John Pitblado

NEW YORK APPELLATE COURT AFFIRMS DENIAL OF MOTION FOR CHANGE OF VENUE

January 25, 2017 by John Pitblado

In this reinsurance coverage case in a New York court, certain defendant reinsurers made a motion for a change of venue under NY CPLR 510 (2) on the ground that “an impartial trial could not be had” based on the fact that plaintiffs’ former lead counsel, who was scheduled to be a fact witness, had retired from law firm practice and was now a judge of that same court’s Commercial Division. The New York court denied the motion, and the reinsurers appealed.

On appeal, the New York appellate court noted that the lower court correctly determined that the reinsurers’ motion for a change of venue was untimely, in that they waited “until the eve of trial,” after plaintiffs’ former counsel’s was designated a judge of the court’s Commercial Division, which was nine months after he was first designated as a judge of the court. The court noted that all of the arguments raised by the reinsurers in support of the venue change when he was appointed to the Commercial Division existed at the time he was first appointed as judge of the court.

Noting that to succeed on a CPLR 510(2) motion, a movant must demonstrate by factual evidence that there is a strong possibility that an impartial trial cannot be had in the venue. But the New York appellate court concluded that the reinsurers’ arguments consisted not of factual evidence, but of conclusory allegations, beliefs, and suspicions. The court noted that “[t]here is no personal relationship between the trial judge and the judge-witness and no personal relationship between the judge-witness and the party. The mere fact that the jury may discover a nonparty witness is a judge is not enough to prejudice a defendant where a plaintiff does not seek to exploit the witness’s status to enhance his credibility. Moreover, the same concerns would exist, no matter in what venue the case is tried.” Thus, the court affirmed the lower court’s denial of the reinsurers’ motion.

U.S. Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604517/02 (N.Y. App. 1st Dep’t Dec. 22, 2016).

This post written by Jeanne Kohler.

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SUPREME COURT GRANTS CERTIORARI IN THREE CLASS ARBITRATION WAIVER CASES AMIDST DEVELOPING FEDERAL CIRCUIT SPLIT

January 24, 2017 by John Pitblado

The Supreme Court will hear argument on whether arbitration provisions in employment agreements which waive class actions are a violation of the National Labor Relations Act (“NLRA”). The three cases are as follows:

In Epic Systems Corp. v. Lewis (USSC 16-285), which we previously reported on June 6, 2016, the Seventh Circuit held a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived collective action was prohibited under Section 7 of the NLRA.

In Ernst & Young, et al. v. Morris, et al. (USSC 16-300), which we previously reported on September 12, 2016, the Ninth Circuit similarly held that the waiver in the Ernst & Young employment agreement violated Sections 7 and 8 of the NLRA.

In NLRB v. Murphy Oil USA, Inc., et al. (USSC 16-307), which we previously reported on September 6, 2016, the Fifth Circuit held the opposite, finding that requiring employees to sign arbitration agreements requiring them to resolve employment-related claims through individual arbitration and waiving their rights to pursue a class arbitration to be valid.

The three cases were consolidated and a total of one hour is allotted for oral argument.

This post written by Nora A. Valenza-Frost.

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THE U.S. AND THE EUROPEAN UNION SUCCESSFULLY COMPLETE NEGOTIATIONS FOR COVERED AGREEMENT

January 23, 2017 by John Pitblado

As we previously reported in June 2016, the United States and the European Union were in discussions to enter into a Covered Agreement. The Dodd-Frank Act introduced Covered Agreements as a means for limited federal intrusion into the regulation of the business of insurance and reinsurance by the states. On January 13, 2017, the U.S. Department of Treasury and the Office of the U.S. Trade Representative announced that the negotiations between the United States and the European Union for a Covered Agreement were successfully completed. The text of the announcement can be found here.

Also, on January 13, 2017, the United States and the European Union released a joint statement announcing the successful negotiations. The statement noted that the Covered Agreement “will ensure ongoing robust insurance consumer protection and provide enhanced regulatory certainty for insurers and reinsurers operating in both the U.S. and the EU.”

The Covered Agreement covers three areas of prudential insurance oversight: 1) reinsurance; 2) group supervision; and 3) the exchange of insurance information between supervisors. The Covered Agreement contains detailed provisions, which are summarized below.

Reinsurance collateral: Covered Agreement is intended to enhance consumer protection and lead to the elimination of collateral for a ceding insurer to obtain credit for reinsurance and local presence requirements for EU and U.S. reinsurers operating in these markets. To obtain this relief a reinsurer is required: (1) to maintain a stated minimum level of capital or surplus and a stated solvency ratio; (2) consent to jurisdiction in the ceding jurisdiction and the appointment of the supervisory authority of the ceding jurisdiction as an agent to accept service of process; (3) agree to pay any judgment obtained by the ceding insurer and provide 100% security for any final judgment liability it resists; (4) pay reinsurance claims promptly; and (5) confirm that it is not participating in a solvent scheme of arrangement and provide 100% collateral for the terms of any subsequent scheme. States shall be encouraged to adapt their credit for reinsurance requirements to the Covered Agreement, and a determination will be made as to whether any state requirements are inconsistent and preempted within 60 months of the execution of the Covered Agreement.
Supervision: U.S. and EU insurers operating in the other market will only be subject to worldwide prudential insurance group oversight by the supervisors in their home jurisdiction, including group governance, solvency, capital and a worldwide group Own Risk and Solvency Assessment. Under the Agreement, supervisory authorities on both sides preserve the ability to request and obtain information about worldwide activities which could harm policyholders’ interests or financial stability in their territory. This portion of the Covered Agreement is responsive to Congressional concerns that U.S. domiciled companies may be subjected to EU capital requirements.
Information exchange: The Agreement also encourages insurance supervisory authorities in the United States and the EU to continue to exchange supervisory information on insurers and reinsurers that operate in the U.S. and EU markets. To support such information exchange, the Agreement includes model memorandum of understanding provisions.

The final legal text of the Covered Agreement was provided to Congress on January 13, 2017, in accordance with the Dodd-Frank Act. According to the statement, the European Union will also follow the necessary steps to also sign and formally conclude the Agreement. If there are any surprises in this agreement it may be the extended length of time for the implementation of the collateral reform provisions and the lack of any explicit consideration of the Solvency II equivalence requirement.

This post written by Rollie Goss.
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NINTH CIRCUIT APPLIES NEW YORK LAW IN DETERMINING ASSIGNMENT OF RIGHTS TO ARBITRATION PROCEEDS WAS NOT A MATERIAL BREACH OF SETTLEMENT AGREEMENT

January 5, 2017 by John Pitblado

Finding the alleged breach of an anti-assignment provision in a Settlement Agreement was not material, the Ninth Circuit held that the FAA did not provide grounds for vacatur of an arbitration award. In so holding, the Court held the award was not procured by fraud; the arbitrator did not exceed his powers; and the plaintiffs-appellants cited no case wherein a court vacated an award based on an arbitrator’s failure to consider an argument the parties did not present during the arbitration.

The Central District of California previously held that, even if the assignment breached the Settlement Agreement, it did not relieve plaintiffs-appellants “of its duty to arbitrate because the agreement was merely a personal ‘covenant not to assign’ that ‘[gave] rise only to a right to sue for damages.’” The purpose of the Settlement Agreement was to resolve certain disputes between the parties, while reserving others for arbitration. “Under these facts, the alleged assignment of rights in one claim does not ‘defeat the purposes of the entire’ Settlement Agreement, which resolved $550,000 worth of other claims.”

The Ninth Circuit Court thus affirmed the District Court’s decision to deny the motion to vacate the arbitration award.

Watermill Ventures, Ltd. et al. v. Cappello Cap. Corp., No. 15-55145 (9th Cir. Dec. 1, 2016).

This post written by Nora A. Valenza-Frost.

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NY HIGHEST COURT ASKED CERTIFIED QUESTION ON REINSURER LIABILITY CAP

January 3, 2017 by John Pitblado

The Second Circuit certified to the New York Court of Appeals the question of whether its 2004 decision (Excess Insurance Co. v. Factory Mutual Insurance Co., 3 N.Y.3d 577 (2004)) imposed
“either a rule of construction, or a strong presumption, that a per occurrence liability cap in a reinsurance contract limits the total insurance available under the contract to the amount of the cap regardless of whether the underlying policy is understood to cover expenses such as, for instance, defense costs?”

Relying on the Second Circuit’s decision in Bellefonte Reinsurance Co. v. Aetna Casualty & Surety Co., the SDNY previously determined the limits in the reinsurance certificates capped the reinsurer’s liabilities for both the cedent’s indemnity payments (“losses”) and its defense costs (“expenses”). Courts across the United States have reached different results on this issue.

Noting the potential economic impact of a reversal of Bellefonte and Unigard Security Insurance Co. Inc. v. North River Insurance Co., the panel stated its intention “is to seek the New York Court of Appeals as to whether a consistent rule of construction specifically applicable to reinsurance contracts exists” and that the “interpretation of the certificates at issue here is a question of New York law that the New York Court of Appeals has a greater interest and greater expertise in deciding.”

Global Reinsurance Corp. of Am. v. Century Indem. Co., Docket No. 15-2164-cv (2d Cir. Dec. 8, 2016).

This post written by Nora A. Valenza-Frost.

See our disclaimer.