Alex Silverman

Plaintiffs, former shareholders of a holding company for two New Jersey-based insurance companies, sued various affiliates of Aon Risk Services Companies alleging that Aon was negligent in failing to secure insurance coverage after the plaintiffs became obligated to indemnify the insurance companies for losses arising from a reinsurance program gone wrong. Aon moved to dismiss for lack of personal jurisdiction. In opposition, the plaintiffs argued that there was general jurisdiction over one of the Aon entities based on a “consent” theory. The court disagreed, finding that the U.S. Supreme Court’s decision in Daimler “precludes the exercise of personal jurisdiction over a corporation simply because the corporation is registered to do business in New Jersey.”

The plaintiffs also argued that there was specific jurisdiction over each of the defendants, including because Aon allegedly “agreed to notice claims under an insurance policy that primarily insured against a New Jersey risk.” Again, the court disagreed, finding that none of the Aon entities had sufficient contacts with New Jersey to confer jurisdiction. The court emphasized that any contact Aon had with New Jersey was “fortuitous” and did not stem from a “deliberate targeting” of the state but rather from the “unilateral activity” of a third party. The court therefore granted Aon’s motion to dismiss without prejudice.

Ferguson v. Aon Risk Services Companies, Inc., No. 3:19-cv-09303 (D.N.J. Feb. 26, 2020).

Defendants, Certain Underwriters at Lloyd’s and its third-party claims administrator, CJW & Associates, sought to enforce a mandatory arbitration clause in a Lloyd’s policy issued to the plaintiffs. Enforcement of the provision depended on the interplay between four laws: (1) a Washington statute barring mandatory arbitration clauses in insurance contracts; (2) Article II, Section 3 of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, which requires courts to enforce arbitration agreements; (3) the McCarran-Ferguson Act, which provides that state insurance law preempts any conflicting “Act of Congress”; and (4) Chapter 2 of the Federal Arbitration Act (FAA), which Congress amended to implement the Convention as it relates to disputes involving foreign parties.

Lloyd’s being a foreign party, the question before the Washington district court was whether amending Chapter 2 of the FAA was an “Act of Congress” within the meaning of the McCarran-Ferguson Act. If so, then the Washington insurance law would preempt the Convention and bar enforcement of the arbitration clause in the Lloyd’s policy.

While recognizing that federal courts have reached diverging conclusions on the issue, the court was persuaded by a California decision finding that the word “shall” in Section 3 of the Convention expressly directs courts to enforce arbitration agreements and thus gives Section 3 “automatic effect.” In other words, Section 3 was “self-executing,” and, consequently, no “Act of Congress” was necessary for it to be enforced. As such, the court held that the McCarran-Ferguson Act did not apply and that the arbitration clause at issue was not invalidated by Washington law. The court went on to find the clause enforceable under the Convention, as limited by Chapter 2 of the FAA. Although an issue arose as to the requirement that at least one party to the arbitration agreement not be an American citizen, the court found the commercial relationship between the parties was sufficiently tied to a foreign state, as the policy was underwritten by the London insurance market, which was created and remains governed by Parliament. Even though CJW was a nonsignatory to the Lloyd’s policy, as Lloyds’ claims administrator, the court found CJW had acted as Lloyd’s agent and thus was permitted to invoke the policy’s arbitration clause.

CLMS Mgmt. Servs. Ltd. P’ship v. Amwins Brokerage of Ga., LLC, No. 3:19-cv-05785 (W.D. Wa. Dec. 26, 2019).

The U.S. Court of Appeals for the Ninth Circuit affirmed a California district court order denying the defendant’s motion to compel arbitration, agreeing that the defendant waived its right to arbitrate by actively defending the lawsuit for a year and a half before moving to compel. The court explained that the “heavy burden” of establishing waiver can be overcome by demonstrating “(1) knowledge of an existing right to compel arbitration; (2) intentional acts inconsistent with that existing right; and (3) prejudice to the party opposing arbitration resulting from such inconsistent acts.” It was undisputed that the defendant knew it had a right to compel arbitration. By moving to dismiss twice and then defending an appeal before seeking to enforce that right, the Ninth Circuit found the year-and-a-half delay underscored the defendant’s “‘strategic decision to take advantage of the judicial forum’ in a manner inconsistent with its right to arbitrate.” The court also agreed that the plaintiff had established prejudice in at least three respects. First, in litigating the action for more than a year, he was forced to incur costs “directly traceable” to acts that were inconsistent with the defendant’s known right to arbitrate. Second, ordering arbitration at this stage would effectively force him to relitigate key issues that the court already decided in his favor. Third, granting the defendant’s motion would give it an advantage from first choosing to litigate in federal court; namely, getting two bites at the apple. As such, the order denying the defendant’s motion to compel was affirmed.

Flores v. Adir Int’l, LLC, No. 18-55959 (9th Cir. Dec. 17, 2019).