On June 23, 2020, the U.S. District Court for the District of Arizona dismissed a pro se plaintiff’s petition to compel arbitration, finding the action “frivolous” and ordering its dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6). On appeal, the Ninth Circuit Court of Appeals affirmed the district court’s ruling, finding that the district court properly dismissed the plaintiff’s action because the plaintiff failed to allege facts sufficient to state a plausible claim. The Ninth Circuit also rejected the plaintiff’s claim on appeal that the district court violated his constitutional rights, or otherwise acted with impropriety or gave the appearance of impropriety in its conduct.
In January 2019, a policyholder sued Westfield Insurance Co. after the insurer denied coverage for property damage that the policyholder believed to have occurred as a result of mine subsidence, and therefore covered under a mine subsidence endorsement to his homeowners insurance policy. The policyholder alleged that the insurer’s denial constituted a breach of contract and also alleged that the insurer violated the West Virginia Fair Trade Practices Act, as well as the implied covenant of good faith and fair dealing.
After denying Westfield’s initial motion for summary judgment on the pleadings, the insurer renewed its motion after additional evidence on the evaluation of the policyholder’s mine subsidence claim had been introduced. The court thereafter granted summary judgment in favor of Westfield. It reasoned that because mine subsidence claims – including the investigation and subsequent decision whether to pay such claims – are entirely within the purview of the West Virginia Board of Risk and Insurance Management (BRIM) as a matter of statute, Westfield was merely acting as an agent of the state and was bound by BRIM’s decision. As such, while Westfield was required by statute to include the mine subsidence endorsement in its insurance policies, it had no authority to decide whether the policyholder’s claim was paid.
In this matter, the record demonstrated that (1) the policyholder submitted a claim for mine subsidence damage to Westfield; (2) Westfield referred the matter to BRIM as it was statutorily required to do so; and (3) BRIM conducted its independent investigation of the matter and determined that the claim would not be paid. Under these circumstances, the court determined that Westfield could not be found to have breached its contract with the policyholder for an adverse decision rendered exclusively by BRIM as required by applicable statute, and granted summary judgment as a result.
Once summary judgment was granted on the breach of contract claim, the policyholder’s remaining claims were similarly dealt with. For example, West Virginia law does not recognize an independent cause of action for the breach of an implied covenant of good faith and fair dealing separate and apart from a breach of contract claim. Having found no breach of contract, Westfield was entitled to summary judgment on the policyholder’s common law bad faith claim. Further, because the exclusive authority to investigate and determine mine subsidence claims rests with BRIM, it could not be established as a matter of law that Westfield’s failure to investigate the policyholder’s claim was misconduct, let alone misconduct with sufficient frequency as to indicate a general business practice (as required for an unfair trade practices claim).
On remand from the U.S. Supreme Court, the Ninth Circuit Court of Appeals considered in Setty v. Shrinivas Sugandhalaya LLP the question whether non-signatories to an agreement may use state law doctrines, such as equitable estoppel, to compel arbitration. Although the Ninth Circuit recognized that non-signatories may have the power to compel arbitration using equitable estoppel under certain circumstances, it ultimately found that the defendant in this particular case was unable to do so.
The underlying case arose from a failed business relationship between two brothers, Balkrishna and Nagraj Setty. While they were in business together, the brothers had personally entered into a partnership agreement that required them to arbitrate disputes related to partnership rights. Eventually, the brothers parted ways, and each brother formed his own company. After Balkrishna Setty and his company (SS Bangalore) brought suit against Nagraj Setty’s company (SS Mumbai) for trademark infringement, SS Mumbai sought to compel arbitration based on the arbitration provision in the brothers’ partnership agreement.
The lower court denied SS Mumbai’s motion to compel, finding that only the brothers (and not their companies) were signatories to the partnership agreement, and Nagraj Setty was not a named defendant in the lawsuit. The Ninth Circuit upheld the lower court’s decision, holding that SS Mumbai could not equitably estop SS Bangalore from avoiding arbitration. SS Mumbai appealed to the Supreme Court.
The Supreme Court remanded the case for further consideration following its recent decision in GE Energy Power Conversion France SAS, Corp. v. Outokumpu Stainless USA, LLC, which ruled that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards does not conflict with domestic equitable estoppel doctrines permitting enforcement of arbitration agreements by non-signatories.
On remand, the Ninth Circuit reaffirmed its earlier decision denying the motion to compel. The court stated that for equitable estoppel to apply in the arbitration context, “it is essential … that the subject matter of the dispute [is] intertwined with the contract providing for arbitration.” The court found that SS Bangalore’s claims against SS Mumbai for trademark infringement were not clearly “intertwined” with the brothers’ partnership agreement providing for arbitration, and thus SS Mumbai, a non-signatory defendant, lacked the power to compel arbitration in this matter.
The New Jersey Supreme Court recently ruled that Johnson & Johnson is required to pay an insurance premium tax (IPT) based only on its premiums for risks located within the state of New Jersey rather than nationwide, entitling the company to a $56 million tax refund.
Prior to 2011, New Jersey insurance laws required J&J, as a holder of self-procured insurance, to pay its IPT based only on risks located in New Jersey. However, in a 2011 amendment to the state’s insurance laws, the Legislature authorized additional taxation on surplus lines insurance policies by adding the following sentence to N.J.S.A. 17:22-6.64: “If a surplus lines policy covers risks or exposures in this State and other states, where this State is the home state, … the tax payable pursuant to this section shall be based on the total United States premium for the applicable policy.” J&J, despite not being a holder of surplus lines coverage, thereafter voluntarily increased its IPT payments to reflect the amount due on its nationwide insurance premiums. In November 2015, J&J filed a claim with the New Jersey Department of Banking and Insurance (DOBI) and the director of the Division of Taxation, seeking a refund of nearly $56 million in excess IPT that it had paid since 2011.
After the division denied its refund claim, J&J filed a complaint in the Tax Court. The Tax Court found in favor of the DOBI and the division, concluding that the 2011 amendments that authorized the collection of IPT for surplus lines insurance coverage based on total nationwide premiums applied equally to self-procured coverage. The Appellate Division reversed, finding that J&J’s IPT obligations should have continued to be based solely on the risks it insured that were located within New Jersey. Stressing that the original plain language of the statute “clearly limited J&J’s tax liability to the risks it insured in New Jersey [and] was not changed in any way, shape, or form in the 2011 amendment,” the Appellate Division explained that it was “bound to follow and apply” that language. The Appellate Division ultimately declared itself unable to conclude that the New Jersey Legislature, by specifically stating that the amendment applied only to surplus lines insurance coverage, likewise intended to extend it to self-procured coverage.
In a one-paragraph majority decision, the New Jersey Supreme Court affirmed the ruling “substantially for the reasons expressed” by the Appellate Division.