Reinsurance Focus

In a curt per curiam opinion, the U.S. Supreme Court sent a clear message to the Supreme Court of Appeals of West Virginia, vacating that Court’s decision that found state public policy superseded the Federal Arbitration Act, where personal injury claims against a nursing home were at issue. Pointing at the outset to the Supremacy Clause of the U.S. Constitution, the U.S. Supreme Court emphasized its holding in AT&T Mobility LLC v. Concepcion, 563 U.S. —- (2011) (slip op. at 6-7), that “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” It vacated and remanded. Marmet Health Care Center, Inc. v. Brown, Nos. 11-391 and 11-394, 565 U.S. —- (Feb. 21, 2012).

This post written by John Pitblado.

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Plaintiff Khan filed a putative class action lawsuit against Dell alleging, among other claims, violations of a state consumer protection statute and common law fraud. The arbitration clause at issue provided that disputes: “SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF). . . .” At the time Dell filed its motion to compel arbitration, however, NAF had been barred from conducting consumer arbitrations pursuant to the terms of a consent decree with the Minnesota Attorney General that NAF had entered into after being investigated for allegedly engaging in deceptive practices disadvantaging consumers.

The district court held that NAF’s designation was “integral” to the arbitration provision such that it could not be enforced without using NAF and denied Dell’s motion to compel arbitration. The Third Circuit reversed. It determined that the arbitration clause was ambiguous because “EXCLUSIVELY” could refer either to “BINDING ARBITRATION,” to “NAF,” or to both and that the provision thus did not indicate the parties’ “unambiguous intent not to arbitrate their disputes if NAF is unavailable.” The Third Circuit held that the district court, accordingly, should have appointed a substitute arbitrator under FAA Section 5 and remanded the case for further proceedings consistent with its opinion. Khan v. Dell Inc., No. 10-3655 (3rd Cir. Jan. 20, 2012).

This post written by Ben Seessel.

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A court compelled arbitration of a dispute between an insurer and an affiliated group of multinational companies, despite the fact that the agreement to arbitrate was “narrow,” signed by only one of the plaintiff companies, and subject to a statute of limitations defense that state law permitted to be addressed in court. The contract governed certain obligations under separate insurance agreements, including premium obligations and reimbursement of specified expenses incurred in settling claims. The contract contained an arbitration agreement, which provided for arbitration of “[a]ll disputes or differences arising out of [the contract’s] interpretation.” When a dispute arose regarding the insureds’ failure to reimburse the insurer for certain expenses, the insurer demanded arbitration and the insureds sued for a declaration that the claims were not arbitrable, and were barred by state statute of limitations.

Plaintiffs argued that the arbitration agreement was “narrow” and did not apply to the parties’ dispute, which they alleged related to matters collateral to the contract’s terms. While the court agreed that the agreement was narrow and that some record evidence supported their description of the dispute, the court found that there was sufficient evidence to find that the dispute “might” involve interpretation of the contract’s reimbursement calculation terms. The court also rejected plaintiffs’ argument that the non-signatories were not bound, holding that the non-signatories were estopped from excluding themselves because they effectively conceded receiving a “direct benefit” from the contract. Regarding the plaintiffs’ statute of limitations argument, the court held that despite the fact that the parties agreed to a choice of state law that provides for a limitations defense to arbitration to be made in court, the limitations issue was for the arbitration panel. Alfa Luval U.S. Treasury Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, Case No. 1:11-cv-01872 (USDC S.D.N.Y. Jan. 26, 2012).

This post written by Michael Wolgin.

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The National Labor Relations Board (“NLRB”) affirmed an administrative law judge’s decision that an employer violated the National Labor Relations Act (“NLRA”) by requiring covered employees, as a condition of employment, to sign an agreement precluding them from filing class actions addressing their wages, hours or other working conditions in any forum, arbitral and judicial. The NLRB found that such a prohibition unlawfully restricts employees’ NLRA Section 7 rights to engage in concerted action for mutual aid or protection. The NLRB stated that its holding does not conflict with the FAA or undermine the policy underlying the FAA and distinguished the Supreme Court’s recent Stolt-Nielson and Concepcion decisions. D.R. Horton, Inc., Case No.12-CA-25764 (N.L.R.B. Jan. 2, 2012).

This post written by Ben Seessel.

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Union Insurance Company and other insurers entered into an “Agency-Company Agreement,” with broker Hull & Company, providing Hull with binding authority. Hull bound risk from the Thirsty Parrot Bar and Grill, including umbrella coverage from Union. The Thirsty Parrot ultimately settled a covered assault claim against one its former employees, to which Union contributed $800,000. Union sought recompense from Hull, alleging that Hull breached underwriting guidelines which were incorporated by reference into the Agency-Company Agreement. Union sought to compel arbitration of its claim, but Hull resisted. The Court refused to compel arbitration under a provision allowing arbitration of disputes pertaining to “misunderstanding as to the interpretation or application of any provision of this Agreement.” The Court found that the dispute over underwriting guidelines was not related or collateral to interpretation of the Agency-Company Agreement, because it found that Union failed to establish that the underwriting guidelines were incorporated by reference into the Agreement, and thus the dispute did not come within the Agreement’s arbitration provision. Union Ins. Co. v. Hull &Company, Inc., Case No. 4-00337 (USDC S.D. Iowa Dec. 19, 2011).

This post written by John Pitblado.

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The United States Supreme Court reversed a Ninth Circuit Court of Appeals decision that affirmed a “right to sue” under the Credit Repair Organizations Act (CROA). A putative class of cardholders brought CROA violation claims against CompuCredit, which issues Visa cards to individuals with poor credit scores seeking to repair their credit. The cardholder agreement contained an arbitration provision. When the cardholders brought suit in California federal court, CompuCredit moved to compel arbitration. The trial court denied the motion to compel, citing language in CROA requiring companies to provide a disclosure to consumers that includes the sentence, “You have a right to sue a credit repair organization that violates the [Act].” The Ninth Circuit affirmed. In an 8-1 decision authored by Justice Scalia (Justices Sotomayor and Kagan in a separate concurrence, Justice Ginsburg dissenting), the Supreme Court reversed, holding that the cited language did not unambiguously provide a right that supersedes the strong public policy embodied in the FAA of enforcing arbitration agreements. CompuCredit Corp. v. Greenwood, No. 10-948, 565 U.S. —-, 132 S.Ct. 665 (Jan. 10, 2012).

This post written by John Pitblado.

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A federal district court consolidated several reinsurance cases to be heard before an arbitration panel already formed to hear a dispute between the parties, as well as a corporation which the parties agreed to keep confidential. The court determined that, to avoid duplicative litigation and conserve litigation, all three actions could be consolidated and resolved through arbitration. Further, because all three actions arose from the same set of operative facts the arbitration panel already in existence could determine the correct reading of the arbitration agreements contained in each reinsurance agreement. The panel would first determine if each dispute should be heard by an independent panel. The court stayed the actions pending resolution by the existing arbitration panel. Arrowood Indemnity Co. v. Harper Insurance Co., No. 12-2 (USDC W.D.N.C. Jan. 19, 2012).

This post written by John Black.

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A court has granted two unopposed petitions to confirm two arbitration orders under the New York Convention, in what was a dispute over documentation requirements of a forty-year old asbestos claims reinsurance agreement between Century Indemnity Company and certain London market reinsurers (LMRs). The first arbitration order required one of the LMRs to post letters of credit to secure Century’s then-outstanding claims. While the panel initially entered the order in 2006, the letters of credit were subsequently addressed in another order by the panel in 2008. The second order, entered in 2007 and made final in 2009, related to the panel’s findings on the merits of the reinsurance agreement’s documentation requirements. The court found that both orders were “necessarily incorporated” in the respective 2008 and 2009 orders, and were thus timely under the New York Convention’s three-year statute of limitations. In confirming the first order, the court explained that although it technically was not a final award (which is a requirement for jurisdiction under the Federal Arbitration Act), it was “sufficiently separate and final for federal court review and confirmation.”

Also noteworthy was the court’s denial of Century’s motion to strike, which argued that portions of the LMR’s petition contained gratuitous assertions that violated the parties’ confidentiality agreement and were intended to be a “press release for use in other matters.” The court found that the language at issue was related to the underlying controversy, that the panel’s orders were made public in the court record, and that “the mere fact that the parties ha[d] designated certain documents as confidential among themselves is insufficient to rebut the ‘strong presumption of public access to court records’ that exists in federal courts.” Century Indemnity Co. v. Certain Underwriters at Lloyd’s London, Case No. 1:11-cv-01040 (USDC S.D.N.Y. Jan. 10, 2012).

This post written by Michael Wolgin.

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The Texas Supreme Court issued two decisions on the same day pertaining to the issue of arbitrator selection where the parties disagree. In the first case, Americo Life Insurance Company sought vacatur of an arbitration award based on a decision by the American Arbitration Association (whose rules the parties agreed to follow) to remove Americo’s selected arbitrator from a tripartite panel because he was not “impartial and independent.” After completing the arbitration under protest, which it lost, Americo moved to vacate. The trial court granted Americo’s motion to vacate, but the intermediate appellate court reversed, finding that Americo’s claims had not been properly preserved. On Americo’s petition, the Supreme Court reversed the Appellate Court and remanded for further consideration by that court, finding that the issues had been adequately preserved, and strongly indicating that the award should be vacated, since Americo’s chosen arbitrator appeared on the face of the record to be “knowledgeable and independent” – the standard the Supreme Court identified as applicable, rather than the impartiality standard urged by the defendant. Americo Life, Inc. v. Myer, No. 10-0734 (Tex. Dec. 16, 2011).

In the other case, the Texas Supreme Court reversed a trial court’s decision appointing an arbitrator on motion of one of the parties, finding that the trial court acted prematurely, because the “impasse” on appointment was only two weeks old (the time when one of the parties filed a motion in court seeking appointment), and that short time frame meant that judicial intervention was not yet warranted (distinguishing it from other cases showing impasse of several months before resort to judicial intervention). In Re Service Corp. Int’l., No. 10-0155 (Tex. Dec. 16, 2011).

This post written by John Pitblado.

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A federal district court refused a former employee’s request to seal records of an arbitration proceeding in which the arbitrator ordered that he was not entitled to severance pay. William Fine was terminated from his position at Alexandria Real Estate Equities for making disparaging statements about the company. Alexandria obtained an award holding that it did not owe Fine severance pay and moved to have the award confirmed. In the award, the arbitrator explained the reasons for Fine’s termination and quoted the statements that he had made about Alexandria. Fine did not oppose confirmation but moved to seal portions of the arbitration record, including the petition to confirm, a supporting declaration, and the award itself. The court rejected Fine’s request citing the First Amendment presumption in favor of access to judicial documents and proceedings. The court held that, in order to overcome this presumption, Fine had to show that the “requested sealing is narrowly tailored to preserve ‘higher values.’” Such values, according to case law cited by the court, include protecting: the attorney-client privilege, national security, the privacy of innocent third-parties, and the confidentiality of sensitive patient information. The court found that Fine’s purported reason—that if the records remain public, it will be more difficult for him to get hired by potential employers—did not rise to the level of a “higher value.” Alexandria Real Estate Equities, Inc. v. Fair, Case No. 11-3694 (USDC S.D.N.Y. Nov. 30, 2011).

A different judge in the same court granted Century Indemnity Company’s motion to seal portions of its petition to compel arbitration, memorandum of law, and affidavit in support. The court did not offer any reasoning for its decision and the motion to seal and memorandum themselves are sealed. It is not apparent, furthermore, whether the motion to seal was contested. Century Indem. Co. v. Everest Reinsurance Co., Case No. 11-8362 (USDC S.D.N.Y. Nov. 17, 2011).

This post written by Ben Seessel.

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