Reinsurance Focus

Plaintiff Repwest Insurance Company, as cedent, entered into an excess workers compensation quota share agreement with various reinsurers, including Conestoga Casualty Insurance Company and the defendant, Preatorian Insurance Company. Praetorian later entered into a commutation agreement with Conestoga, whereby Conestoga took on Praetorian’s portion of the risk involving Repwest. Repwest was not informed of the commutation until after the fact. Repwest sued, arguing that the quota share agreement required assent from Repwest for such a commutation agreement. Praetorian moved to compel arbitration. Repwest argued in response that its claims did not “arise under” the quota share agreement, and therefore were not subject to arbitration under that contract. The court disagreed and granted Praetorian’s motion to compel arbitration, finding that the claims did arise from the quota share agreement, and that Praetorian did not waive its right to arbitration. The court, however, limited the claims that could be submitted to arbitration, finding that tort claims for misrepresentation and fraudulent inducement were outside the scope of the agreement. Repwest Insurance Co. v. Praetorian Insurance Co., Case No. CV 12-0369-PHX-JAT (USDC D. Ariz. Aug. 28, 2012).

This post written by John Pitblado.

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In an action by a pharmacy franchisor to stay franchisees’ collective arbitration claims filed with the American Arbitration Association and to compel individual arbitrations, the Eastern District of Missouri granted the franchisees’ motion to dismiss based on lack of subject matter jurisdiction, relying heavily on both contract interpretation and the Federal Arbitration Act, which states that agreements to arbitrate “shall be valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract.” Although the arbitration clauses provided that “arbitration shall be conducted on an individual, not a class-wide, basis,” they also expressly incorporated the AAA’s rules, and AAA Rule 7(a) grants arbitrators, not courts, the authority to determine their own jurisdiction.

Without reaching the question of whether collective arbitrability is a gateway issue for the court or a question of procedure to be determined by an arbitrator, the court held that the parties had “clearly and unmistakably agreed to submit all questions of arbitrability to an arbitrator” pursuant to AAA Rule 7(a). In so holding, the court directed its attention to a handful of exceptions to the applicability of the AAA’s rules found in the franchise agreements, emphasizing that no such exception regarding the resolution of arbitrability had been included. Therefore, the court found the AAA’s arbitrability provision controlling. Medicine Shoppe Int’l, Inc. v. Edlucy, Inc., Case No. 12-161 (USDC E.D. Mo. May 14, 2012).

This post written by Rollie Goss.

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Following is a summary of court decisions, some compelled, others denying, arbitration:

Authenment, III v. Ingram Barge Co., Case No. 10-2107 (USDC E.D. La. July 13, 2012) (granting West of England Shipowner’s Mutual’s motion to stay pending arbitration in a case initially brought against West of England’s insured, notwithstanding that plaintiff was non-signatory to arbitration agreement; holding that Convention on the Recognition and Enforcement of Foreign Arbitral Awards supersedes Louisiana’s statute prohibiting arbitration agreements in insurance contracts).

ISC Holding AG v. Nobel Biocare Finance AG, No. 11-239 (2d Cir. July 25, 2012) (affirming order dismissing with prejudice petition to compel arbitration and vacating petitioner’s notice of voluntary dismissal; holding that Rule Federal Rule 41(a)(1)(A)(i) does not apply in the context of petitions to compel arbitration).

Wooten v. Fisher Invest., Inc., No. 11-2476 (8th Cir. July 26, 2012) (affirming that district court properly dismissed without prejudice plaintiff’s state and federal statutory claims because they were subject to an ongoing arbitration that was required to be completed before remedies could be pursued in federal court).

Gove v. Career Sys. Dev’l Corp., No. 11-2468 (1st Cir. July 17, 2012) (affirming that employment discrimination claims brought by applicant against potential employer were not subject to compulsory arbitration because arbitration agreement was ambiguous as to whether claims brought by applicants that were not hired were subject to arbitration provision).

Union Elec. Co. v. Aegis Energy Syndicate 1225, Case No. 4:12CV87 (USDC E.D. Mo. Aug. 23, 2012) (denying insurer’s motion to compel arbitration; holding that Missouri choice of law and forum selection clause in policy endorsement prevails over alternative resolution provision in policy).

This post written by Ben Seessel.

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Two recent California Appellate Court decisions address class arbitration waivers post-AT&T Mobility v. Concepcion, the 2011 U.S. Supreme Court case that dramatically curtailed parties’ ability to challenge class action waivers in arbitration agreements. In Caron v. Mercedes-Benz Financial Services USA, LLC, No. G044550 (June 29, 2012), the Court reviewed a trial court decision denying a motion to compel, based on the anti-class-action-waiver provision of California’s Consumer Legal Remedies Act. The Appellate Court reversed, citing Concepcion, and holding that the CLRA is pre-empted by the FAA, because it acts as an obstacle to the FAA’s intention of enforcing arbitration agreements.

Likewise, in Truly Nolen of America v. Superior Court, No. D060519 (Aug. 9, 2012), the Appellate Court reversed an order allowing class-wide arbitration. The trial court had granted a motion to compel arbitration of a putative class action labor dispute, but denied the employer’s motion to direct individual arbitration, instead allowing class-wide arbitration of the claims. The employer appealed and the Appellate Court reversed, citing Concepcion. However, it remanded with instructions that the trial court hear arguments and evidence on whether the arbitration agreement in fact contained an implied right to class-wide arbitration, as argued by the plaintiff class, including extrinsic evidence of intent, if necessary, and to then rule anew on the issue of whether class-wide arbitration should be allowed.

This post written by John Pitblado.

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Applying California law and the Federal Arbitration Act, a federal district court ruled that Senior Services of Palm Beach must arbitrate its claims against ABCSP, Inc., a franchising company, pursuant to the arbitration clause of the parties’ franchise agreement. Although Senior Services claimed the arbitration clause was unconscionable, the court held that, by incorporating the rules of the American Arbitration Association into their arbitration provision, the parties had agreed to allow the arbitrator to determine gateway issues such as arbitrability, which included unconscionability. The court went on to say that, however, that if the matter were properly before it, it would hold that the arbitration clause was not unconscionable. The provision did not meet the test for either procedural or substantive unconscionability, as there was no inequality in bargaining power or evidence of surprise, nor was the provision, including its requirement to arbitrate in California, harsh or one-sided. Thus, the court granted the prevailing party’s motion to dismiss the case and compel arbitration. Senior Services of Palm Beach LLC v. ABCSP Inc., Case No. 9:12-cv-80226-JIC (USDC S.D. Fla. June 7, 2012).

This post written by Brian Perryman.

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A lawsuit involving a reinsurance dispute has been voluntarily dismissed so that it may proceed in arbitration. On July 14, 2011, Liberty Mutual petitioned a court to appoint an umpire and compel arbitration pursuant to its reinsurance agreement with Continental Insurance under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards and the Federal Arbitration Act. The dispute between the two parties arose after Liberty Mutual sought reimbursement from its reinsurer, Continental for amounts paid to a policyholder. Although the parties agreed that their contracts required them to arbitrate, and each had successfully chosen one arbitrator, they were unable to choose an umpire. Because their contracts did not specify a selection process for the umpire and the parties were unable to come to an agreement themselves, Liberty Mutual sought judicial intervention, asking for an order appointing one of five disinterested industry umpires or, alternatively, a retired Massachusetts judge. Although both parties submitted memoranda on the issue and the court held a hearing on the motion, the parties thereafter stipulated to a dismissal of the action and, pursuant to this, the court dismissed the action with prejudice. Liberty Mutual Insurance Co. v. Continental Insurance Co., Case No. 11-cv-11245-MBB (USDC D.Mass. May 7, 2012).

This post written by Brian Perryman.

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Insurance policies insuring various risks regarding the construction of a hydroelectric plant in Brazil provided that, if the parties could not resolve disputes through mediation, arbitration was to take place in London. Brazilian law, however, governed the policies and, furthermore, the policies gave Brazilian courts exclusive jurisdiction over policy disputes. The policies, and arbitration clauses within them, however, were silent regarding what law governed interpretation of the policies’ arbitration agreements.

The insurers (Sulamérica and others) gave notice of arbitration regarding a dispute, to which the insureds responded by obtaining an order from a Brazilian court enjoining arbitration. The insurers applied to the U.K. Commercial Court for an injunction to restrain the Brazilian court proceedings. In opposition, the insureds argued that, under Brazilian law, arbitration could not be commenced without their consent. The Commercial Court sided with the insurers, determining that the arbitration agreement was governed by English law. The appeals court dismissed the appeal and agreed with the Commercial Court that, given the choice of London as arbitral forum, the arbitration agreement had its “closest and most real connection” with English law. Sulamérica CIA Nacional de Seguros S.A. v. Enesa Engenharia S.A., Case No. A3/2012/0249, [2012] EWCA Civ. 638 (Q.B. May 16, 2012).

This post written by Ben Seessel.

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Perry Sparks sued his former employer for wrongful termination in California state court. The defendant employer moved to compel arbitration, relying on an arbitration clause in its 2006 employee handbook. The trial court held, and the appellate court affirmed, that the motion to compel should be denied for several reasons: (1) the arbitration clause was included within a lengthy employee handbook and there was no specific acknowledgement or agreement by plaintiff to be bound by the clause; (2) the handbook did not constitute a contract, and any “agreement” found therein was rendered illusory by the defendant’s unilateral authority to alter the terms; (3) the specific rules referred to in the arbitration clause were not provided to plaintiff; and (4) the arbitration clause was unconscionable. The court side-stepped the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion by basing its holding alternatively on the non-existence of an agreement, which it held remains a gatekeeper inquiry properly addressed by the Court. Sparks v. Vista Del Mar Child and Family Services, B234988 (Cal. App. Ct. July 30, 2012).

This post written by John Pitblado.

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A former professional football player, whose National Football League employment contract waived application of California workers’ compensation law, sought to vacate an arbitration award that denied the player’s pursuit of California workers’ compensation benefits for injuries that allegedly occurred over the course of the player’s football career. The court rejected the player’s arguments that the award constituted a violation of California and federal labor policy, and that the award reflected a manifest disregard of California law. The player’s injuries, the court explained, could not be sufficiently tied to events occurring in California. Without a “clear” indication that a California court would apply that state’s law, the award could not be deemed to violate California and federal labor policy, which in turn precluded the player’s contention that the award violated the Constitution’s Full Faith and Credit Clause. Matthews v. National Football League Management Council, Case No. 11-5186 (9th Cir. Aug. 6, 2012).

This post written by Michael Wolgin.

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Plaintiff Abreu filed a putative class action lawsuit against Slide, Inc., the developer of SuperPoke!, an online game in which users adopt, care for, and interact with virtual pets. Google acquired Slide in 2010 and, shortly thereafter, discontinued the game. Plaintiff asserted a number of common law and statutory causes of action against Slide and Google pertaining to the termination of the game, including alleged violations of California’s Unfair Competition Law (UCL). Google and Slide successfully moved to compel arbitration.

The federal district court held that the requirement of a $125 filing fee was not substantively unconscionable, particularly where the arbitration agreement provided that respondent would pay arbitration costs if the arbitrator determined costs to be excessive. It further rejected plaintiff’s argument that the arbitration provision was substantively unconscionable because the clause failed to provide that plaintiff could recover attorney’s fees if she was successful on her claims. The court held in abeyance the issue of whether the arbitration provision was unconscionable because it permitted only defendants to file an action for injunctive relief in court, finding that the one-way injunctive relief clause was severable so as to permit arbitration of all other issues. Abreu v. Slide, Inc., Case No. 12-00412 (USDC N.D. Cal. July 12, 2012)

This post written by Ben Seessel.

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