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New reinsurance-related and arbitration developments from Carlton Fields

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NINTH CIRCUIT REMANDS PAGA CASES TO LOWER COURTS TO DETERMINE THE PROPER FORUMS FOR ARBITRATION OR LITIGATION

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We previously reported on California courts refusing to enforce waivers contained in arbitration agreements of representative claims under California’s Private Attorneys General Act of 2004 (“PAGA”). These cases have generally held that rights provided under PAGA were not waivable (the “Ishkanian rule”) and not preempted by the Federal Arbitration Act (“FAA”). Two recent cases within the Ninth Circuit upheld these rulings, but held that arbitration agreements containing provisions purporting to waive representative claims do not automatically render the whole agreement unconscionable; the purported waivers may be severed, if possible. Hopkins v. BCI Coca-Cola Bottling Co. of Los Angeles, Case No. 13-56126 (C.D.Ca. Feb. 19, 2016); Sierra v. Oakley Sales Corp., Case No. 13-55891 (9th Cir. Feb. 18, 2016).

This post written by Joshua S. Wirth.

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FEDERAL COURT WEIGHS PERSONAL JURISDICTION IN RETROCESSION DISPUTE

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A New Jersey federal district court recently weighed whether it had personal jurisdiction over a foreign corporation in a reinsurance and retrocession dispute. The case involved insurance coverage for Companhia Siderurgica Nacional, S.A. (“CSN”), one of the largest conglomerates in Brazil with interests in steel, iron ore, mining, and various other operations. The direct coverage was provided by Brazilian insurance corporations, which reinsured through IRB Brasil Resseguros S.A. (“IRB”); in turn, IRB sought retrocessional coverage from National Indemnity Company (“NICO”) through a reinsurance broker in New Jersey, Catalyst Re Consulting, LLC (“Catalyst Re”).

The dispute involved nearly $200 million in retrocessional coverage provided to IRB by NICO. When IRB indicated that it may not be able to make a $9 million premium payment on time, NICO issued an extension on the premium payment based on a personal guarantee by CSN. Then, CSN filed a claim for coverage under the direct policies and initiated a lawsuit against IRB for failure to acknowledge that it was the reinsurer of that direct coverage. CSN and IRB settled this dispute, with IRB agreeing to “help CSN retrieve the $9 million premium that CSN paid to NICO” to secure the retrocessional agreement.

As a result, NICO filed suit in New Jersey seeking a declaration that the retrocessional agreement was binding and enforceable, and that CSN had no right to the premium. NICO further alleged tortious interference with a contractual relationship, unjust enrichment, injurious falsehood, and civil conspiracy against CSN. CSN, a Brazilian corporation, moved to dismiss for lack of personal jurisdiction. The court explained that “specific jurisdiction analysis is claim-specific,” and it must therefore “consider whether the defendant’s contacts with the forum arise under or relate to each claim alleged.” The court found that it had jurisdiction over CSN on the declaratory actions because it had acted through a New Jersey reinsurance broker to secure coverage and guarantee payment to NICO. However, the court found that it did not have jurisdiction over CSN related to the actions for damages because those involved actions between two Brazilian corporations and lawsuits and settlement agreements effectuated in Brazil. Thus, NICO will only be able to pursue the declaratory action against CSN in the United States, and will likely have to file any suit for damages against CSN in Brazil. National Indem. Co. v. Companhia Siderurgica Nacional, S.A., Case No. 15-cv-00752-JLL (D.N.J. Feb. 8, 2016).

This post written by Zach Ludens.

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ELEVENTH CIRCUIT UPHOLDS REFUSAL TO COMPEL ARBITRATION DUE TO UNAVAILABLE FORUM

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A borrower had previously entered into a pay day loan agreement in August of 2012, which contained an arbitration provision mandating that all claims be arbitrated in the National Arbitration Forum (NAF), and under the Code of Procedure of the NAF. However, as of 2009, NAF did not accept consumer arbitrations. Under Section 5 of the Federal Arbitration Act, where a forum chosen is unavailable, the court may substitute another arbitrator. An agreement to arbitrate is only enforceable if the choice of forum provision was not integral to the agreement as a whole. The Eleventh Circuit affirmed the trial court’s ruling that the arbitration agreement’s choice of forum of the NAF was not an “ancillary logistical concern,” but was central to the arbitration agreement. Accordingly, the lender could not enforce the arbitration agreement, and the borrower’s lawsuit was permitted to proceed in court. Flagg v. First Premier Bank, Case No. 14-14052 (11th Cir. Feb. 23, 2016).

This post written by Joshua S. Wirth.

See our disclaimer.

NEW HAMPSHIRE COURT APPROVES COMMUTATIONS CONCERNING THE HOME INSURANCE COMPANY

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In various posts, the latest of which was September 2, 2015, Reinsurance Focus has covered developments in the liquidation of The Home Insurance Company. Recently, the liquidation court entered orders approving three commutations between Home and its counterparties to certain reinsurance contracts concerning liabilities arising under those agreements – one involving Westport Insurance Corporation, the second for R&Q Reinsurance Company, and the third involving CX Reinsurance Company Limited. Here are the motions to approve the commutation agreements for Westport Insurance Corporation, R&Q Reinsurance Company, and CX Reinsurance Company Limited.

This post written by Rob DiUbaldo.

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MISSISSIPPI FEDERAL COURT DECISION SHOWS DEGREE OF BURDEN TO CHALLENGE ARBITRATION AWARD

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A decision of a Mississippi federal district court illustrates the weighty burden that a party must carry in order to vacate an arbitration award. The dispute was over an executive terminated from a company and whether his termination was with or without cause. The arbitrator found that it was done without cause and awarded the executive nearly $600,000. The terminating company moved to vacate based on seven arguments, including that the arbitrator shifted the burden from the employee to the company, that the arbitrator awarded a lump-sum damage award not contemplated by the agreement, that the arbitrator erred in awarding pre- and post-judgment interest, and that the arbitrator exceeded his authority by awarding benefits in excess of the amounts sought in the filings. The terminated employee cross-moved for sanctions.

The court suggested that, although the terminating company may have had a point in its argument, the arbitrator miscalculated the damages, “the arbitration provision did not limit the arbitrator’s authority with respect to damages, other than to forbid him from awarding punitive damages.” It may have been that the arbitrator misconstrued the contract or the law, but the terminating company did not meet its burden of showing an unambiguous and undisputed mistake of fact. The court also analyzed whether sanctions were warranted, finding no evidence of bad faith. However, the court cautioned, “the bases for vacating an arbitration award are narrowly prescribed and motions to vacate should therefore be employed sparingly.” U-Save Auto Rental of America, Inc. v. Barton, Case No. 3:15-cv-00348 (USDC S.D. Miss. Feb. 12, 2016).

This post written by Zach Ludens.

See our disclaimer.