Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Alex Silverman

Florida Federal Court Denies Policyholder’s Motion to Compel Discovery of Reinsurance Agreements Relating to Disability Insurance Policies

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An insured filed suit in a Florida district court for breach of contract and breach of fiduciary duty in connection with the defendant-carriers’ handling of claims made under the insured’s disability insurance policies. During discovery, the insured requested documents concerning the carriers’ general claims handling practices, as well as copies of any coinsurance or reinsurance agreements that the carriers entered into with respect to the insured’s insurance policies. The carriers refused to produce this material, and the insured filed a motion to compel.

The district court ruled at the outset that the insured was not entitled to discovery of the carriers’ general claims handling practices. Relying on D’Aprile v. Unum Life Insurance Co. of America, No. 2:09-cv-00270 (M.D. Fla. Aug. 25, 2010), the court held that the carriers were required to produce only their “rules, guidelines, protocols, standards, and criteria, published or internal, which were utilized in whole or in part, or which relate to” the insured’s claims. With respect to coinsurance and reinsurance agreements, the insured argued that his request was permissible insofar as it related to assets available to satisfy a possible judgment. But the court rejected the argument, agreeing with the carriers that the insured failed to show how these requests were at all relevant to his breach of contract and/or breach of fiduciary claims. The request for coinsurance and/or reinsurance material was denied accordingly.

Allen v. First Unum Life Insurance Co., No. 2:18-cv-00069 (M.D. Fla. Sept. 30, 2020).

New York Court Finds the Term “Exhaustion” in Excess Policy Was Ambiguous, Rules That Full Limits of Underlying Insurance Need Not Be Paid for Excess Policy to Attach

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Fireman’s Fund Insurance Co. sued OneBeacon Insurance Co. for breach of a facultative reinsurance certificate. Fireman’s Fund settled claims with its insured and allocated a portion of the settlement to a Fireman’s Fund excess policy reinsured by OneBeacon. OneBeacon denied Fireman’s Fund’s claim, arguing that its reinsurance obligations did not attach until all insurance underlying the Fireman’s Fund policy were exhausted in payment of the full limits of the underlying policies. The Fireman’s Fund policy stated that it applies “only after all underlying insurance has been exhausted,” but did not define “exhaustion.” The reinsurance certificate provided that OneBeacon’s liability shall follow Fireman’s Fund’s, that the terms of the certificate shall be subject “in all respects” to the Fireman’s Fund policy, except as stated in the certificate, and that “all claims involving this reinsurance, when settled by [Fireman’s Fund], shall be binding on [OneBeacon].”

On cross-motions for summary judgment, the court agreed with Fireman’s Fund that the term “exhaustion” was ambiguous as used in the Fireman’s Fund policy, as the policy did not specify whether the full limits of underlying insurance must actually be paid before the Fireman’s Fund policy attaches. Applying Second Circuit precedent established in Zeig v. Massachusetts Bonding Co., 23 F.2d 665 (2d Cir. 1928), the court held that once the underlying insurer settled and discharged the claims against the insured, Fireman’s Fund was within its right to treat the underlying limits as “exhausted,” even though the underlying insurer did not actually pay the full limits of its policy. In addition, based on the follow-the-fortunes and follow-the-settlements doctrines, the court found it was barred from second-guessing Fireman’s Fund’s post-settlement allocation decisions. The court therefore granted Fireman’s Fund’s motion for summary judgment and denied OneBeacon’s cross-motion.

Fireman’s Fund Insurance Co. v. OneBeacon Insurance Co., No. 1:14-cv-04718 (S.D.N.Y. Oct. 19, 2020).

District Court Transfers Consideration of Motion to Quash Pursuant to Rule 45(f)

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An Ohio district court invoked Rule 45(f) of the Federal Rules of Civil Procedure in response to a motion to quash by the Ohio Department of Insurance (ODI). The subpoena was issued in connection with a reinsurance-related litigation pending in the U.S. District Court for the Southern District of New York. ODI had produced documents in response to the subpoena, but objected to further compliance. While noting it was questionable whether the information sought was relevant to the New York action in the first instance, the court found “exceptional circumstances” warranted transferring the issue to the SDNY pursuant to Rule 45(f). Aside from the SDNY being in a better position to assess relevancy, the court also noted that discovery in the New York action already closed, and the judge was reluctant to extend the discovery period. The court also found transferring under Rule 45(f) has been deemed appropriate under similar circumstances, such as where ruling on a discovery motion would disrupt the issuing court’s case schedule.

Ohio Dept. of Insurance V. RPM Mortgage, Inc., No. 2:20-mc-00043 (S.D. Ohio Nov. 18, 2020).

Arkansas District Court Compels Arbitration of Post-Termination Wage Dispute

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Audra Patterson filed a putative class action against her former employer, American Income Life Insurance Company (AILIC), for alleged wage violations. AILIC moved to compel arbitration of her individual claims pursuant to an arbitration clause in her agency agreement. The agreement provided that all disputes shall be submitted to binding arbitration, specifically including those alleging violations of wage and hour laws. Patterson claimed the arbitration clause was nonetheless inapplicable, arguing the agency agreement was silent as to whether the arbitration clause survived termination of the agreement. The district court disagreed, finding the argument insufficient to overcome the strong presumption in favor of arbitration. Absent clear indication to the contrary, the court noted that federal arbitration law generally presumes an arbitration provision in a contract remains valid and enforceable even after the contract expires or is otherwise terminated. The court also rejected Patterson’s reliance on specific “survival” language in other contract provisions. Patterson claimed it was implicit from the language in those other provisions that the arbitration clause was not to survive upon termination of the contract. The court again disagreed, emphasizing that the U.S. Supreme Court and the Eighth Circuit have interpreted similar arbitration clauses as covering post-termination employment disputes. The court granted AILIC’s motion to compel accordingly.

Audra Patterson v. American Income Life Insurance Co. et al., Case No. 19-cv-00918 (E.D. Ark. Oct. 30, 2020).

California District Court Grants Motion to Compel, Referring Issue of Arbitrability to Hong Kong Arbitration Forum

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A district court in California granted a motion to compel arbitration pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. A shareholder’s agreement between the parties contained a provision requiring arbitration before the Hong Kong International Arbitration Centre (HKIAC), and also incorporated the HKIAC’s rules by reference. The plaintiff claimed the arbitration clause was inapplicable to the instant dispute. The defendants argued that arbitrability questions must be decided by the HKIAC. The district court agreed, finding the HKIAC rules clearly and unmistakably demonstrated the parties’ intent to delegate threshold arbitrability issues to the HKIAC. The district court also found the relevant shareholder’s agreement was enforceable against the plaintiff, even though he did not sign it, since his corporation signed the agreement as his alter-ego.

Michael Pak v. EoCell, Inc., et al., Case No. 20-cv-05791-VC (N.D. Cal. Oct. 28, 2020).