim.  In the underlying suit, a former employee sued the insured for wrongful termination based on age discrimination.  The insured, in turn, accused the then-employee of misappropriating funds.  The insurer agreed to defend the case subject to a reservation of rights, and appointed panel counsel.  The insured subsequently requested that the insurer pursue and fund a counterclaim for the alleged embezzlement.  The insurer declined to do so, contending that the policy did not require it to prosecute the counterclaim.  The insured countered that the insurer’s position created a conflict of interest justifying the appointment of independent counsel, at the insurer’s expense. The insurer filed a declaratory judgment action in Massachusetts federal district court seeking a ruling that it was not obligated to assert or fund the...
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Judge: Relationship Involving Arbitrator Justifies Vacatur Of Award

Mealey's (April 4, 2017, 10:28 AM EDT) -- NEW YORK — A federal judge in New York on March 31 vacated a reinsurance arbitration award because of an arbitrator’s failure to disclose his relationships with one of the arbitrating parties (Certain Underwriting Members at Lloyd’s, London v. Insurance Company of the Americas, Nos. 16-cv-323, 16-cv-374, S.D. N.Y.). (Opinion available.  Document #12-170407-011Z.) Certain Underwriting Members at Lloyd’s, London (Underwriters) sued the Insurance Company of the Americas (ICA) on Jan. 15, 2016, in the U.S. District Court for the Southern District of New York.  Underwriters and ICA entered into a reinsurance agreement that was underwritten as a workers’ compensation catastrophe cover.  A dispute arose, and ICA demanded arbitration.  Underwriters said the arbitration panel issued a final award on Oct. 19, 2015, ordering that it is responsible for claims totaling more than $2.5 million. Misconduct In its complaint, Underwriters asked for an order vacating the arbitration award because a member of the arbitration panel allegedly engaged in misconduct by failing to disclose his relationship with ICA.  ICA cross-moved to confirm the award on Feb. 27, 2016. In his opinion, Judge Vernon S. Broderick noted that the Federal Arbitration Act (FAA), 9 U.S. Code Section 9, 9 U.S.C. § 9, “provides for judicial confirmation of arbitration awards if the parties have consented to such confirmation in their agreement to arbitrate.” “Under the FAA, a court may vacate an arbitration award upon an application of any party to the arbitration . . . where there...
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Judge Voids $5M Award Against Reinsurers, Citing Bias

By  Chuck Stanley Law360, New York (April 3, 2017, 7:38 PM EDT) -- A New York federal judge on Friday vacated a $5 million arbitral award against British reinsurers after learning one of the arbitrators had an undisclosed business relationship with the Florida workers' compensation firm that filed the arbitration claim. Alex Campos failed to disclose his extensive business relationships with high-level employees of Insurance Company of the Americas when the firm appointed him to an arbitration panel in a dispute over a reinsurance contract with Lloyd’s of London underwriters, calling into question his impartiality and placing a cloud over the panel’s decision in favor of ICA, judge Vernon S. Broderick said in a decision vacating the award. “Campos had close business relationships with numerous principals of ICA, a party to the arbitration, and the number and variety of these relationships suggest he was personally acquainted with some of these individuals over a number of years,” the decision states. “Arbitrator Campos’ failure to disclose his significant relationships with principals of ICA, and with ICA itself, requires vacatur of the arbitration award.” The underlying dispute centers on whether agreements for reinsurance against multiple workers’ comp claims were limited to cases in which more than one person was injured as the result of a single accident. The tribunal found that the first- and second-layer underwriters were responsible for more than $2.5 million under claims related to two separate incidents resulting in payouts from ICA and third-layer underwriters were responsible for up to...
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