Patton Boggs Reinsurance Newsletter- March 2013: Wisconsin Federal Court Remands Arbitration Counsel Disqualification Action to State Court

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Nat'l Cas. Co. v. Utica Mut. Ins. Co., No. 12-cv-657-bbc, 2012 WL 6190084 (W.D. Wisc. Dec. 12, 2012).

The popularity of attorney disqualification applications in reinsurance disputes continues with this dispute venued in Wisconsin. Several reinsurance contracts were entered into, all of which had arbitration provisions. The ceding company and the insured litigated over certain claims presented by the insured and ultimately settled. The cedent billed the reinsurer and the reinsurer questioned its obligation to pay.

This dispute arose when the cedent's counsel demanded arbitration. It turned out that the cedent's counsel had served as defense counsel in the underlying coverage dispute. The reinsurer claimed that this caused a conflict of interest, because counsel represented both the reinsurer's and the cedent's interests in the coverage litigation. When the cedent refused to replace its counsel, the reinsurer filed this action to disqualify counsel in state court, which the cedent removed to federal court.

The Wisconsin federal court remanded the action back to state court after finding that the cedent had not shown that federal subject matter jurisdiction was present. The court originally was concerned whether there was diversity of citizenship, but once that was resolved, the court could not get past the amount in dispute. The reinsurer focused on the amount in dispute in the arbitration. But as the court found, the cedent did not identify the amount in dispute in the arbitration or the cost of replacing arbitration counsel. Although the amount in controversy was eventually identified and exceeded $75,000, the court had an issue concerning whether the amount in controversy in the arbitration was the proper measure for the disqualification action as the object of the disqualification litigation was not compelling arbitration or confirming an arbitration award. The court remanded essentially because it would not adopt the stakes in arbitration as the measure for subject matter jurisdictional purposes.