Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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John Pitblado

Texas Department Of Insurance Seeks Comments on Reorganized Surplus Lines Insurance Chapter

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The Texas Department of Insurance has proposed to reorganize its Surplus Lines Insurance Chapter 15 in the Texas Administrative Code. The proposed new Chapter 15 can be found here. Comments on the proposal are due to the Texas Department of Insurance by July 23, 2018 and the Texas Commissioner will also consider written or oral comments on the proposal in a public hearing on July 19, 2018 in Room 100 of the William P. Hobby Jr. State Office Building.

This post written by Jeanne Kohler.

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Fourth Circuit Upholds Arbitration Award Involving Termination of Employee

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Affirming the trial court’s ruling, the Fourth Circuit upheld the denial of a motion to vacate or modify an arbitration award involving the termination of an employee.

The first challenge to the award was that “the arbitrator impermissibly ruled on whether 3D systems breached the Agreement’s manager terms – a matter not submitted to arbitration – and awarded damages based upon the breach.” The Court declined to vacate the award on this ground because “even if the arbitrator erred in determining that 3D Systems breached the manager term, the damages award is sufficiently supported by the arbitrator’s finding of three other breaches.”

The second challenge to the award was that “the arbitrator awarded [the employee] all of the potential earn-out and the amended award violated AAA Commercial Rule 50 and the common law doctrine of functus officio.” The Court declined to vacate the award on this ground, as the “district court did not err in refusing to modify the damages pursuant to 9 U.S.C. § 11(a) because 3D Systems failed to allege a mathematical error that appears on the face of the award.” Moreover, the amended award did not violate functus officio or AAA Commercial Arbitration Rule 50 because it contained only minor changes for clarification purposes.

The third challenge to the award was that “the arbitrator failed to follow the parties’ agreed-upon methodology or the Agreement’s fee-sharing provision in calculating attorney’s fees and costs” The Court again declined to vacate the award on this ground, as “3D Systems again fails to show [it is] entitled to modification of the award under 9 U.S.C. § 11(a)” and, moreover “the arbitrator’s methodology followed the exact language of the unambiguous fee-sharing provision … the arbitrator was not bound the parties’ agreed-upon methodology.”

Barranco, et al. v. 3D Systems Corp., et al., No. 17-1744 (4th Cir. May 31, 2018)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

Fifth Circuit Reversed Judgment Compelling Arbitration Because Unsigned Arbitration Agreement Was Invalid

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This matter involved a lawsuit brought in Texas federal court by a former employee (Huckaba) against Ref-Chem L.P., alleging sexual harassment, discrimination and retaliation in violation of Title VII. Ref-Chem moved to dismiss the lawsuit and compel arbitration, which was granted by the Texas district court, finding that Huckaba’s “continued employment” after she signed an arbitration agreement “constituted acceptance of that agreement” by both parties, even though Ref-Chem never executed the agreement. Huckaba appealed to the Fifth Circuit.

The Fifth Circuit reversed the Texas district court’s judgment, holding that the express language of the arbitration agreement at issue required for it to be signed by both parties and it was undisputed that Ref-Chem did not sign the agreement. Therefore, there was no valid agreement to arbitrate in this case, and thus, the court remanded to the district court for further proceedings.

Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir. June 11, 2018).

This post written by Jeanne Kohler.

See our disclaimer.

New York’s First Department Upholds Fraud Claim Involving Alleged Sham Reinsurance Scheme

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In an action alleging claims for fraud and conspiracy to commit fraud (among others), a New York appellate court upheld the trial court’s conclusion that the “defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York,” including agreements between defendants relating to Plaintiff.

The conspiracy’s overt acts included defendant Weston Capital Management’s “approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of ‘hush money’ to ignore certain red flags and Gerova, and their failure to correct misrepresentations or disclose material information to the public.” The Court also found that, even if the individual defendants – directors of Gerova – did not themselves include misrepresentations in the public filings, by their positions “one can rationally infer… they knew of the falsity of the facts therein, did not disclose material information, and allowed the misrepresentations to be publicly stated.”

Plaintiff, the alleged target of the conspiracy, had standing to bring the fraud claim, as it sought recovery for damages for the theft of its assets.

Wimbledon Financing Master Fund, Ltd. v. Weston Capital Mgmt. LLC, et al., No. 653468 (N.Y. App. Div. April 26, 2018)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

California Court of Appeals Affirms Decision that Arbitration Provision and Its Delegation Clause Were Unlawful and Void

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The California Court of Appeals rejected defendants’ appeal seeking to enforce an arbitration provision in a reinsurance participation agreement (“RPA”). Several months prior, the California Insurance Commissioner issued an administrative decision which challenged the same insurance program offered by the same defendants, finding the RPA to be unlawful and void for various reasons, including for the carrier’s failure to file with and obtain approval from the Commissioner.

In its motion to compel arbitration, defendant argued that the language in the arbitration provision of the RPA which stated that “all disputes between the parties relating in any way to (1) the execution and deliver, construction or enforceability of this Agreement… shall be finally determined exclusively by binding arbitration in accordance with the procedures provided herein” required arbitration of disputes concerning the enforceability of the RPA, and “was a delegation clause that gave the arbitrator the sole and exclusive authority to rule on challenges to the enforceability of the arbitration agreement.” However, the trial court determined that the plaintiff was asserting both the arbitration clauses and the delegation clauses themselves are illegal and unenforceable because they were not filed and approved by the Commissioner.

On appeal, the Court determined the trial court properly found plaintiff’s challenge to the delegation clause was sufficient to require the court to rule on the question of enforceability, as courts are to resolve this question when the challenge is directed specifically to the delegation clause. In a similar matter, the Fourth Circuit recently held the court was the proper entity to resolve challenges to a delegation clause in a similar RPA.

Finding “that the arbitration and delegation provisions were prohibited because they were not properly filed with the Insurance Commissioner,” the Court affirmed the trial court’s decision that the arbitration and delegation clauses were unenforceable, as “a contract made in violation of a regulatory statute is void.”

Nielsen Contracting, Inc. v. Applied Underwriters, Inc., D072393 (Cal. Ct. App. May 3, 2018).

This post written by Nora A. Valenza-Frost.

See our disclaimer.