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New reinsurance-related and arbitration developments from Carlton Fields

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Brendan Gooley

Court Compels Arbitration Because Non-Signatory “Knowingly Exploited” and Obtained Benefits of Agreement

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The Eastern District of Pennsylvania recently compelled arbitration involving a claim by a plaintiff who had not signed a Comcast subscriber agreement on the ground that the plaintiff had used benefits under the agreement and exercised control over the Comcast account. The court held that the plaintiff was therefore equitably estopped from avoiding arbitration.

James Shelton’s father signed up for Comcast and agreed to Comcast’s subscriber agreement, which provided, among other things, that Mr. Shelton’s father was accepting the agreement “on behalf of all persons who use [Comcast’s] Equipment and/or Service(s) at the Premises” (i.e., the Shelton household) and that Mr. Shelton’s father had “sole responsibility for ensuring that all other users understand and comply with the terms and conditions of this Agreement and any applicable policies.” The agreement also contained an arbitration clause.

Mr. Shelton, who lived in the Shelton household, subsequently placed a service call to Comcast in which he acknowledged using Comcast’s services and setting up his account online. Mr. Shelton also “associated his own personal cell phone with the Shelton Household Account.”

Mr. Shelton later filed suit alleging that Comcast and other defendants violated the Fair Credit Reporting Act by “check[ing] his credit report without a permissible purpose.”

Comcast moved to compel arbitration pursuant to the subscriber agreement.

The U.S. District Court for the Eastern District of Pennsylvania granted Comcast’s motion. Applying Pennsylvania law, the court held that Mr. Shelton was “equitably estopped from avoiding the Arbitration Provision” in the subscriber agreement because, even though “other members of [Mr. Shelton’s] household … originally contracted for Comcast’s services,” Mr. Shelton had “sought and obtained benefits under the agreement by … not only using the Comcast services provided under the agreement at the Shelton Household, but also by exercising control over the account.” Mr. Shelton “‘did more than just passively benefit from the services.’”

Shelton v. Comcast Corp., No. 2:20-cv-01763 (E.D. Pa. Jan. 21, 2021).

First Circuit Affirms That Assignee May Compel Arbitration

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The First Circuit Court of Appeals recently affirmed that a debt collection company defendant could compel arbitration where it was assigned rights from a credit card company.

Jackeline Barbosa opened a credit card with Barclays Bank Delaware. She later had an overdue, unpaid balance. Barclays bundled Barbosa’s unpaid balance with other such balances and sold it to Midland Funding LLC, a shell entity that assigned its rights to Midland Credit Management Inc. (MCM), which retained the law firm of Schreiber/Cohen LLC “to assist in MCM’s debt collection efforts.” Midland Funding filed a claim for the debt in Boston Municipal Court, but that court held that “Midland Funding had not proved it owned the subject debt” and ruled in favor of Barbosa. Barbosa and two other plaintiffs then brought a federal putative class action against MCM and Schreiber/Cohen alleging, among other things, violations of the Fair Debt Collection Practices Act. MCM and Schreiber/Cohen moved to compel arbitration. A magistrate judge recommended the court compel arbitration and the district court agreed. Barbosa appealed.

The First Circuit affirmed. It rejected Barbosa’s claim that MCM and Schreiber/Cohen did not have the contractual authority to compel arbitration. The court explained that Barclays had expressly assigned its rights to Midland Funding and that MCM “is the servicer and agent of Midland Funding” and “Schreiber/Cohen is Midland Funding’s agent.” The cardmember agreement Barbosa had signed “included an assignment provision giving Barclays permission to ‘at any time assign or sell [Barbosa’s] Account’” and that “‘the person(s) to whom [Barclays] make[s] any such assignment or sale shall be entitled to all of our rights under [the] Agreement.’”

Barbosa v. Midland Credit Management, Inc., No. 19-1896 (1st Cir. Nov. 25, 2020).

Third Circuit Affirms Order Unsealing Arbitration Award

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The Third Circuit Court of Appeals recently affirmed an order unsealing an arbitration award because the award had been filed with the district court as part of confirmation proceedings and the recipient of the award had not demonstrated a specific harm sufficient to overcome the presumption of public access to documents filed with the courts.

Pennsylvania National Mutual Casualty Insurance Co. arbitrated whether it “was entitled to proceeds based on insurance claims it made to [two of its] reinsurers.”

The arbitration panel issued an award in Penn National’s favor, and Penn National petitioned the district court to confirm that award. As part of the confirmation process, Penn National filed the award with the court, which granted Penn National’s motion to seal the award.

The parties settled before the court confirmed the award.

After the settlement, Everest Reinsurance Co. moved to intervene and unseal the award. The district court originally denied that motion, but the Third Circuit remanded the case after concluding that the court had applied the wrong standard.

On remand, the district court granted Everest’s motion.

The Third Circuit affirmed. It rejected Penn National’s argument “that the arbitration award [was] not a judicial record to which the common-law right of access applies,” explaining that “Penn National filed the arbitration award on the docket with the District Court as part of its motion to confirm the award. Thus, according to [the Third Circuit’s] precedents, the award became a judicial record subject to the common-law right of access.” The court also held that the district court did not err by “holding that [Penn National] did not demonstrate a specific harm sufficient to overcome the presumption of public access.” The Third Circuit explained that an affidavit submitted by one of Penn National’s officers that “other reinsurers might choose to forego paying Penn National and contest their contractual obligation to pay if they learned of the contents in the arbitration award” was insufficient because the court “could not ‘determine how many possible relationships could be impacted, the amount of money that could be at stake, the types of actions other parties may pursue, or the likelihood that any such actions would be successful.’”

Pennsylvania National Mutual Casualty Insurance Co. v. New England Reinsurance Corp., Nos. 20-1635 & 20-1872 (3d Cir. Dec. 24, 2020).

Federal Court Refuses To Compel Arbitration or Appoint Arbitrators Where No Party Had Refused To Arbitrate and Both Parties Were Working on Selecting Arbitrators

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A federal court recently refused to compel arbitration after it concluded that there had been no refusal to arbitrate. The court also refused to appoint arbitrators for the parties.

Linda L. Allen claimed Horter Investment Management, LLC’s “representatives sold fraudulent and unregistered investments.” She claimed those claims were subject to arbitration pursuant to a clause in a client agreement that provided that “[c]lient and [a]dvisor both agree that all controversies which may arise between them concerning any transaction or construction, performance or breach of this agreement that cannot be settled, be submitted to binding arbitration.”

Allen and her fellow plaintiffs moved to compel arbitration or, in the alternative, for the appointment of arbitrators. Horter responded that the plaintiffs lacked standing because it had not refused to arbitrate and was participating in the selection of arbitrators.

The United States District Court for the Southern District of Ohio (Western Division) agreed with Horter. Although the plaintiffs “initiated arbitration with the AAA, but the AAA declined to administer the clams because of [Horter’s] past actions,” the court did “not find that [Horter’s] acts amount to an unequivocal refusal to arbitrate. Instead, Defendant has expressly acknowledged the agreement to arbitrate. The parties have been working together in the Bruns case and this case to reach an agreement regarding the selection of arbitrators. The Court notes that some of the delay in this process is attributable to Plaintiffs’ change in position regarding consolidated arbitration.” The court also declined to appoint arbitrators because “[b]oth parties are amenable to private arbitration and the names of specific arbitrators have been exchanged.”

Linda L. Allen, et al. v. Horter Investment Management, LLC (S.D. Oh. Sept. 30 2020).

Southern District of New York Rejects Reinsurer’s Claim that Exhaustion Provision Was Not Met; Concludes Indemnification Was Required Under Follow-the-Settlement Clause

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The United States District Court for the Southern District of New York rejected a reinsurer’s denial of a claim. The court disagreed with the reinsurer’s position than exhaustion language had not been satisfied, and found the exhaustion language ambiguous and concluded that payment was required under a “follow-the-settlement” clause in the reinsurance certificate.

Fireman’s Fund Insurance Company issued three excess liability policies to Asarco. The third policy (“Policy 3”) provided “coverage of $20 million for losses in excess of $75 million in excess of a $3 million self-insured retention for the period March 15, 1983 to March 15, 1984.”

General Accident Insurance Company reinsured Policy 3 under a facultative reinsurance contract in which it assumed “15% . . . of the risk assumed in Policy 3.”  OneBeacon Insurance Company subsequently became the successor-in-interest to General Accident.

Asarco filed an action against Fireman’s seeking coverage for asbestos exposure. Fireman’s estimated its exposure at $50.3 million. It settled with Asarco for $35 million and allocated a portion of that settlement to Policy 3 in accordance with its exposure analysis.

Fireman’s then billed OneBeacon pursuant to the reinsurance agreement. OneBeacon denied Fireman’s claim, asserting that the policies underlying Policy 3 had not been exhausted.

The court granted summary judgment to Fireman’s. In short, the court explained that the reinsurance certificate contained a “follow-the-settlements” provision that required OneBeacon to make payments in accordance with Fireman’s good-faith settlement, which was reasonable. That clause was not trumped by any exhaustion clause in Fireman’s policies because the term exhaustion was ambiguous within the meaning of Fireman’s policies.

Fireman’s Fund Ins. Co. v. OneBeacon Ins. Co., No. 14-civ-4718 (PGG) (Oct. 19, 2020).