Reinsurance Focus

The issue confronting the court in In re ROM Reinsurance Management Co. v. Continental Insurance Company was whether the timeliness of a demand for arbitration was a determination for the Court or for the arbitrators. The parties agreed that the “arbitration laws of New York State” shall govern the parties’ arbitration. Under New York’s arbitration laws, in contrast to the Federal Arbitration Act, resolution of a statute of limitations defense can be raised as a threshold issue in the courts. In contrast, under the FAA, the limitations defense is presumptively reserved to the arbitrator, not a court, except where the parties agree to leave timeliness issues to the court. The parties’ intent to have New York state law govern enforcement of the agreement, which includes the statute of limitation defense, must be stated with “critical language concerning enforcement.” Otherwise, all controversies, including issues of timeliness, are subjects for arbitration. The ROM court found that the provision at issue was sufficient. The court further reasoned that its ruling was consistent with the FAA’s goals because it enforced the agreement under the terms agreed upon by the parties, even if the result would be that the arbitration is stayed whereas it would have gone forward under the FAA. In re ROM Reinsurance Management Co. v. Continental Insurance Co., No. 11809 654480/12 (N.Y. App. Div. Mar. 11, 2014).

This post written by Leonor Lagomasino.

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The dispute involved a claim for benefits under a policy insuring a marine construction site damaged in 2008 by Hurricane Ike. The insured contended that the policy did not provide for arbitration, but instead provided only for appraisal to set an amount of loss. The court disagreed, finding that the policy contained a clause entitled “Arbitration” and contained “multiple references to arbitration,” although that clause was ambiguous because the policy was silent as to “what precisely triggers arbitration.” The court then analyzed extrinsic evidence, including the language of a “draft” of the arbitration clause, and compelled arbitration, finding “ample evidence in the record to demonstrate [the parties’] intent to arbitrate any and all disputes under the policy.” Aker Kvaerner/IHI v. National Union Fire Insurance Co. of Louisiana, et al., Case No. 2:10-cv-00278 (USDC W.D. La. Feb. 10, 2014).

This post written by Michael Wolgin.

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There have been a number of recent court opinions enforcing class arbitration waivers, compelling individual arbitration and denying class arbitration, with the lone exception being a California Court of Appeal opinion which, in conflict with an opinion from the Ninth Circuit Court of Appeals, distinguished Concepcion and found a waiver of class arbitration to be unenforceable.

Alakozai v. Chase Investment Services Corp., No. 12-55553 (9th Cir. Feb. 7, 2014) (Affirming denial of motion to compel arbitration of class action claims, finding class arbitration exclusion in FINRA rules was not incorporated explicitly into parties’ agreement, potentially allowing for arbitration of class action claims in another arbitral forum).

Hickey v. Brinker Nat’l Payroll Company, LP, 1:13-cv-00951 (USDC D. Colo. Feb. 18 2014) (granting motion to compel individual arbitration of employees’ claims against employer, rejecting claims that agreement with class arbitration waiver was unenforceable under NLRA or was otherwise unenforceable as unconscionable or against public policy).

Michael Appelbaum v. AutoNation Inc., SACV 13-01927 (USDC C.D. Cal. April 8, 2014) (granting motion to compel individual arbitration of employee’s claims against employer, finding class arbitration waiver not unenforceable under NLRA or otherwise unconsionable, substantively or procedurally)

Johnson v. Consumerinfo.com, Inc., No. 11-56520 (9th Cir. March 20, 2014) (dismissing appeal of trial court’s grant of motion to compel individual arbitration of consumer protection claims, finding FAA bars appeals of court orders staying judicial proceedings and compelling arbitration).

Imburgia v. DirectTV, Inc., No. B239361 (Cal. App. Ct. April 7, 2014) (affirming denial of motion to compel individual arbitration, finding choice of law provision which did not explicitly mention FAA, but did mention state law, allowed for interpretation of enforceability issues under state law, despite that result would otherwise be preempted by FAA. The case distinguishes Concepcion, and is in conflict with Ninth Circuit decision in Murphy v. DirectTV, Inc., No. 11-57163 (9th Cir. July 30, 2013), discussed in prior ReinsuranceFocus.com post.

This post written by John Pitblado.

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The U.S. District Court for the District of Massachusetts recently applied the First Circuit’s analysis in Employers Insurance Co. of Wausau v. OneBeacon American Insurance Co., Case No. 13-1913 (1st Cir. Feb. 26, 2014), when it held that the preclusive effect of a prior arbitration is itself an arbitrable issue. Faced with one previously concluded and one pending arbitration between insurers and their reinsurer regarding the interpretation of an “Access to Records” clause as it pertained to allegedly privileged documents, the district court was not asked to vacate, modify, or correct the previously concluded arbitration order. Instead, both parties consented to the court confirming that order and sought to argue about the proper forum for the interpretation, application, and performance of the arbitration order. Ultimately, the court emphasized the First Circuit’s “general rule” that the preclusive effect of a prior arbitration is an arbitrable issue, particularly where, as in this case, the plain terms of the parties’ arbitration clause broadly encompasses “any dispute arising out of” the agreement. Liberty Mutual Insurance Co. v. Allstate Insurance Co., Case No. 13-cv-10387 (USDC D. Mass. Mar. 31, 2014).

This post written by Kyle Whitehead.

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Within weeks of each other, three suits were filed involving overlapping parties and similar claims regarding arbitration of disputes arising from reinsurance agreements between Transatlantic and Continental and between Transatlantic and AIG. In one of the three suits, National Indemnity Company (“NICO”) sought a preliminary injunction in the District of Nebraska enjoining Transatlantic from compelling NICO to arbitration in the other two actions in Illinois and New York. Considering the issue of where NICO’s claims should be resolved, the Nebraska court determined that while it could enjoin Transatlantic from compelling NICO to arbitration, it did not have the authority under the Federal Arbitration Act to compel arbitration under agreements that chose Illinois and New York as the venue for arbitration. The court would not therefore be able to grant complete relief to the parties. Comprehensive resolution could only be achieved by severing NICO’s claims and transferring those relating to the Transatlantic-Continental agreement to the Northern District of Illinois and those relating to the Transatlantic-AIG agreements to the Southern District of New York. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-CV-74 (USDC D. Neb. Mar. 31, 2014).

This post written by Abigail Kortz.

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The Sixth Circuit recently reversed a district court’s decision to stay arbitration proceedings in a dispute concerning allegations of overbilling on a reinsurance program. The arbitration clause from the treaty established a tripartite method of arbitration – one arbitrator selected by each side and one neutral umpire. During the course of the arbitration (and before rendition of a final award), one of the parties contended that its selected arbitrator had been disenfranchised by the other two arbitrators and that inappropriate ex parte communications had occurred. A lawsuit was filed in Michigan state court, seeking to vacate an interim award on the grounds that the two arbitrators had exceeded their authority under the treaty and that the umpire had displayed evident partiality. The case was removed to federal court, where the district court recast the challenge as a breach of contract dispute regarding the rules under which the arbitration was to proceed, and it granted an injunction to stay the arbitration. On appeal, the Sixth Circuit reversed, concluding that the district court erred by prematurely interjecting itself into the private dispute, noting that parties to an arbitration generally may not challenge the fairness of the proceedings or the partiality of the arbitrators until the conclusion of the arbitration and the rendition of a final award. The Sixth Circuit made a point to disagree with the district court’s application of 9 U.S.C. § 2, noting that “[n]othing in the text or history of the FAA suggests that § 2 was intended to displace § 10’s limitation on judicial review of non-final awards.” Savers Property & Casualty Insurance Co. v. National Union Fire Insurance Co. of Pittsburgh, PA, Nos. 13-2288/2289 (6th Cir. Apr. 9, 2014).

This post written by Catherine Acree.

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A federal district court has compelled arbitration of a coverage issue arising out of an Underinsured Motor Vehicle Coverage (UIM) policy issued by Farm Bureau Property & Casualty Insurance Company. Farm Bureau had argued that the court must first decide the initial issue of coverage, whether the umbrella coverage section of the UIM policy extended to the insured’s excess damages, before anyone — the court or a panel of arbitrators — could determine whether Farm Bureau’s actions in denying the insured’s claim constituted breach of contract or bad faith. The court disagreed, noting the material difference between the UIM’s arbitration clause and other industry-standard arbitration clauses that refer a narrower question to arbitration. The broader clause, as stated in the UIM policy, refers to arbitration any disagreement between the insured and the insurer as to the right of the insured to recover damages, not just from the tortfeasor but under the provisions of the policy as well. The court found that the broader language includes the arbitration of coverage issues. Kenneth J. Moore, et al. v. Farm Bureau Property & Casualty Insurance Co., Case No. 2:13-CV-01815 (USDC D. Ariz. Jan. 21, 2014).

This post written by Renee Schimkat.

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A federal district court has held an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer invalid and unenforceable under governing state law. The RPA complemented a standing Quota Share Reinsurance Agreement between reinsurer Applied Underwriters Captive Risk Assurance (AUCRA) and the insured’s insurers whereby AUCRA was ceded a portion of the insured’s premiums paid under a Workers Compensation Profit Sharing Plan. When the insured failed to pay its premiums, it received notice that its workers’ compensation policies and the RPA were being terminated for nonpayment. After attempts to resolve the dispute with AUCRA failed, the insured filed a lawsuit seeking declaratory and other relief, including reformation of the RPA. AUCRA moved to compel arbitration pursuant to the RPA’s arbitration clause.

The court analyzed the arbitration clause under Nebraska law, which the parties agreed controlled, and found the clause fell within the purview of a Nebraska statute prohibiting arbitration clauses in insurance contracts. The court rejected AUCRA’s arguments that (a) the statute did not apply to the RPA because the statute is aimed only at traditional insurance contracts between an insurance company and its insured, and (b) even if applicable, the RPA fell within the reinsurance exception contained within that statute. The court noted that the reinsurance exception applied to “contract[s] between insurance companies including a reinsurance contract” and the insured was not an insurance company. The court also rejected AUCRA’s argument that the insured had waived or was otherwise estopped from contesting the validity of the arbitration clause by virtue of its pre-suit settlement attempts. The court thereby denied AUCRA’s motion to compel arbitration and granted the insured’s motion to stop arbitration. On a final issue, the court denied AUCRA’s motion to transfer venue to Nebraska per the RPA’s forum selection clause, finding the interests of justice weighed in favor of retaining the case in Tennessee. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Jan. 23, 2014).

This post written by Renee Schimkat.

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Under the Federal Arbitration Act, only “a final decision with respect to an arbitration” is appealable. 9 U.S.C. §16(a)(3). The issue facing the Ninth Circuit was whether an order compelling arbitration which neither explicitly dismissed nor explicitly stayed the action was such “a final decision.” The Court concluded it was not a final decision and therefore was not appealable.  In MediVas, the district court’s order on appeal (“Order”) ruled that many of the plaintiff’s claims were subject to the arbitration clause, and ordered arbitration for those claims. As to the remaining claims, the district court remanded them to state court. Neither the Order nor any other order in that case explicitly dismissed nor explicitly stayed the arbitrable claims, and no judgment was entered in the action.

In its analysis, the Court reasoned that a final decision is one which “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Thus, an order compelling arbitration may be appealed if it dismisses all the underlying claims, but may not be appealed if the court stays the action pending arbitration. Consistent with its earlier rulings and with the procedural history of the case before it, the Ninth Circuit held the Order implicitly stayed the arbitrable claims pending the outcome of the arbitration. Because those claims were not dismissed, the Order was therefore interlocutory and not appealable.

Significantly, although the Medivas Court declined to follow the Second Circuit’s requirement of an official dismissal of all claims before reviewing an order compelling arbitration, the Court adopted a rebuttable presumption that an order compelling arbitration which did not explicitly dismiss the underlying claims stays the action as to those claims pending the completion of the arbitration. The Court did so in order to simplify the analysis in future cases where the order compelling arbitration is not clear. Along those lines, the MediVas Court also urged the district courts make their orders as clear as possible as to whether they intend to dismiss or stay a case, and noted that the appeal before it could have been avoided had the parties requested a clarification of the Order.  MediVas, LLC, et. al. v. Marubeni Corporation, Case No. 12-55375 D.C. No. 3:10-cv-01001-W-RBB (9th Cir. Jan. 27, 2014).

This post written by Leonor Lagomasino.

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National Indemnity Company (NICO) sought an injunction in a Nebraska federal district court to prevent Transatlantic Reinsurance Company and its subsidiary (collectively, Transatlantic Re) from commencing arbitration against NICO in Chicago and New York under various reinsurance agreements. Both arbitrations involved asbestos liability transferred to NICO, and separately reinsured by Transatlantic Re. Transatlantic Re had commenced arbitrations in Illinois and New York (and initiated actions in those jurisdictions to compel NICO’s participation), pursuant to applicable forum selection clauses contained in Transatlantic Re’s reinsurance agreements with cedents. The Nebraska court elected not to adjudicate NICO’s injunction claim, but instead decided to sever it into two, and transfer the resulting two claims to Illinois and New York. The court analyzed venue provisions in the Federal Arbitration Act and different judicial approaches thereto, and concluded that Nebraska was limited in its jurisdiction over the claim. Illinois and New York were authorized under the FAA to compel arbitration if necessary, whereas Nebraska possessed jurisdiction only to enjoin NICO’s participation. Transfer, the court concluded, would promote judicial economy. National Indemnity Co. v. Transatlantic Reinsurance Co., Case No. 8:14-cv-00074 (USDC D. Neb. Mar. 31, 2014).

This post written by Michael Wolgin.

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