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District Court Declares that Fraudulent Inducement Claim Is Not Available To Arbitrate

(CIVIL ACTION NO. 05-10180 MAY 3, 2010)

This lawsuit was initiated by AXA Versicherung (“AXA”) against three subsidiaries of AIG, including New Hampshire Insurance Co. (“New Hampshire”) regarding an reinsurance agreement. The action went to trial where AXA was awarded an amount in excess of thirty-four million dollars plus punitive damages. AIG appealed the decision to the Second Circuit who remanded the matter for a determination of whether certain claims should have been sent to arbitration. Specifically, the question of whether the issue of fraudulent inducement was subject to arbitration under the contract.

AIG argued that many of the alleged misrepresentations were grounded in contract and as a result were subject to the arbitration clause contained in the agreement. AXA, in turn, argued that the fraudulent inducement claim was not duplicative of the contract claims because the misrepresentations centered on future, not past, obligations. The district court ruled in favor of AXA finding that the fraudulent inducement claims sound in fraud and not contract. Furthermore, the district court found that New Hampshire waived its right to arbitrate by failing to raise the issue earlier in the litigation. The district court determined that by waiting until the end of discovery, the parties consented to litigate the action and not arbitrate.

IMPACT (ARBITRATION): Practitioners should always be cognizant of waiving their right to arbitration if it is not asserted early on in the litigation process. The standard applied by many of the jurisdictions is that if discovery is completed (or a substantial portion of the discovery is completed), a party cannot invoke the arbitration clause.

All content © 2020 Goldberg Segalla LLPNational Law Review, Volume , Number 176


About this Author

Thomas F. Segalla, Insurance Attorney, Goldberg Segalla Law Firm

Thomas F. Segalla, is the co-author of the renowned insurance law treatise Couch on Insurance 3d and is one of the founding partners of the firm.  Mr. Segalla is a nationally recognized reinsurance and insurance expert who has been retained by numerous insurance carriers and policyholders.  His active practice focuses on the defense and insurance coverage aspects of matters involving bad faith; construction site personal injury accidents (Labor Law §§ 200, 240(1) and 241(6)); and toxic tort and environmental issues. As a member of the Defense Research Institute (DRI),...

Jeffrey L. Kingsley, Goldberg Segalla, Insurance attorney

Jeffrey Kingsley maintains an international practice that focuses on matters involving insurance and reinsurance coverage, commercial and regulatory issues, and extra-contractual liability arbitration and litigation. As a leader in Goldberg Segalla’s reinsurance practice he has extensive experience handling and consulting clients on complex reinsurance allocation issues, regulatory issues, arbitrations, transactional issues, and disputes involving the follow-the-fortunes doctrine.

Jeff provides comprehensive legal representation for Fortune 500 companies, insurers, reinsurers, and other businesses to help them manage risk at every stage of business and protect their interests when disputes may arise. He works with clients during the developmental phase of business relationships to analyze agreements and potential strategies in order to reduce liability exposure and identify issues that may impede growth, including threats to a company’s reputation or intellectual property rights.

Jeff currently serves as national litigation and regulatory counsel for one of the largest companies that provides vehicle service contracts and extended insurance warranties for both commercial and personal vehicles. In that role he handles the resolution of coverage claims and disputes with dealers, producers, and competitors, including representing the company in litigation and arbitration; drafts reinsurance agreements to create captive reinsurance companies; assists with the drafting of vehicle service contracts and warranties; and counsels on a range of regulatory matters, including advertising regulations. Jeff’s recent experience also includes consulting with one of the world’s top auto manufacturers in the development of a national program.