Berkshire unit loses $5 million award on appeal

A federal appeals court has overturned a lower court ruling that required a Brazilian reinsurer to pay a $5 million arbitration award to a Berkshire Hathaway Inc. unit.

in 2007 Sao Paulo, Brazil-based Companhia Siderurgica Nacional SA, a steel, iron ore and mining conglomerate, obtained an insurance policy that was reinsured with Rio De Janeiro-based reinsurer IRB Brasil Resseguros SA, according to court papers in National Indemnity Co., Companhia Siderurgica Nacional SA v. IRB Brasil Resseguros SA. IRB then entered a retrocessional agreement with Berkshire Hathaway unit National Indemnity.

In 2008, CSN purchased a second policy that was reinsured by IRB, which entered into a retrocessional agreement with National Indemnity.

In late 2008, National indemnity demanded arbitration against IRB under the 2007 and 2008 contracts concerning, among other things, property losses relating to a conveyor belt system owned and operated by CSN in Brazil.

Ensuing litigation in U.S. District Court in New Jersey in the case led to a settlement agreement between CSN and National Indemnity that called for IRB to return $5 million of the $9 million in premium that was paid. It also provided that National Indemnity would have no liability to pay the settlement amount to CSN from its own funds, according to Thursday’s ruling by the 2nd U.S. Circuit Court of Appeals in New York.

In its ruling, the 2nd Circuit overturned a ruling by the U.S. District Court in New York and held the agreement between CSN and National Indemnity “does not establish a liability of IRB to pay $5 million.”

“Settlement agreements are not to be used as device by which A and B, the parties, can (just because a judge is willing to give the parties’ deal a judicial imprimatur) take away the legal rights of C, a nonparty,” said the ruling, in quoting an earlier case.

The ruling added, however, “On the other hand, we reject IRB’s argument that the settlement between CSN and (National Indemnity) exonerated IRB from any possible further liability under the arbitration award.”

IRB attorney Michael O. Ware, a partner with Mayer Brown LLP in New York, said, “We’re pleased with the ruling.” A Berkshire attorney could not immediately be reached for comment.