Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

You are here: Home / Archives for Michael Wolgin

Michael Wolgin

Court Applies Arbitration And Continued Performance Provisions Of One Contract To A Separate Performance Guaranty Agreement

by

This lawsuit centered around a contract providing a guaranty of performance in connection with an underlying broadband network access contract. The underlying contract called for binding arbitration of any disputes and required the parties “to continue performing their respective obligations under the Agreement … while the dispute is being resolved.” The guaranty did not contain the same “continuing performance” clause, but it did include a clause incorporating “all other provisions [of the underlying agreement] relating to dispute resolution or arbitration.” The guarantor argued that the “continued performance” clause of the underlying contract only imposed an obligation on its subsidiary, the party to the underlying contract. But, according to the court, “this argument makes no sense.” “[W]hen the parties to the Guaranty agree that they incorporate a clause saying that the ‘Parties agree to perform their respective obligations under the Agreement … while a dispute is being resolved,’ then that incorporation plainly means that the parties to the incorporating contract (i.e., the Guaranty) agree to perform their obligations under that contract pending resolution of any dispute. Otherwise, the incorporation would do no work.” As such, the guaranty’s incorporation of “all other provisions relating to dispute resolution or arbitration” subjected the guarantor to the underlying contract’s continuing performance obligations pending resolution of the dispute. Axia Netmedia Corp. v. Massachusetts Tech. Park Corp., Case No. 17-1607 (1st Cir. Apr. 25, 2018)

This post written by Benjamin E. Stearns.

See our disclaimer.

Georgia Joins Growing List Of States That Allow For Domestic Surplus Lines Insurers

by

Earlier this month, Georgia enacted SB 381, which provides that a non-admitted insurer domiciled in Georgia is deemed a domestic surplus lines insurer, if all qualifications are met, and can sell surplus line products in Georgia. Georgia joins a growing list of states, including Arizona, Arkansas, Delaware, Illinois, Louisiana, Missouri, North Dakota, New Hampshire, New Jersey, Oklahoma, Texas, and Wisconsin that have passed similar legislation. Among the criteria are (1) that the insurer possesses a policyholder surplus of at least $15 million, (2) that the insurer is an eligible surplus lines insurer in at least one jurisdiction other than Georgia, (3) that the insurer’s board of directors has passed a resolution seeking to be a domestic surplus lines insurer in Georgia, and (4) that the insurance commissioner has issued a certificate of authority or other written approval of the same. The bill also states that all financial and solvency requirements imposed on Georgia’s domestic admitted insurers shall apply to domestic surplus lines insurers unless otherwise specifically exempted. GA SB 381 (signed 5/8/2018).

This post written by Gail Jankowski.

See our disclaimer.

Minnesota Implements The 2011 Naic Credit For Reinsurance Model Law And Regulations

by

On May 8, 2018, the governor of Minnesota signed H.F. 3622, a bill implementing the 2011 NAIC Credit for Reinsurance Model Law and Regulations. The bill creates a new classification of reinsurer: the “certified reinsurer.” A certified reinsurer does not need to be licensed as an insurer in Minnesota or any other state. However, it must hold assets between 0 and 100% of its reinsurance obligations, depending on its financial stability, and meet recordkeeping and other requirements provided in the bill. The bill allows a domestic ceding insurer to receive credit for risk transferred to a certified reinsurer. The bill takes effect on January 1, 2019, and will apply to reinsurance contracts entered into or renewed on or after that date. Minnesota H.F. 3622 (signed 5/8/2018) (legislative analysis).

This post written by Benjamin E. Stearns.

See our disclaimer.

Ninth Circuit Upholds Denial Of Judgment Creditor’s Request For Rescission Of Quota-Share Reinsurance Agreement

by

Defendant National Farm Financial Corp. agreed to sell Business Alliance Insurance Co. (BAIC) to PSM Holding Corp. After National Farm walked away from the deal, PSM sued National Farm, BAIC, and BAIC’s president, Larry Chao, in the District Court for the Central District of California alleging breach of contract. A jury found in favor of PSM and awarded it $40 million.

After taking possession of BAIC, PSM and BAIC entered into an intercompany quota share reinsurance agreement (QSA). The district court’s ruling was then reversed on appeal and remanded, and upon remand, the court concluded that the defendants were entitled to specific restitution of the BAIC shares and an accounting of the profits earned while PSM held BAIC, diminished by expenses necessarily incurred in the protection of the property and the payment of taxes and liens. Thereafter, the defendants filed a motion for an award of PSM’s profits totaling $14 million. PSM opposed the motion, arguing that it actually suffered a $1.5 million loss as a result of its temporary possession and control of BAIC and sought to rescind the QSA. The court decided that defendants would receive the return of BAIC’s shares, but that PSM would receive restitution of $1.1 million. The court also held that PSM could not rescind the QSA.

The parties cross-appealed to the Ninth Circuit, which concluded that the district court erred in allowing PSM – the judgment creditor – to recover in restitution. Regarding rescission of the QSA, however, the Ninth Circuit affirmed, agreeing with the district court that the QSA could not be rescinded since it was “an improvement” to BAIC rather than a necessary cost of protecting BAIC. PSM Holding Corp. v. Nat’l Farm Fin. Corp., Case Nos. 15-55026, 15-55941 (9th Cir. Mar. 7, 2018).

This post written by Gail Jankowski.

See our disclaimer.

Supreme Court Upholds Employee Individualized Arbitration Agreements Against Challenges Based On The National Labor Relations Act

by

The U.S. Supreme Court ruled that agreements between an employer and an employee providing for individualized arbitration do not violate the National Labor Relations Act (NLRA). We previously reported on the conflicting cases pending before the Supreme Court here.

Justice Gorsuch, writing for the Court, explained that Congress instructed the courts to uphold arbitration agreements through the Federal Arbitration Act and nothing in the NLRA (or its predecessor, the Norris-La Guardia Act) requires the contrary. The dissent, written by Justice Ginsberg, focuses in large part on the policy motivating the enactment of the NLRA, and finds that the “adhesive waivers” at issue here were the type of employer action the NLRA was meant to counteract. Justice Ginsberg’s dissent argues that class actions are the type of “other concerted activities for the purpose of … mutual aid or protection” shielded by § 7 of the NLRA. Justice Gorsuch, however, points out that § 7 “focuses on the right to organize unions and bargain collectively…. But it does not express approval or disapproval of arbitration. It does not mention class or collective action procedures. It does not even hint at a wish to displace the Arbitration Act – let alone accomplish that much clearly and manifestly, as our precedents demand.” Although the NLRA protects employees’ right to organize unions, it does not speak to their right to arbitrate collectively. Therefore it does not conflict with and override the FAA. As such, the NLRA presented no obstacle to the Court’s enforcement of the “liberal federal policy favoring arbitration agreements” embodied in the FAA. Epic Systems Corp. v. Lewis, Case No. 16-285 (USSC 2018).

This post written by Benjamin E. Stearns.

See our disclaimer.