Reinsurance Focus

In a dispute involving an earlier arbitration ordering American United Life Insurance Company (“AUL”) to make a commutation payment to The Travelers Indemnity, the parties filed cross petitions for arbitration pursuant to different clauses of a reinsurance contract. AUL argued arbitration should proceed pursuant to the Article 16 in the contract requiring all disputes between the company and the reinsurer be submitted to arbitration. It further argued that Travelers had forfeited its right to name umpire candidates, and that the court should appoint an umpire from the names submitted by AUL. Travelers, for its part, argued that the matter should proceed pursuant to Article 6 of the contract that required actuaries to make the determination concerning the amount of the loss.

The Court sided with AUL stating that an arbitration panel needed to decide the threshold issue of whether the matter should proceed pursuant to Article 16 or Article 6. The court reasoned that in order to determine whether to proceed by a panel of actuaries, the reinsurance contract had to be interpreted and that Article 16 was clear that “any dispute between the Company and the Reinsurer arising out of, or relating to the formation, interpretation, performance or breach of this Contract, whether such dispute arises before or after termination of this Contract, shall be submitted to arbitration.” Regarding AUL’s request that the court appoint an umpire from its list of candidates, the court noted that the parties were engaged in settlement discussions and Travelers had offered to name umpire candidates but AUL never responded. Based on this, the court held that Travelers never knowingly waived its right to name umpire candidates, and ordered Travelers to comply with Article 16. American United Life Insurance Co. v. Travelers Indemnity Co., et al., Case No. 3:14-cv-1339 (USDC D. Conn. Aug. 18, 2015).

This post written by Barry Weissman.

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The Ninth Circuit held that an arbitration agreement between Opus Bank and its former executive vice president Carey Brennan should be interpreted under federal, not state, law unless the parties unambiguously agreed otherwise. While Brennan’s employment contract contained a California choice-of law clause, his arbitration agreement required any employment-related dispute be resolved “by binding arbitration in accordance with the Rules of the American Arbitration Association.” Brennan argued that the arbitration agreement’s clause was substantively and procedurally unconscionable, while Opus moved to compel arbitration under the Federal Arbitration Act.

The Ninth Circuit affirmed the district court’s finding that because the contract involves interstate commerce, the FAA applies. Further, because the arbitration agreement, did not incorporate California law expressly, federal law applies. “While the Employment Agreement is clear that California’s procedural rules, rights, and remedies apply during arbitration, it says nothing about whether California’s law governs the question whether certain disputes are to be submitted to arbitration in the first place. Further, the incorporation of the AAA rules constituted “clear and unmistakable” evidence that the parties intended to have an arbitrator decide the threshold question of arbitrability. Brennan v. Opus Bank, Nos. 13-35580, 13-35598 (9th Cir. Aug. 11, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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In Katz v. Cellco Partnership, the United States Court of Appeals for the Second Circuit confronted the question of “whether district courts retain the discretion to dismiss an action after all claims have been referred proceedings,” or should stay the litigation. Acknowledging a split in the circuits, the court, in the context of an order compelling arbitration under the Federal Arbitration Act answered, “stay.”

Katz sued Cellco (better known as Verizon) on behalf of a putative class of Verizon subscribers. Katz’s contract with Verizon contained an arbitration clause that required arbitration under the FAA. Verizon moved to compel arbitration and stay the proceedings. Katz sought to void the arbitration provision on constitutional grounds. The district court (1) rejected Katz’s constitutional argument; (2) granted Verizon’s motion to compel arbitration; and (3) having compelled arbitration, dismissed Katz’s claims. The sole issue addressed by the Second Circuit was whether the case should have been dismissed or stayed.

The Second Circuit outlined the divide among federal circuit courts on the stay versus dismiss question. The federal courts of appeals requiring a stay include the Third, Seventh, and Tenth Circuits; those allowing dismissal include the First, Fifth, and Ninth Circuits; the Fourth Circuit remains uncommitted. The Second Circuit then analyzed the question in the light of the Act’s language, which states that if a suit is “referable to arbitration,” the court “shall … stay the trial of the action until such arbitration has been had….” That language, along with the Act’s underlying policy, makes a stay mandatory. Thus, the Second Circuit joined the circuit’s ruling in favor of a stay over dismissal. Katz v. Cellco Partnership, No. 14-138 (2d Cir. July 28, 2015).

This post written by John A. Camp.

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A superior court in New Hampshire has entered two orders – one concerning Arrowood Surplus Lines Insurance Company, the other concerning Providence Washington Insurance Company – approving commutations regarding The Home Insurance Company. Separate motions – one for Arrowood, the other for Providence Washington – were brought by New Hampshire’s Insurance Commissioner as Home’s liquidator regarding liabilities ceded from Home to Arrowood and Providence Washington to Home. Home has been in liquidation since 2003. In the Matter of the Liquidation of the Home Insurance Co., No. 03-E-0106 (N.H. Super. Ct. June 15, 2015).

This post written by Zach Ludens.

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A federal district court in New York entered an order enjoining an attempt at a second arbitration initiated by Equitas Insurance Limited and Certain Underwriters at Lloyd’s of London against Arrowood Indemnity Company. The second attempt at arbitration comes after five years of dispute, which resulted in a $45 million arbitration award in favor of Arrowood. After the arbitral award and a court order confirming the award, the Underwriters filed a motion for post-judgment discovery and relief from judgment based on a document that the Underwriters had obtained in another proceeding against Arrowood that purportedly showed the disingenuity of Arrowood’s stance in the arbitration. The court denied the motion, finding that such a motion “cannot be used to collaterally attack an arbitration award for misconduct in the arbitration in the guise of an attack on the judgment confirming it.” Following the court’s order, the Underwriters demanded a second arbitration. In response, Arrowood filed a motion seeking to enforce the court’s earlier order.

The court held that Section 10 of the Federal Arbitration Act provides “the exclusive means of addressing and redressing wrongdoing in an arbitration proceeding” and that any such grounds must be raised within three months of the award. Finding that the Underwriters’ second attempt at arbitration was “in direct contravention of the FAA” and that a second arbitration cannot be used to undo the award of the first, the court enjoined the Underwriters’ attempts at a second arbitration—perhaps bringing the dispute to a conclusion. Arrowood Indemnity Co. v. Equitas Insurance Limited, No. 1:13-cv-07680-DLC (USDC S.D.N.Y. July 30, 2015).

This post written by Zach Ludens.

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In a Special Focus article Rollie Goss previews another arbitration case coming before the United States Supreme Court involving the issue of whether a class arbitration waiver is unconscionable, and the impact of such a finding on the viability of the agreement to arbitrate.

This post written by Rollie Goss.

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The court confirmed an arbitration decision awarding damages in favor of workers compensation insurers against various insured employee-staffing companies. One of the defendant companies contended that it never executed the underlying agreement with the insurers, that the panel thus exceeded their powers in entering the award, and that the award should be vacated. The court rejected this argument, agreeing with the panel’s determination that the company waived its non-signatory defense. The court examined the procedural history of the arbitration and held that the arbitration proceeding continued for twenty-six months before the defendant asserted its defense. The court found that the company was “represented by legal counsel throughout the dispute resolution process,” that as “a matter of law, litigants are bound by the acts and omissions of their chosen agents, including lawyers,” and that “legal bungling” did “not justify reopening a judgment.” The court was further persuaded by the fact that the company first raised the defense only after a partial final award was entered, ordering the company to post a bond. While the court noted that it did “not take lightly” the company’s sworn statement that it did not authorize its purported attorney to represent that it approved or ratified the underlying arbitration agreement, the court explained that this was an alleged legal malpractice matter and not a basis to vacate the arbitration award. Zurich American Insurance Co., et al. v. Staffing Concepts International, Inc., et al., Case No. 1:14-cv-03454 (USDC N.D. Ill. July 23, 2015).

This post written by Michael Wolgin.

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A Texas appeals court affirmed a summary judgment that rejected an attempt by two insurers to recover more than $1.1 million for taxes, penalties, and interest on certain reinsurance agreements. Argonaut Insurance Company and Argonaut Great Central Insurance Company (jointly “Argonaut”) provided insurance to two self-funded government risk pools formed on behalf of Texas counties and school districts. These risk pools provided various insurance products to their membership. As part of a reinsurance arrangement with these risk pools, Argonaut agreed to provide indemnity for losses accumulated under member insurance policies in return for member premium payments. Argonaut considered these premium payments non-taxable “reinsurance income,” but the Texas Comptroller rejected this classification finding that “for premiums to qualify as paid for reinsurance, the transaction must occur between two licensed insurance companies.”

On appeal, all parties agreed that the main issue centered on “whether the premiums received by Argonaut from [the risk pools] are premiums received from another insurer for reinsurance.” Argonaut argued that the agreements with the risk pools have reinsurance characteristics, a factor that outweighs whether or not the risk pools are licensed insurance companies. The court found that while a risk pool “is expressly authorized to purchase reinsurance, it is also expressly declared not to be insurance or an insurer” under Texas insurance and tax codes. For these reasons, the court affirmed the trial court’s grant of summary judgment for the Texas Comptroller. Argonaut Ins. Co. et al. v. Hegar et al., No. 03-13-00619-CV (Tex. Ct. App. June 24, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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The Fourth Circuit considered whether an arbitrator manifestly disregarded the law by failing to find actual damages and failing to award sufficient attorney’s fees against certain non-profit credit repair companies, despite the arbitrator’s finding that the companies had made inadequate disclosures under the Credit Repair Organizations Act (CROA). Regarding damages, the arbitrator had determined that plaintiffs were not entitled to “amount[s] paid” under the CROA as damages, because plaintiffs made “voluntary contributions” to the non-profit credit repair organizations, rather than actual payments contemplated within the meaning of the CROA. The Fourth Circuit held that, given the absence of binding precedent requiring a contrary interpretation of the CROA, the arbitrator’s ruling “did not constitute a refusal to heed a clearly defined legal principle.” The court further noted that it was not for it “to pass judgment on the strength of the arbitrator’s chosen rationale.” Similarly, with respect to the arbitrator’s ruling on attorney’s fees, the Fourth Circuit held that while “it may be debatable whether the arbitrator performed [the] task ‘well,’ the record in this case shows that the arbitrator undertook a careful analysis of the applicable legal principles and reached a decision supported by his interpretation of our precedent.” In reaching its decision, the Fourth Circuit considered certain U.S. Supreme Court rulings in making clear that the “limited review” of an arbitration award is appropriate even when “the arbitrator considered remedies created by statute, rather than rights established by contract.” Jones, et al. v. Dancel, et al., Case No. 14-2160 (4th Cir. July 6, 2015).

This post written by Michael Wolgin.

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The Second Circuit affirmed a New York district court ruling that found that the FINRA arbitration rules, one of which prohibits arbitration of putative or collective class actions, was incorporated within the subject employment agreement. Former financial advisers of the progeny of J.P. Morgan Chase & Co. sued J.P. Morgan under state and federal law for violations of overtime laws. J.P. Morgan moved to compel arbitration pursuant to a clause within the advisers’ employment contracts. In denying their motion, the district court reasoned “that the arbitration clause requires arbitration of only those claims required to be arbitrated under the FINRA Rules and that, under New Rule 13204, Plaintiffs’ claims cannot be arbitrated.”

On appeal, J.P. Morgan argued against the trial court’s interpretation of the phrase “required to be arbitrated by the FINRA Rules” as well as the court’s use of the amended version of Rule 13204, which was not in effect when the parties originally entered into their contract. The court used a grammatical and definitional analysis to determine that the phrase applies to all claims and controversies. They also found that when JP Morgan agreed to arbitrate according to the FINRA rules, they also took on the risk that these rules may change. Regardless of that risk, the court noted that under either the original version of Rule 13204 or the amended version, FINRA prohibits the arbitration of collective class actions claims. Lloyd et al. v. JP Morgan Chase & Co. et al., No. 13-3963-cv (2d Cir. June 29, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields Jorden Burt in Washington, DC.

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