Carlton Fields

COURT GRANTS SUMMARY JUDGMENT IN $40M REINSURANCE COMMISSION DISPUTE

August 11, 2014 by Carlton Fields

Greenlight Reinsurance brought suit against Appalachian Underwriters (“AUI”), Appalachian Reinsurance (“App Re”) and Insurance Services Group (“ISG”) alleging it had been shortchanged more than $40,000,000 pursuant to three types of agreements it entered into with the respective defendants (1) a reinsurance agreement between Greenlight and AIU, where AIU acted as managing general agent, and was obliged to refund ceded premium beyond contractually defined amounts based on loss ratios; (2) a similar retrocession agreement with App Re; and (3) a guarantee agreement with ISG. Greenlight claimed that, based on loss ratio thresholds, it was owed a return of premium under the reinsurance and retrocession agreements, and that ISG had guaranteed those payments.

The court analyzed the agreements, and, based on the minimum loss ratios, and the undisputed calculations of ceded premium, held that AUI owed Greenlight $16,986,516 under the reinsurance agreement, and App Re owed Greenlight $24,456,213 under the retrocession agreement. The court held, however, that Greenlight failed to demonstrate that the guarantee from ISG was a guarantee of payment. Rather, the court found that it was a parental guarantee, which required ISG, as a parent corporation, to ensure that its subsidiaries, AIU and App Re, remained solvent, but did not require it to make direct payments on their behalf. The court thus granted summary judgment on Greenlight’s claims against AUI and App Re, but denied summary judgment as to ISG. Greenlight Reinsurance, Ltd. V. Appalachian Underwriters, Inc., Case No. 12-CV-8544 (JPO) (USDC S.D.N.Y. July 28, 2014).

This post written by John Pitblado.

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CALIFORNIA APPELLATE COURT UPHOLDS DELEGATION CLAUSE IN ARBITRATION AGREEMENT

August 7, 2014 by Carlton Fields

The issue before the California Appellate Court was whether the trial court erred in enforcing a delegation clause in an arbitration agreement governed by the Federal Arbitration Act (“FAA”), and granting the defendant’s motion to compel arbitration.

Plaintiff/Petitioner brought a wage and hour action against her former employer. The defendant former employer moved to compel arbitration, pursuant to a clause contained in its employee handbook. The delegation clause provided, “The arbitrator has exclusive authority to resolve any dispute relating to the interpretation, applicability, or enforceability of this binding arbitration agreement.” Plaintiff opposed arbitration asserting that the arbitration agreement was unconscionable. Defendant, in turn, asserted that arbitration agreement contained a delegation clause providing that issues relating to the enforceability of the arbitration agreement were themselves delegated to the arbitrator for resolution. The dispute then turned to whether the delegation clause itself was unconscionable.

The appellate court upheld the trial court’s decision. The appellate court concluded a portion of the rationale underlying Murphy v. Check ‘N Go of California, Inc. (2007) 156 Cal.App.4th 138 (Murphy); Bruni v. Didion (2008) 160 Cal.App.4th 1272 (Bruni); and Ontiveros v. DHL Express (USA), Inc. (2008) 164 Cal.App.4th 494 (Ontiveros) was no longer viable under California law. Murphy, Bruni, and Ontiveros relied on three factors to conclude that the delegation clauses at issue were substantively unconscionable: (1) they were outside the reasonable expectations of the parties; (2) they were not bilateral; and (3) they provided for decisionmaking by arbitrators who would be biased by their financial self-interest. The appellate court found that the first two factors did not apply to the delegation clause at issue and that the third factor was preempted by the Federal Arbitration Act (“FAA”). Malone v. Superior Court, B253891 (Cal. Ct. App. June 17, 2014).

This post written by Kelly A. Cruz-Brown.

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NEW YORK FEDERAL COURT RULES IT CANNOT COMPEL ARBITRATION IN GEORGIA

August 6, 2014 by Carlton Fields

A New York federal court recently was presented with a motion to compel arbitration in Georgia. The district court first concluded that the arbitration provision was enforceable and then proceeded to the question of whether it had the authority to compel arbitration in a district other than its own. The court described what it deemed an “internal conflict” within the Federal Arbitration Act because the Act provides both that (1) courts must enforce an arbitration agreement in accordance with its terms, and (2) arbitration must take place “within the district in which the petition for an order directing such arbitration is filed.” The court also noted an unresolved split in the Second Circuit on how a New York district court should proceed when a suit pending before it involves an arbitration agreement that specifies that arbitration should take place outside the court’s district. Ultimately, the court ruled that it had no authority to compel arbitration outside its district, but nevertheless wished to enforce the valid forum selection clause contained in the agreement. Accordingly, the district court elected to stay the action, pending arbitration of the plaintiff’s claims against the defendant in Georgia. This approach left the parties free to pursue their contractual rights and remedies in the appropriate venue without running afoul of the FAA. Klein v. ATP Flight School, No. 14-CV-1522 (USDC E.D. N.Y. July 3, 2014).

This post written by Catherine Acree.

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NINTH CIRCUIT FINDS REVISIONS TO ARBITRATION POLICY IN EMPLOYEE HANDBOOK EFFECTIVE AND ENFORCEABLE

August 5, 2014 by Carlton Fields

The Ninth Circuit recently reversed a district court’s denial of a motion to compel arbitration of an employee’s claims that were brought as a putative class action against her employer, Nordstrom. The basis for the motion to compel was an arbitration provision contained in Nordstrom’s employee handbook. The arbitration provision had been modified to preclude employees from bringing class action lawsuits after the employee received the handbook.

The employee argued that she did not have reasonable notice of the change based on a provision in the employee handbook that required Nordstrom to provide employees with 30 days written notice of any substantive changes to the arbitration provision. The handbook provided that the notice provision was included to “allow employees time to consider the changes and decide whether or not to continue employment subject to the changes.” To comply with the notice provision, Nordstrom sent letters to employees in June 2011 informing them of the change in the arbitration policy. Nordstrom did not seek to enforce the new arbitration provision during the 30-day notice period, but the letter was silent in that regard and stated that the revised arbitration provision was the “current version.” Applying California law, the Ninth Circuit ruled that Nordstrom had satisfied the minimal requirements for providing employees with reasonable notice of a change to its employee handbook by sending the letter to the employees informing them of the modification, and by not seeking to enforce the arbitration provision during the 30-day notice period. The Ninth Circuit also held that Nordstrom was not bound to inform the employee that her continued employment after receiving the letter constituted acceptance of new terms of employment. Davis v. Nordstrom, Inc., No. 12-17403 (9th Cir. June 23, 2014).

This post written by Catherine Acree.

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NEW YORK DEPARTMENT OF FINANCIAL SERVICES (“NYDFS”) ADOPTS EMERGENCY REGULATION REGARDING EXCESS LINE PLACEMENTS GOVERNING STANDARDS (INSURANCE REGULATION 41)

August 4, 2014 by Carlton Fields

The Emergency Regulation, effective April 21, 2014, conforms 11 NYCRR 27 to the requirements of the Non-Admitted and Reinsurance Reform Act of 2010 (“NRRA”). The amendments make the following changes to Insurance Regulation 41:

Defines three new terms: “exempt commercial purchaser,” “insured’s home state,” and “United States.”
Provides an exception for an Exempt Commercial Purchaser (“ECP”) consistent with Insurance Law Section 2118(b)(3)(F)
Regarding ECPs requires:
- An excess line broker or the producing broker to affirm in part A or part C of the affidavit that the ECP was specifically advised in writing, prior to placement, that the insurance may or may not be available from the authorized market that may provide greater protection with more regulatory oversight.
- Requires an excess line broker to identify the insured’s home state in part A of the affidavit; and (4) clarify that the premium tax is to be allocated in accordance with Section 27.9 of Insurance Regulation 41 for insurance contracts that have an effective date prior to July 21, 2011
Revises the address to which reports required by Section 27.7 should be submitted.
Requires a licensed excess line broker to:
- Electronically file an annual premium tax statement unless the broker is granted an exemption pursuant to Section 27.23 of Insurance Regulation 41.
- Acknowledge that payment of the premium tax may be made electronically.
Clarifies how an excess line broker must calculate the taxable portion of the premium for insurance contracts that have an effective date prior to July 21, 2011 and insurance contracts that have an effective date on or after July 21, 2011 and that cover property or risks located both inside and outside the United States.
Requires an excess line broker to obtain, review, and retain certain trust fund information if the excess line insurer seeks an exemption from Insurance Law Section 1213.
Requires an excess line insurer to file electronically with the NYDFS a current listing that sets forth certain individual policy details.
Specifies that that in order to be exempt from Insurance Law Section 1213 pursuant to Section 27.16 of Insurance Regulation 41, an excess line insurer must establish and maintain a trust fund, and to permit an actuary who is a fellow of the Casualty Actuarial Society (FCAS) or a fellow in the Society of Actuaries (FSA) to make certain audits and certifications (in addition to a certified public accountant), with regard to the trust fund.
Specifies that an excess line insurer will be subject to Insurance Law Section 1213 unless the contract of insurance is effectuated in accordance with Insurance Law Section 2105 and Insurance Regulation 41 and the insurer maintains a trust fund in accordance with Sections 27.14 and 27.15 of Insurance Regulation 41, in addition to other current requirements.
Clarifies that the requirements set forth Sections 27.3 27.4, 27.5, 27.6, 27.10, 27.11, 27.12, 27.17, 27.18, 27.19, 27.20, and 27.21 apply when the insured’s home state is New York.
Repeals existing Section 27.23 and adds new Section 27.23 titled, “Exemptions from electronic filing and submission requirements”. An insurer or excess line broker may request exemption from electronic filing and submission requirements; however, the request must be in writing and filed with the NYDFS at least 30 days prior to the filing due date. The request for exemption must:
- Identify the insurer’s NAIC number or the excess line broker’s New York license number;
- Identify the specific filing or submission the insurer or excess line broker is applying for the exemption;
- State whether the request for an exemption is based upon undue hardship, impracticability, or good cause;
- Provide a detailed explanation for the reason(s) why the request should be approved;
  and
- Specify whether the request for an exemption extends to future filings or submissions,
  in addition to the specific filing or submission identified in the exemption request.
Amends Appendix 4, which sets forth the premium tax allocation schedule, to apply to insurance contracts that have an effective date prior to July 21, 2011.
Adds a new Appendix 5 setting forth the premium tax allocation schedule to apply to insurance contracts that have an effective date on or after July 21, 2011 and that cover property and risks located both inside and outside the United States.

11 NYCRR 27 (Insurance Regulation 41) (2014).

This post written by Kelly A. Cruz-Brown.

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