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New reinsurance-related and arbitration developments from Carlton Fields

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Michael Wolgin

Eleventh Circuit Clarifies Standard for New York Convention’s Public Policy Defense to Foreign Arbitration Awards

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The dispute involved an arbitration related to alleged medical malpractice by doctors selected by Carnival Cruise Lines to treat a wrist injury of a Serbian employee of Carnival. The employee’s employment agreement with Carnival contained mandatory arbitration and forum selection clauses and a choice-of-law clause designating the governing law as the law of Panama, the law of the flag of the employee’s cruise ship. Notwithstanding the choice of Panamanian law, the employee filed a foreign arbitration asserting a claim under U.S. law, including the Jones Act, for vicarious liability against Carnival. The arbitrator ruled that the employee could not assert the U.S. law claims and that she would not be entitled to relief under Panamanian law. The employee then filed a lawsuit in a federal district court seeking to vacate or deny enforcement of the foreign award under the New York Convention. The district court denied the employee’s petition, rejecting the employee’s arguments that the arbitrator wrongfully deprived her of the opportunity to assert her claim under the Jones Act and that the award was void as against U.S. public policy.

On appeal, the Eleventh Circuit affirmed the district court’s ruling. The Eleventh Circuit rejected the employee’s argument that the court was required to refuse to enforce the award because she was allegedly deprived of a statutory remedy against Carnival. The court ruled that it would not refuse to enforce the award “simply because the remedies available under Panamanian law [were] less favorable” to the employee “than the remedies available under U.S. law.” The court further found that the remedies available under Panamanian law were not “so inadequate that enforcement would be fundamentally unfair.” The court held: “[T]he test for whether a court should refuse to enforce a foreign arbitral award based on public policy is not whether the claimant was provided with all of her statutory rights under U.S. law during arbitration. Rather the public-policy defense ‘applies only when confirmation or enforcement of a foreign arbitration award would violate the forum state’s most basic notions of morality and justice.'” The employee had not made that showing here.

Cvoro v. Carnival Corp., No. 18-11815 (11th Cir. Oct. 17, 2019).

Court Dismisses Reinsurance Litigation in Favor of Prior Pending Action

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The plaintiffs, U.S. Fire Insurance Co. and North River Insurance Co., issued 12 umbrella and excess umbrella liability policies for a combined coverage of $244 million to a manufacturer of respiratory protection equipment and asbestos-containing personal protective products. The plaintiffs subsequently entered into reinsurance contracts that covered the 12 policies. Beginning in March 2017, the plaintiffs billed the reinsurers for amounts they claimed were due under the reinsurance contracts as a result of the plaintiffs’ payments for settling liability under the umbrella policies.

When certain reinsurers refused to pay a portion of the reinsurance billings, the plaintiffs brought this lawsuit in the District of New Hampshire, alleging breach of several of the reinsurance contracts and seeking a declaratory judgment arising out of the reinsurers’ refusal to pay certain billings. However, less than an hour before the plaintiffs initiated the lawsuit, the plaintiffs’ reinsurers (mostly the same reinsurers in the initial action, as well as additional reinsurers) sued the plaintiffs in a New Jersey court. There, the reinsurers alleged that they had made payments to the plaintiffs pursuant to the reinsurance contracts under a reservation of rights and sought reimbursement of those amounts. The reinsurers then moved to dismiss or stay the New Hampshire case, arguing, inter alia, that the court should defer to the New Jersey action pursuant to the prior-pending-action doctrine or the related first-filed doctrine. While this motion was pending, the reinsurers filed a notice of an order issued in the New Jersey action denying U.S. Fire and North River’s motion to dismiss or stay on comity, forum non conveniens, and other grounds.

The New Hampshire court granted the reinsurers’ motion to dismiss. The court based its ruling on the prior-pending-action doctrine, which holds that the pendency of a prior action, in a court of competent jurisdiction, between the same parties, predicated upon the same cause of action and growing out of the same transaction, and in which identical relief is sought, constitutes a good ground for abatement of the later suit. The court cited to the interests of judicial efficiency and avoiding inconsistent judgments. The court found that the New Jersey action involved the same issues presented in this case: “the various reinsurers’ obligations to provide payments to plaintiffs under the Reinsurance Contracts.” The court explained: “As the [reinsurers] seek not only the return of payments they previously made to North River, but also a declaratory judgment as to the parties’ respective rights and obligations under the Reinsurance Contracts, the controlling issues in this litigation will be determined in the New Jersey Action.” The court further found that U.S. Fire and North River already moved to dismiss the New Jersey action, and the court in that case denied the motion and made several rulings that directly impacted the arguments raised by the parties in the New Hampshire case. The court concluded that “principles of comity and the convenience of the parties and witnesses weigh in favor of dismissal of this case in favor of the New Jersey Action.”

U.S. Fire Insurance Co. v. Equitas Ins. Ltd., No. 1:18-cv-01205 (D.N.H. Oct. 24, 2019).

Court Orders Stay of New Arbitration Over Disputed Reinsurance Billings and Compels Parties to Proceed Before a Predecessor Arbitration Panel

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The case involved a “second layer special casualty excess agreement of reinsurance” under which reinsurers General Reinsurance Corp. and SCOR Reinsurance Co. agreed to cover a certain amount in excess of Chicago Insurance Co.’s $1 million per occurrence retention. An arbitration ensued after the reinsurers disputed reinsurance billings from Chicago Insurance arising out of certain asbestos insurance liability. The arbitration panel rejected Chicago Insurance’s attempt to bill its losses on the basis that each site where the insured had operated constituted an “occurrence” under the reinsurance agreement, and issued an award for the reinsurers. The award expressly retained the panel’s jurisdiction to “resolve any dispute arising out of [the] Final Award.”

Subsequent to the award, Chicago Insurance submitted a new billing to the reinsurers, which stated that the “loss allocation was prepared in accordance with the Award’s protocols.” The reinsurers disputed the new billing and alerted the prior arbitration panel. The umpire confirmed that it had retained jurisdiction but noted that Chicago Insurance’s appointed arbitrator disagreed and would not participate in the new dispute. Chicago Insurance then initiated a new separate arbitration, in which the reinsurers refused to participate, and filed a petition to compel the reinsurers’ participation and to stay the original arbitration. The reinsurers responded by filing a cross-petition to stay the new arbitration and for a declaration that the prior panel had jurisdiction to resolve the dispute.

The court denied Chicago Insurance’s petition and granted the reinsurers’ cross-petition to stay the new arbitration. The court rejected Chicago Insurance’s argument that the prior panel was functus officio by fully exercising their authority to adjudicate the issue submitted to them. The court found that the prior panel retained jurisdiction to resolve any dispute arising out of the prior award and that Chicago Insurance had consented to that by failing to dispute the award. The court also found that Chicago Insurance “repeatedly claimed that the new bill that it sent to the Reinsurers was offered pursuant to the ‘protocols’ set forth by” the prior award, and therefore, consistent with what the majority of the original panel determined, the current dispute “clearly” fell within the original arbitration jurisdiction. The court, therefore, ruled that the prior panel retained jurisdiction to adjudicate whether the new bill comported with its prior award.

Chicago Ins. Co. v. Gen. Reinsurance Corp., No. 1:18-cv-10450 (S.D.N.Y. Oct. 22, 2019).

Second Circuit Affirms Judgment Confirming Arbitration Award in Favor of Labor Union Involving Alleged Non-Signatory to Collective Bargaining Agreement

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The dispute involved a long-term health care provider and an assisted living services provider that was based in the same building. The union represented certain housekeeping employees at the location. The long-term health care provider was a signatory to the relevant collective bargaining agreements, and “for years” it applied the terms of the agreements to assisted living employees, including remitting union dues and health fund payments on their behalf. Another company began managing the housekeeping department at the property in 2013. The company signed an assumption agreement with respect to the operative collective bargaining agreement, under which the assisted living provider was not a signatory. The company ultimately stopped applying the 2008 collective bargaining agreement to the assisted living employees, and the union filed a grievance. Arbitration ensued, resulting in the issuance of the arbitration award at issue here.

On appeal, the defendants argued that the district court erred in confirming the arbitration award because the arbitrator exceeded his authority under the 2008 collective bargaining agreement, and, in doing so, the arbitrator violated public policy. The Second Circuit, however, affirmed the district court’s confirmation of the award based on the “strong presumption in favor of enforcing arbitration awards.” The Second Circuit relied on the fact that the collective bargaining agreement broadly authorized the arbitrator to resolve grievances, defined as “a dispute with regard to the application, interpretation or performance of an express term or condition” of the 2008 collective bargaining agreement. The court found that the arbitrator did resolve grievances within the meaning of the collective bargaining agreement here, as the arbitrator determined: (1) prior to 2013, the long-term health care and assisted living providers were treated as a single employer; (2) the assisted living provider was included in the “signatory employers list” of a prior collective bargaining agreement; (3) the long-term health care provider continued to provide those benefits under the 2008 collective bargaining agreement; and (4) the long-term health care provider and the management company violated the collective bargaining agreement by unilaterally removing assisted living employees from the bargaining unit.

The arbitrator also concluded that the long-term health care provider and assisted living provider’s single-employer status continued after the sale because the providers had interrelated operations, common management, centralized control of labor relations, and common ownership. The arbitrator’s determination of who was bound by the collective bargaining agreement by virtue of the parties’ conduct was within the scope of his authority and “an arguable construction of the agreement.” The Second Circuit rejected the defendants’ arguments that the award violated public policy by making the union the bargaining representative for assisted living employees and that the award did not draw its essence from the collective bargaining agreement.

1199 SEIU United Healthcare Workers E. v. Alaris Health at Hamilton Park, No. 18‐2898 (2d Cir. Sept. 17, 2019).

Employment Discrimination Claim Compelled to Arbitration Despite Arguments That “Clickwrap” Stock Incentive Agreement and Discovery Limitations Were Unconscionable

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The court granted Aetna’s motion to compel arbitration of a former employee’s age and disability wrongful termination claims that alleged violations of the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the New Jersey Law Against Discrimination. The plaintiff argued that the arbitration provision in a stock option web-based clickwrap agreement to which he agreed was invalid on the grounds of both procedural and substantive unconscionability. The court, however, found that clickwrap agreements are valid and enforceable under applicable New Jersey law and that Aetna provided sufficient evidence illustrating that acceptance of the terms of the stock agreement through the website was a necessary precondition to the plaintiff’s receipt of stock options in each year. The court held that the contract was not procedurally unconscionable because even assuming the stock agreement was presented on a “take-it-or-leave-it basis,” the plaintiff was free to decline it and would not have suffered negative consequences.

The court also rejected the plaintiff’s argument that the contract was substantively unconscionable. The court disagreed with the plaintiff’s contention that the arbitration provision mandated submission of the plaintiff’s claims to an “inherently unfair and biased arbitral forum,” noting that the U.S. Supreme Court has repeatedly rejected this idea. Additionally, the court rejected the plaintiff’s argument that a contract provision limiting discovery during arbitration was substantively unconscionable. The court determined that the discovery provision was “less severe” than the provisions found by other New Jersey courts to be unconscionable. The discovery provision was not overly restrictive because it authorized the arbitrator to permit further discovery, which was not tied to an “impossibly high burden.” The court further noted that the plaintiff did not demonstrate how the discovery provision impaired his ability to litigate his case fairly. The plaintiff merely stated that “discovery is particularly important in the employment discrimination context.” Such contentions, however, are insufficient.

Falk v. Aetna Life Ins. Co., No. 3:19-cv-00434 (D.N.J. Aug. 31, 2019).