Carlton Fields

Second Circuit Affirms Order Compelling Arbitration, Rejects as Waived Arguments Not Made Before Trial Court

February 13, 2019 by Carlton Fields

The Second Circuit Court of Appeals had no difficulty affirming a district court’s order compelling the executor of an estate to arbitrate his claims based on an arbitration clause contained in an IRA application signed by the deceased.

At oral argument, the executor (an attorney appearing pro se) admitted that he had forfeited any argument that the arbitration provision itself was invalid, and thus was left to rely on the theory that the contract as a whole was invalid. The Second Circuit easily rejected this, noting that the U.S. Supreme Court has held that “unless [a] challenge is to the arbitration clause itself, the issue of the contract’s validity is considered by the arbitrator in the first instance.” Thus, the Court found that the matter should go to arbitration where the arbitrator could decide the question of the contract’s validity.

The executor also argued that the district court erred in even considering the motion to compel due to an “electronic filing error” not specified in the opinion. However, in addition to being waived for not having been raised before the district court, the Court found that this argument lacked all merit because the executor knew about the motion, responded to it, and could not show any prejudice.

Aretakis v. First Financial Equity, Corp., Hilltop Securities, Inc., No. 17-3649 (2d Cir. Dec. 10, 2018)

11th Circuit Compels Arbitration Despite Allegation that Arbitration Agreement was Procedurally and Substantively Unconscionable

February 12, 2019 by Carlton Fields

This case involves a dispute between American Family Life Assurance Company of Columbus (“Aflac”) and a group of independent contractors (“associates”), arising out of alleged misrepresentations by Aflac. Pursuant to their contracts with Aflac, the associates agreed to arbitrate any claims against the company, and after learning of the associates’ plans to file a class action, Aflac filed a motion to compel arbitration in Georgia state court. In response, the associates removed the case to federal court and sought to void the arbitration agreement by arguing that it was procedurally and substantively unconscionable.

Specifically, the associates argued that (1) they did not have a sufficient opportunity to review the arbitration provision before executing the agreement, (2) that the agreement was one-sided because it required the associates to arbitrate claims against Aflac, but did not include the same requirement for Aflac, and (3) the costs and fees to be paid by the associates were so great that it would effectively deny the associates a forum to bring their claims. The district court for the Middle District of Georgia found these arguments unavailing and entered an order compelling arbitration.

The associates moved for reconsideration, but were denied. On appeal, the Eleventh Circuit reviewed the district court’s order to compel arbitration de novo. However, the court’s analysis did not progress past the associates’ failure to produce any evidence in support of their unconscionability claims at the briefing and hearing stage. For some of their arguments, the Eleventh Circuit noted that even if the associates had produced evidence, Georgia law governing mutuality of remedies and confidentiality provisions in arbitration agreements still would not support a finding that the agreement was unconscionable. As such, the panel affirmed the district court’s judgment compelling arbitration and denying the motion for reconsideration.

American Family Life Assurance Co. of Columbus v. Hubbard, et al., No. 18-11869 (11th Cir. Jan. 7, 2019).

National Council of Insurance Legislators Calls upon Federal Reserve to Limit Examinations of State-Regulated Insurers

February 11, 2019 by Carlton Fields

The Dodd-Frank Act provided the Federal Reserve Board with limited authority over certain insurance holding companies with federally regulated banking subsidiaries, creating some tension with the general rule, embodied in the McCarran-Ferguson Act, that insurance is regulated at the state level. The National Council of Insurance Legislators (NCOIL) has issued a resolution critical of the Federal Reserve Board’s use of that authority, stating that, in exercising its limited authority over these entities, “the Federal Reserve Board has over-extended its examination powers by routinely requiring insurance companies to supply information and responses to inquiries of the sort in practice that are the province of” state insurance regulators, “on whose work Federal Reserve Board examiners are statutorily required” to rely. This, the NCOIL resolution states, “will most likely conflict with, the jurisdiction of State insurance regulators over solvency and market conduct regulation or, at best, will be duplicative.”

The NCOIL resolution further:

“calls upon the Federal Reserve Board to direct its examiners that the insurance operations of state-regulated insurers . . . are regulated by the individual states and that the Federal Reserve Board’s examinations are, to the fullest extent possible, to rely upon the examination reports and other work of state insurance regulators and not to duplicate and/or conflict with the states’ regulatory powers over the insurers’ market conduct or solvency”;
“encourages Congress to provide oversight and, if necessary, enact legislation to ensure” that the Federal Reserve Board abides by these limits; and
“calls upon the Federal Reserve Board to consult with, defer to, and rely on to the fullest extent possible, and to avoid, to the fullest extent possible, duplication of, the work of state insurance regulators on matters involving the regulation of insurance operations and solvency of insurers, regardless of the insurers’ affiliations with federally-regulated financial institutions.”

Resolution Asserting McCarran-Ferguson Reverse Preemption over the Supervision of Insurance Companies by the Federal Reserve Board and Its Examiners (Nat’l Council of Ins. Legislators, Dec. 8, 2018)

Court Confirms Arbitration Award In Reinsurance Dispute Involving Quota Share Retrocessional Agreement

February 6, 2019 by Carlton Fields

A court confirmed a final arbitration award in favor of Continental Insurance Company (as successor by merger to Continental Reinsurance Corporation) and against AXA Versicherung AG. Continental Re was a reinsurer of Continental Insurance. AXA, in turn, provided retrocessional reinsurance to Continental Re through a quota share retrocessional agreement. Several years into the agreement, AXA announced that it would no longer make retrocessional payments to Continental Insurance, reasoning that a Loss Portfolio Transfer Reinsurance Agreement (the “LPT Agreement”), which Continental Insurance had recently entered into with a third party, absolved AXA of its responsibility to continue making retrocessional payments. Continental Insurance objected, and the parties went to arbitration. At arbitration, the panel awarded Continental Insurance damages in the amount of $337,034 plus interest. Continental Insurance brought an action to confirm the award, which AXA did not oppose. The court confirmed the award, finding that Continental Insurance met the statutory requirements for confirmation under the Federal Arbitration Act.

Continental Ins. Co. v. AXA Versicherung AG, Case No. 1:18-CV-07349-VEC (USDC S.D.N.Y. Jan. 2, 2019).

Fourth Circuit Holds Reinsurance Participation Agreement Is Insurance Contract Under Virginia Statute, Effectively Voiding Its Arbitration Clause

February 4, 2019 by Carlton Fields

On September 14, 2017, we reported on the Fourth Circuit’s reversal of a district court’s denial of a motion to compel arbitration, which found that a party was judicially estopped from arguing that a Reinsurance Participation Agreement (“RPA”) was not an insurance contract. (If the RPA is an insurance contract, its arbitration provision becomes invalid under state law.) Subsequent to that ruling, on remand, the district court held that the RPA is indeed an insurance contract and that the RPA’s arbitration clause is void.

The Fourth Circuit has now affirmed the district court. The circuit court explained that the RPA was part of a workers’ compensation insurance program that Appellee Minnieland Private Day School purchased from Appellant Applied Underwriters Captive Risk Assurance Company, Inc. (AUCRA) and its affiliated entities. Under this “EquityComp” program, the pooled companies provide workers’ compensation insurance coverage to employers and also mutually reinsure each other’s insurance business. A layer of reinsurance is also provided by AUCRA. AUCRA in turn enters into RPAs with EquityComp customers, under the terms of which each customer pays into a segregated “cell” or account that is then used to fund AUCRA’s liabilities. In this fashion, EquityComp customers participate in underwriting the risk of their own workers’ compensation insurance policies. Minneland sued AUCRA alleging that AUCRA was not authorized or licensed to act as an insurance company under Virginia law; that the RPA was an “insurance contract” and not a “reinsurance” agreement; and that AUCRA misrepresented the EquityComp program, and the RPA specifically, to circumvent Virginia insurance and workers’ compensation laws.

In affirming the denial of arbitration, the Fourth Circuit rejected AUCRA’s argument that the RPA was a standalone contract. Instead, the panel determined that the RPA was but one component of an integrated insurance sale because the documents, including the RPA, were intended to provide Minnieland with workers’ compensation insurance coverage.

Minnieland Private Day School v. Applied Underwriters Captive Risk Assurance Co. Inc., Case No. 17-2385 (4th Cir. Jan. 14, 2019).