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ARBITRATION DENIED IN MORTGAGE LIFE INSURANCE DISPUTE WHERE NEITHER NOTE NOR POLICY REFERENCED ARBITRATION AGREEMENT

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A court refused to compel arbitration in a dispute surrounding the cancellation of and failure to pay life insurance benefits under a debtor group life insurance policy. The relevant note and insurance policy did not contain an arbitration agreement. The defendants, however, attempted to compel arbitration based on arbitration agreements formed in connection with three other loans made to the plaintiff. The court was not persuaded as none of the three transactions was directly connected with the mortgage and life insurance policy that formed the basis of the plaintiff’s claims. The arbitration agreements did not reference the relevant note and lender, but instead referenced the other notes and lenders not at issue in the dispute. The court therefore concluded that there was “no evidence that Plaintiff agreed to arbitrate disputes arising out of the” mortgage, note, or insurance policy. Bucher v. American Health & Life Insurance Co., Case No. 2:14-cv-659 (USDC W.D. Pa. Aug. 28, 2014).

This post written by Michael Wolgin.

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COURT OF APPEAL COMPELS ARBITRATION BASED UPON RELATED DOCUMENTS

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On August 29, 2014, the United States Court of Appeals for the Eleventh Circuit, in reversing the district court on interlocutory appeal, found that an indemnification agreement, performance bonds, and a subcontract between different parties formed a single transaction, therefore allowing indemnitors to compel arbitration.

The University of Alabama hired Brice Building Company (“Brice”), a general contractor, to develop a student housing complex. Brice then entered into a subcontract and arbitration agreement with Atlantis Drywall and Framing (“Atlantis”). Atlantis secured performance bonds through Hanover Insurance Company (“Hanover”), a condition necessary to work on the project. The subcontract contained an arbitration provision, but the bond did not. However, the bond incorporated the subcontract by reference. When Atlantis defaulted on its work, Hanover sought indemnification.

At issue before the district court was whether the arbitration clause in the subcontract between Brice and Atlantis required a signatory to arbitrate with a non-signatory in a related dispute. The circuit court found that the agreements entered into were all part of the same subject matter despite being signed by different parties. For that reason, the court noted that these documents should be viewed as a single transaction. The court further reasoned that, contrary to Hanover’s assertion, the bond does relate to the subcontract since it incorporated the subcontract between Brice and Atlantis. The district court therefore erred when it declined to read the three documents as a single transaction, denying arbitration. Hanover Ins. Co. V. Atlantis Drywall & Framing LLC, No. 13-14482 (11th Cir. Aug. 29 2014).

This post written by Matthew Burrows.

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SECOND CIRCUIT AFFIRMS ORDERS ENJOINING ARBITRATION, HOLDING BROAD FORUM SELECTION CLAUSE SUPERSEDES FINRA ARBITRATION RULE

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The Second Circuit affirmed two cases in which financial services firms had succeeded in enjoining FINRA arbitrations that were initiated against them by public financing entities. The court held that in each case, the FINRA arbitration rules were superseded by broad forum selection clauses in broker-dealer agreements requiring “all actions and proceedings” related to the transactions between the parties to be brought in court. The court noted that the interplay between forum selection clauses and the FINRA arbitration rule has been considered by the Ninth and Fourth Circuits, with the former holding that the forum selection clause controls and the latter reaching the opposite conclusion. In the Second Circuit, the court explained, “an agreement to arbitrate is superseded by a later-executed agreement containing a forum selection clause if the clause ‘specifically precludes’ arbitration.” The court found that the language “all actions and proceedings” fit that description, notwithstanding that the clause did not specify arbitration. Goldman Sachs & Co. v. Golden Empire Schools Financing Authority, Nos. 13-797-cv, 13-2247-cv (2d Cir. Aug. 21, 2014).

This post written by Michael Wolgin.

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CALIFORNIA LEGISLATION REGARDING CREDIT FOR REINSURANCE SIGNED INTO LAW

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On September 16, 2014, Assembly Bill No. 2734 (“AB 2734”) was signed into law. AB 2734 authorizes trusteed surplus to be reduced to not less than 30% of the assuming insurer’s liabilities attributable to reinsurance ceded by United States ceding insurers covered by the trust if the Insurance Commissioner expressly finds that appropriate circumstances justify a lower level of minimum required trusteed surplus. AB 2734 also reduces the period during which the Insurance Commissioner is prohibited from taking final action on an application for certification as a reinsurer from 90 days to 30 days after posting the required notice concerning receipt of the certification application.

This post written by Kelly A. Cruz-Brown.

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SOUTHERN TITLE INSURANCE COMPANY DECLARED INSOLVENT AND ORDERED LIQUIDATED

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In July of this year, the State Corporation Commission of the Commonwealth of Virginia issued an Order declaring Southern Title Insurance Company insolvent and ordering its liquidation. Among other things, the Order authorized the receiver to use approximately $10 million of its assets “to enter into contracts of reinsurance to pay all policyholder claims.” The Order also set a Claims Filing Deadline and established other procedures and guidelines for the liquidation. Commonwealth ex rel. State Corp. Comm’n v. Southern Title Ins. Co., No. INS-2011-00239 (Va. State Corp. Comm’n July 28, 2014).

This post written by Catherine Acree.

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