Michael Wolgin

FIRST CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION OF NON-SIGNATORY EMPLOYEE’S WAGE AND HOUR CLAIMS

December 13, 2017 by Michael Wolgin

As a condition of plaintiff Ouadani’s employment with defendant TF Final Mile LLC (f/k/a/ Dynamex Operations East, LLC (Dynamex)) as a delivery driver, Ouadani was required to associate with Dynamex’s vendor, Birtha Shipping LLC (SBS), from which he received his compensation. Ouadani did not have a written contract with either the Dynamex or SBS. Ouadani ultimately complained to Dynamex that he lacked the independence of a contractor, and that he should be paid as an employee, and he was terminated shortly thereafter.

Later, Ouadani brought various wage and hour claims against Dynamex as a putative class action on his behalf and on behalf of others similarly situated. Dynamex responded by filing a motion to compel arbitration, citing an agreement between it and SBS, which contained a mandatory arbitration clause. The District Court for the District of Massachusetts denied Dynamex’s motion to compel, reasoning that Ouadani had never signed the agreement containing the arbitration clause and had no idea that the agreement even existed.

On appeal, Dynamex argued that Ouadani should nonetheless be compelled to arbitrate under federal common law principles of contract and agency. The First Circuit rejected this argument and refused to bind Ouadani, a non-signatory, to the agreement. The Court was not persuaded by Dynamex’s arguments that (1) Ouadani was bound to arbitrate inasmuch as he was an “agent” of SBS and (2) Ouadani knowingly sought and obtained benefits from the agreement because he performed the “Contracted Services” pursuant to the agreement for compensation. On the latter issue, the Court held that the benefits of the arbitration clause accrue to the contracting signatories – Dynamex and SBS – not to Ouadani, who could “hardly be said to have ‘embraced’ the Agreement when he was unaware of its existence.” Ouadani v. TF Final Mile LLC, Case No. 17-1583 (1st Cir. Nov. 21, 2017).

This post written by Gail Jankowski.

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IOWA AND VIRGINIA INSURANCE REGULATORS ADOPT THE NAIC’S TERM MODEL RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

December 12, 2017 by Michael Wolgin

Insurance regulators in Iowa and Virginia have adopted the NAIC’s Model Rules regulating term and universal life insurance reserve financing. The stated purpose of the rules is “to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, life insurance policies containing guaranteed nonlevel benefits, and universal life insurance policies with secondary guarantees” and to require certain funds or securities to be held in association with such financing arrangements. The regulations “specif[y] additional requirements relating to the valuation of asset or reserve credits, the amount and forms of security supporting certain reinsurance arrangements, and the circumstances pursuant to which credit will be reduced or eliminated.

Both states provide a rule specifically prohibiting an insurer that has policies covered by the rules from “tak[ing] any action … or enter[ing] into any transaction … if the purpose of such action, transaction or arrangement … is to avoid the requirements of this chapter, or to circumvent its purpose and intent.”

The Iowa regulations take effect on January 10, 2018, and can be found at 191 – Chapter 112, Iowa Administrative Code. The Virginia regulations take effect on January 1, 2018, and can be found at Title 14, Chapter 318, Virginia Administrative Code.

This post written by Benjamin E. Stearns.

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LESS THAN TWO WEEKS BEFORE TRIAL, DISTRICT COURT JUDGE IN UTICA V. FIREMAN’S FUND RULES ON MOTIONS IN LIMINE

December 11, 2017 by Michael Wolgin

This case concerns an action filed by Utica Mutual Insurance Company (Utica) against its reinsurer, Fireman’s Fund Insurance Company (FFIC) seeking to enforce certain reinsurance contracts against FFIC with respect to $35,000,000 Utica spent in settling a dispute with its insured, Goulds, regarding coverage for thousands of asbestos claims from the 1990s. Presently at issue were (1) Utica’s motion to preclude FFIC’s expert Garrett Redmond, (2) FFIC’s motion to preclude five specific evidentiary matters, and (3) Utica’s omnibus motion in limine regarding various evidentiary issues it anticipated to arise at trial.

Utica sought to preclude Redmond from offering testimony that Utica misrepresented or omitted facts to Fireman’s Fund in 1966 through 1972 relating to whether the primary policies it issued to Goulds had aggregate limits and that the primary policies Utica issued to Goulds did not have aggregate limits. The Court ultimately granted Utica’s motion to the extent that it precluded Redmond from testifying that Utica did in fact make misrepresentations to Fireman’s Fund in obtaining the reinsurance policies and that the primary policies in question did in fact lack aggregate limits. The Court noted, however, that “[d]ue to how much time has passed since these policies were issued, there are no witnesses who were personally involved with negotiating or writing the policies [and] [a]s a result, both sides will attempt to offer circumstantial evidence and testimony regarding the usual practices at that time in order to support their positions on the existence of aggregate limits.”

The Court denied FFIC’s motion to preclude Utica’s argument that FFIC had constructive notice of the loss, reasoning that “[w]hile the law in New York requires actual notice and not constructive notice, any facts showing that Fireman’s Fund had prior knowledge of the Goulds loss are relevant to Fireman’s Fund’s claimed prejudice.” However, the court granted, among other requests, FFIC’s motion to preclude Utica from introducing judicial decisions or settlements involving other insurer’s challenges to Utica’s aggregate limit position. In the same light, the Court granted Utica’s motion to preclude evidence of other disputes, holding that “disputes with other reinsurers under different facts are irrelevant and inadmissible.” Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Nov. 16, 2017).

This post written by Gail Jankowski.

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TREASURY RELEASES REPORT ON ASSET MANAGEMENT AND INSURANCE

November 28, 2017 by Michael Wolgin

The U.S. Department of the Treasury has released a report entitled “A Financial System that Creates Economic Opportunities: Asset Management and Insurance,” the third of four reports to be issued by the Department in response to Executive Order 13772 of February 3, 2017, in which President Trump set forth a set of “Core Principles” to be applied by his administration in the regulation of the financial system. The report includes numerous recommendations, including:

moving away from entity-based system risk evaluations of insurance companies and towards an activities-based approach that would identify business activities that have higher systemic risk characteristics;
harmonizing the group capital initiative of the NAIC, the states, and the Federal Reserve to reduce the existence of duplicative regulatory burdens for insurers;
recommending that the International Association of Insurance Supervisors, in developing its Insurance Capital Standard, “recognize the diverse approaches to solvency” by various regulators to ensure that the business model of U.S. insurance companies and the state-based insurance regulatory system of the U.S. are accommodated;
clarifying, through legislative action, the “business of insurance” exception of Dodd-Frank to ensure that the CFPB is not overseeing activities already regulated by state insurance regulators;
taking steps to encourage private insurers to participate in the market for terrorism insurance;
recommending that states adopt the NAIC Insurance Data Security Model Law and, if uniform requirements are not adopted in five years, passing federal legislation setting forth data breach notification standards specific to insurers;
encouraging the sharing of information within the insurance industry regarding issues related to cybersecurity;
encouraging the consultation of and participation by state governments when the business of insurance is impacted by the decisions of federal agencies and regulators;
directing the Federal Insurance Office to advocate for the U.S. state-based insurance regulatory system before the International Association of Insurance Supervisors and recommending that the FIO have a permanent, voting membership on the IAIS Executive Committee.

While some of these recommendations are within the direct power of the executive branch, most will require the cooperation of Congress, state regulators, or other bodies outside of the President’s control, making it an open question how successful President Trump will be in implementing the ideas described in the report.

This post written by Jason Brost.
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ODYSSEY REINSURANCE OBTAINS $3.2 MILLION DEFAULT JUDGMENT AND INJUNCTIONS STEMMING FROM FRAUDULENT TRANSFERS MADE BY UNDERWRITER

November 24, 2017 by Michael Wolgin

Odyssey Reinsurance Company obtained a $3.2 million default judgment on October 4, 2017, against Cal-Regent Insurance Services Corporation and Pacific Brokers Insurance Services (“PBIS”) as a result of fraudulent transfers made between the two companies and the owner/officers of both companies, Richard and Diane Nagby. Cal-Regent underwrote a number of insurance risks which were subsequently reinsured by Odyssey. The two companies entered into a series of reinsurance agreements that required an annual “provisional commission” to be paid to Cal-Regent. The provisional commission was “adjusted” at year-end depending on the profitability of the business underwritten by Cal-Regent. After settlement of a lawsuit by another company involved in the transactions, it became clear that the amount of “return commissions” Cal-Regent would owe Odyssey due to the annual adjustments were likely to substantially increase. Recognizing this possibility, the Nagbys “embarked on a plan to strip Cal-Regent of assets.”

Odyssey obtained a judgment against Cal-Regent in 2015 for $3.2 million to recover the amount of return commissions it was owed. The Nagbys, however, had previously formed PBIS and “caused Cal-Regent to transfer substantially all of its assets to PBIS.” Three months after oral argument in Odyssey’s initial action against Cal-Regent and three months before judgment was entered, the Nagby’s “caused PBIS to sell substantially all of its assets to AmTrust for $5 million.” AmTrust made an initial payment of $3 million which was distributed to the Nagbys. Odyssey filed the present action on March 21, 2017, alleging liability under California’s Uniform Voidable Transactions Act and alter ego and successor liability law.

The court granted default judgments as well as preliminary injunctions against the Nagbys enjoining them from disposing of the AmTrust proceeds despite recognizing that such an injunction was an “extraordinary and drastic remedy.” Because the Defendants defaulted on Odyssey’s 2017 complaint, the “well-pleaded factual allegations of the complaint, except those relating to the amount of damages, [were] taken as true.” The Court found that Odyssey had sufficiently pled facts to support each of its causes of action as well as sufficient evidence to support an award of the full amount prayed for, plus post-judgment interest running from the 2015 judgment. Odyssey Reinsurance Co. v. Nagby, Case No. 16-cv-03038 (S.D. Cal. Oct. 4, 2017).

This post written by Benjamin E. Stearns.

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