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New reinsurance-related and arbitration developments from Carlton Fields

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HAWAII ENACTS NAIC-RECOMMENDED REVISIONS TO CREDIT FOR REINSURANCE LAW

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Hawaii’s House/Senate conference committee cleared the way for passage by the full houses of NAIC’s Model Act on Credit for Reinsurance, to address NAIC’s recommended updates pursuant to its Solvency Modernization Initiative.  The bill was adopted and became law July 8, 2014.  The Committee amended prior drafts of HI SB 2821 “A Bill for an Act Relating to Insurance,” and recommended final passage of the amended version to the respective Houses. According to the Conference Committee Report, the purpose of the bill is to (1) adopt revisions to NAIC’s model laws on Credit for Reinsurance, Standard Valuation, Standard Non-Forfeiture Law for Life Insurance, and Insurance Company Holding System Act; and (2) maintain accreditation with NAIC. The Committee’s amendments included:

  • Adding a definition for “domestic insurance holding company system;”
  • Deleting a definition for “domestic single-state insurer;”
  • Clarifications regarding the filing of financial statements;
  • Specifying exemptions regarding the annual enterprise risk report;
  • Permitting certain Insurance Commissioner examinations;
  • Specifying obligations regarding subpoenas; and
  • Creating effective dates for various parts of the measure.

This post written by John Pitblado.
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ARBITRATION DENIED IN CLASS ACTION WHERE PLAINTIFF’S TRUST WAS A PARTY TO ARBITRATION AGREEMENT, BUT PLAINTIFF WAS NOT

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In a life settlement transaction, in which a life insurance policy is sold by its owner to another for more than its cash-surrender value but less than the net death benefit, the seller contended that the broker and purchaser conspired to rig the bidding process, resulting in undisclosed kickbacks to the broker. The seller filed a putative class action against the broker, purchaser, and related entities alleging fraud and other similar claims. The defendants moved to compel arbitration (among other things), relying on an arbitration clause in the purchase agreement. The seller, however, had formed a trust to acquire the policy and never personally participated in the purchase agreement. The trial court thus denied arbitration, finding that the seller was a non-signatory against whom arbitration could not be compelled. The defendants appealed, and the Third Circuit affirmed, holding that the seller of the policy could not be equitably estopped from avoiding the reach of the purchase agreement. The court explained that the “alleged fraud was related to the purchase agreement—it set the purchase price and, allegedly, the inflated, undisclosed broker’s commission. But that alone is not sufficient to compel arbitration under the equitable estoppel doctrine: the claims must be based directly on the agreement.” Here, the allegedly fraudulent kickback agreement “took place prior to and apart from the execution of the purchase agreement.” Griswold v. Coventry First LLC, Case No. 13-1879 (3d Cir. Aug. 11, 2014).

This post written by Michael Wolgin.

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DEFAMATION ACTION REGARDING FRAUDULENT ACCOUNTING CLAIM WITHSTANDS MOTION TO DISMISS

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Action by Greenberg against Spitzer for defamation based on public statements by Spitzer about Greenberg’s stewardship of AIG regarding, among other things, Spitzer’s assertion that Greenberg engaged in fraudulent accounting. Spitzer’s motion to dismiss as to those statements was denied. The court found no documentary evidence sufficient under New York procedural rules to conclude on motion to dismiss that Spitzer’s statements were substantially true as a matter of law. Greenberg v. Spitzer, 44 Misc. 3d 1202 (N.Y.S.C., June 24, 2014).

This post written by Kelly A. Cruz-Brown.

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THIRD CIRCUIT: FEDERAL COURT SHOULD DECIDE WHETHER AN ARBITRATION CLAUSE AUTHORIZES CLASSWIDE ARBITRATION – NOT THE ARBITRATOR

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The Third Circuit recently was presented with the question of whether, in the context of an otherwise silent contract, the availability of classwide arbitration is to be decided by a court rather than an arbitrator. The underlying dispute involved a putative class action brought under the Fair Labor Standards Act concerning an employer’s classification of its workers as overtime-exempt employees. The two named plaintiffs each had signed an employment agreement requiring that any dispute relating to their employment be submitted to arbitration, but the agreements did not mention classwide arbitration. A New Jersey federal court granted the employer’s motion to compel arbitration, but held that the arbitrator would have to decide whether the arbitration could include classwide claims. The arbitrator issued a partial award, and addressed the “who decides” issue, ruling that the employment agreements permitted classwide arbitration. The employer then returned to federal court and filed a motion to vacate the arbitrator’s award, and the district court denied the motion. On appeal, the Third Circuit reversed, concluding that the issue of the availability of classwide arbitration should be decided by a court, not an arbitrator.

In reaching its conclusion, the Third Circuit noted that “questions of arbitrability,” such as whether the parties are bound by a given arbitration clause or whether an arbitration clause in a concededly binding contract applies to a particular type of controversy – are “gateway issues” to be resolved by a court. This is in contrast to “procedural” questions that are resolved by arbitrators. The Third Circuit ruled that the permissibility of classwide arbitration is not solely a question of procedure or contract interpretation (which would be decided by an arbitrator) but rather involves a “substantive gateway dispute qualitatively separate from deciding an individual quarrel” (which would be decided by a court). In reaching this conclusion, the Third Circuit followed the Sixth Circuit holding in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594 (6th Cir. 2013), which is the only other circuit court opinion to have squarely addressed the “who decides” issue.

David Opalinski v. Robert Half Int’l Inc., No. 12-4444 (3rd Cir. July 30, 2014).

This post written by Catherine Acree.

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COURT DENIES MOTION TO DISMISS FOR LACK OF SUBJECT MATTER JURISDICTION

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In prior proceedings, Glory Wealth obtained an England arbitration award against Industrial Carriers, Inc. (ICI) and a confirmation of the award in the United States District Court for the Southern District of New York.

Glory Wealth instituted an admiralty case in the Eastern District of Virginia to attach a vessel to satisfy the confirmed arbitration award, naming ICE and Freight Bulk PTE, Inc. (FBP) as defendants. FBP moved to vacate the arbitration confirmation judgment of the Southern District of New York, relying on Rule 60(b)(4), Fed.R.Civ.P., contending the New York judgment was void for lack of jurisdiction. The Virginia district court held that FBP could not collaterally attach the New York confirmation judgment, since FBP was not a party to the New York proceeding. Strong elements of judicial estoppel appear to have influenced the Virginia district court’s decision, since the court noted that FBP had repeatedly denied any status as ICI’s alter ego, yet in the motion at bar to dismiss Glory Wealth’s action, FBP contended it had standing as a party to the New York case to move to vacate the New York judgment. Flame S.A and Glory Wealth Shipping PTE Ltd. v. Industrial Carriers, Inc., Vista Shipping, Inc. and Freight Bulk PTE, Inc., Case No. 2:13-cv-658 (U.S.D.C., E.D. Va., July 17, 2014).

This post written by Kelly A. Cruz-Brown.

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