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New reinsurance-related and arbitration developments from Carlton Fields

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John Pitblado

CALIFORNIA COURT OF APPEAL HOLDS GENTRY IS STILL GOOD LAW WHERE FAA DOES NOT APPLY

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A California appellate court recently held in Garrido v. Air Liquide Industrial U.S. L.P that the rule set forth in Gentry v. Superior Court, 42 Cal.4th 443 (2007) remains valid so long as the Federal Arbitration Act (“FAA”) does not govern the dispute at issue. Gentry addresses class waivers contained within arbitration agreements that would “interfere with employees’ ability to vindicate unwaivable rights” and sets forth four factors a court should consider when deciding whether to uphold a class waiver.

In Garrido, a former employee filed a class action complaint against Air Liquide, alleging various Labor Code violations and unfair business practices. The trial court denied a motion to compel arbitration brought by Air Liquide, finding that the agreement’s class waiver provision was improper under Gentry’s four factors. Following the trial court’s ruling, the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 364 (2014) that Gentry’s rule against employment class waivers was preempted by the FAA.

The Garrido appellate court found that the dispute was not subject to the FAA because Section 1 of the FAA exempts from coverage transportation workers. Further, it found that Gentry’s holding has not been overturned under California law in situations where the FAA does not apply. Accordingly, the appellate court affirmed the trial court, finding that the agreement’s class waiver provision was unenforceable.

Garrido v. Air Liquide Industrial U.S. LP, 246 Cal.App.4th 833 (2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

COURT GRANTS MOTION TO COMPEL ARBITRATION, FINDING THAT ISSUE OF CONSOLIDATION IS QUESTION FOR ARBITRATOR, NOT COURT

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An Illinois federal court recently granted an insurer’s motion to compel arbitration of a dispute with its insureds and denied the insureds’ motion to dismiss and transfer venue.

This dispute arose under four written program agreements, each containing an arbitration clause. The insurer filed a single demand for arbitration with the American Arbitration Association (the “AAA”), alleging that the insureds failed to pay amounts due under the four program agreements. The insureds raised various objections to the arbitration demand, including that they were entitled to four separate arbitrations. The AAA ruled that the arbitration would continue as one arbitration, and the insureds appointed the sole arbitrator. Shortly thereafter, the insureds filed an action in Texas state court, seeking a Temporary Restraining Order (“TRO”) to stay the arbitration because it had been improperly consolidated. The Texas court granted the TRO, stating that the AAA had failed to follow the arbitration agreements by administering one proceeding, not four, and enjoined the AAA from administering the arbitration. The AAA removed the Texas action to federal court, and filed a motion to dismiss, to which the insureds did not file a response. After the TRO expired, the AAA attempted to resume administration of the arbitration, but the insureds would not participate in the arbitration and informed the AAA that their counsel could not communicate with the AAA given the pending Texas action. Thus, the insurer filed this action in Illinois, where the arbitration was pending, seeking to compel arbitration.

The Illinois federal court denied the insureds’ motion to dismiss and transfer venue, finding that the court had jurisdiction over the insureds as they agreed to arbitrate their disputes related to the program agreements in Illinois and that the venue for the motion to compel was also proper. As for the motion to compel arbitration, the court noted that under the Federal Arbitration Act, the question of whether a given dispute is arbitrable is decided by the courts, but all other disputes concerning the application of the arbitration agreement are for the arbitrators to decide. Thus, the court held that the propriety of consolidated arbitration proceedings is an issue of procedure for the arbitrator to decide, not the court. Thus, the court granted the insurer’s motion to compel arbitration, noting that the insureds’ only means of judicial review on the issue of consolidation is a motion to vacate the arbitration award after the final award is issued.

Zurich American Insurance Company, et al. v. Trendsetter HR, LLC, et al., No. 1:15-cv-08696 (USDC N.D. Ill. Nov. 16, 2015).

This post written by Jeanne Kohler.

See our disclaimer.

ALASKA’S DIRECTOR OF INSURANCE LISTS ELIGIBLE SURPLUS LINES INSURERS

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On July 13, 2015, the director of Alaska’s Division of Insurance published a list of surplus lines insurers that are eligible to write non-admitted business within the state. The Non-admitted and Reinsurance Reform Act (“NRRA”) identified the eligibility requirements that Alaska may impose on a company to be an eligible surplus lines insurer. An insurer is deemed ineligible and removed from the list if it does not meet all of the NRRA and domestic state requirements. All alien insurers that are on the NAIC’s Quarterly Listing of Alien Insurers are eligible to write non-admitted business in Alaska.

Three statuses were assigned to the various insurers included on the director’s list. Those companies that are “white listed” are foreign companies that meet the NRRA and domestic state requirements. “IID listed” insurers are alien companies that are on the NAIC’s Quarterly Listing of Alien Insurers. Finally, “listing approved” insurers are alien companies that are not on the NAIC’s Quarterly Listing of Alien Insurers but are approved by Alaska.

Alaska Bulletin B 15-06, effective July 13, 2015.

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

NEW YORK APPELLATE COURT AFFIRMS EVIDENTIARY RULING IN FAVOR OF CEDENT

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In a dispute regarding reinsurance coverage for the settlement of asbestos-related claims for nearly a billion dollars, on October 29, 2015, a New York appeals panel affirmed a New York state trial court decision, which denied the reinsurers’ motion for a ruling that the reasonableness of the cedent’s allocation of all settlement dollars to asbestos-insurance claims is properly the subject of evidence at trial. The court noted that in a prior appeal in the case, the Court of Appeals, New York’s high court, denied the cedent’s motion for summary judgment, in part, finding issues of fact as to 1) whether the cedent, “in allocating the settlement amount, reasonably attributed nothing to so-called ‘bad faith’ claims against it”, and 2) whether “certain claims were given unreasonable values for settlement purposes”. (We reported on the Court of Appeals decision on April 1, 2013.) Thus, the court held that the trial court correctly found that the reinsurers’ motion for a ruling allowing evidence on the reasonableness of the cedent’s allocation of the entire settlement to asbestos-insurance claims was contrary to the Court of Appeals decision, which limited the triable issues to two issues.

United States Fidelity & Guaranty Co. v. American Re-Insurance Co., No. 604517/02 (N.Y. App. Div. Oct. 29, 2015).

This post written by Jeanne Kohler.

See our disclaimer.

DISTRICT COURT RECOGNIZES THE VIABILITY OF MANIFEST DISREGARD OF LAW DOCTRINE IN THE SECOND CIRCUIT

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The Eastern District of New York recently denied plaintiff’s request to vacate an arbitration award in a contractual dispute between Incredible Foods Group, LLC, (“IFG”) and Unifoods, S.A. de C.V., (“UF”) over a shared Sub-License Agreement (the “Agreement”). Pursuant to the Agreement, plaintiff and sub-licensee IFG were licensed to “manufacture, market, distribute and sell” a fruit beverage in various states throughout the United States. IFG identified an American manufacturer to manufacture the beverage, and sub-licensor UF approved the selection. Shortly after manufacturing commenced, the bottles containing the beverage bulged and leaked, affecting sales.

Once it was determined that the presence of yeast at the manufacturing site was interacting with the beverage recipe to cause the bottles to bulge, IFG commenced arbitration, alleging breach of contract over lost profits. The Arbitrator denied IFG’s claims in full because he found that IFG had failed to establish that any act or omission by UF breached the Agreement. IFG requested in district court that the award be vacated, arguing that the Arbitrator’s determination fails “to draw its essence from the agreement.” The district court noted that beyond the four grounds pursuant to 9 U.S.C. § 10(a) on which a court may vacate an arbitration award, the Second Circuit has “recognized a judicially-created ground, namely that an arbitral decision may be vacated when an arbitrator has exhibited a manifest disregard of law.” Nevertheless, the district court held that the arbitration award should stand because IFG had failed to demonstrate any of the five grounds for vacatur were implicated on these facts.

Incredible Foods Group, LLC v. Unifoods, S.A. de C.V., No. 14-cv-5207 (USDC E.D.N.Y. Sept. 29, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.