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New reinsurance-related and arbitration developments from Carlton Fields

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APPELLATE COURT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION

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A California appellate court upheld denial of a motion to compel arbitration of an underlying labor employment dispute. Martha Hoover brought a wrongful termination class action against American Home Life Insurance Company, arising from its termination of her agent contract, which American Home characterized as creating an independent contractor relationship with Hoover. Her claims were brought under state labor laws, relying on her assertion that she and other similarly situated agents should be treated as statutory employees, and that American Home violated the class members’ statutory employment rights. American Home moved to compel arbitration of the dispute pursuant to the Collective Bargaining Agreement that incorporated Hoover’s agency contract, and which contained an arbitration clause. Nevertheless, the trial court denied the motion to compel, finding that, (1) the agreement did not apply to Hoover’s claims, to the extent she was a statutory employee, and so was not in dispute; and (2) even if it did, American Home waived its right to arbitration by waiting a year to invoke its right to arbitrate. Hoover v. American Income Life Ins. Co., No. E052864 (Cal. App. May 16, 2012).

This post written by John Pitblado.

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NO RES JUDICATA EFFECT FOR UNCONFIRMED ARBITRATION AWARD

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The Greers entered into a contract with Town Construction for construction of their home. After a dispute arose regarding costs, workmanship, and other issues, Town Construction filed an arbitration demand with AAA for unpaid balances. The Greers counterclaimed for damages for repairs and diminution in home value due to construction defects, specifically alleging that their home had cracks in the walls due to Town Construction’s faulty workmanship. The arbitrator awarded damages on Town Construction’s claims and the Greers’ counterclaims. There was no evidence in the record, however, that the award had been confirmed by a court.

Three years later, the Greers discovered more cracks in the walls and filed a lawsuit in state court for damages. The trial court dismissed the claims as barred by res judicata because the Greers’ claims had already been litigated in the AAA arbitration proceeding. The Court of Appeal reversed. The court held that, under Louisiana Supreme Court precedent, an unconfirmed arbitration award is not a “valid final judgment” because it was not “rendered by [a] court” and thus has no res judicata effect. Greer v. Town Constr. Co., No. 2011 CA 1360 (La. Ct. App. Mar. 23, 2012).

This post written by Ben Seessel.

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TEXAS HIGH COURT HOLDS THAT STOP-LOSS INSURANCE SOLD TO EMPLOYEE-HEALTH PLANS IS NOT REINSURANCE

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The Texas Supreme Court ruled that stop-loss insurance sold to self-funded employee health benefit plans is “direct insurance in the nature of health insurance” and not reinsurance. As we reported earlier, the Court of Appeals had ruled that such policies were reinsurance beyond the scope of DOI regulation. The issue arose when the Texas DOI discovered, during a routine audit, that American Insurance Company had sold stop-loss policies from 1998-2002 without paying taxes or complying with other regulatory requirements. American argued that employers that self-fund employee health benefit plans are “insurers” engaged in the “business of insurance.” The Texas high court disagreed, holding that, although employers that self-fund health benefit plans in some respects act like insurers, they are not regulated as insurers under the Texas Insurance Code. Further, the court reasoned, ERISA generally precludes the states from deeming such plans to be insurers or engaged in the business of insurance. Texas Dep’t of Ins. v. Am. Nat’l Ins. Co., No. 10-0374 (Tex. May 18, 2012).

This post written by Ben Seessel.

See our disclaimer.

LLOYDS’ DISQUALIFICATION ACTION AGAINST OPPOSING COUNSEL DISMISSED

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Certain Underwriters at Lloyds, London (“Underwriters”) brought an action in Massachusetts Superior Court against Liberty Mutual and its counsel, Sidley Austin LLP, seeking to disqualify Sidley from representing Liberty Mutual in a coverage action involving a Lloyds reinsurance treaty, where Liberty Mutual was adverse to Lloyds. Sidley had also been retained by Resolute Management, Inc.. (f/k/a Equitas), which is Lloyds’ long-tail asbestos reinsurance claims management arm, to represent it in connection with a federal appeal. Sidley claimed that there was no conflict in its representation in the two actions, but that if there was a conflict, it was nevertheless disclosed to Lloyds, and implicitly waived thereby. The Court agreed with Sidley, finding the two representations did not involve substantially similar issues, and that Lloyds had been appropriately apprised of Sidley’s representation of Liberty Mutual when it retained Sidley in the federal appeal. The Court denied the motion for disqualification, and dismissed Lloyds’ action seeking declaratory and injunctive relief. Apparently, Lloyds was not upset enough about Sidley’s dual role to fire it from representing Equitas in the appeal. Certain Underwriters at Lloyds, London v. Sidley Austin LLP, No. SUCV2010-04663 (Mass. Super. Ct. March 5, 2012).

This post written by John Pitblado.

See our disclaimer.

CITIZENS PROPERTY INVOLVED IN LARGEST CAT BOND EVER

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Florida’s state-owned property insurer, Citizens Property Insurance Company, is the ceding insurer on the largest reinsurance cat bond ever to be placed, a $750 million hurricane risk bond issued by Bermuda special purpose reinsurer Everglades Re, which provides coverage for two years. This is Citizen’s initial cat bond, and the Citizens Board has authorized the purchase of private reinsurance for the 2012 hurricane season to supplement the risk transfer of the cat bond. This represents a significant expansion of the cat bond market. Reinsurance Focus blogmaster Rollie Goss and Carlton Fields attorney Bob Shapiro served as special reinsurance counsel to Citizens for the Everglades Re cat bond and for Citizens’ private reinsurance placements.

This post written by Rollie Goss.

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