Michael Wolgin

TEXAS AND WISCONSIN JOIN LIST OF STATES PERMITTING DOMESTIC SURPLUS LINES INSURANCE

July 18, 2017 by Michael Wolgin

On June 15 and 22, 2017, respectively, the Governors of Texas and Wisconsin approved new laws permitting domestic surplus lines insurers in those states (i.e., insurers domiciled in Texas and Wisconsin) to conduct business within those states. Texas and Wisconsin join a growing list of states, including Arizona, Arkansas, Delaware, Illinois, Louisiana, Missouri, North Dakota, New Hampshire, New Jersey, and Oklahoma, that have passed similar legislation. Previously, a surplus lines carrier would be admitted in one state and be eligible to sell surplus lines coverage only in the other 49 states. This model is gradually changing. Domestic surplus lines insurers in states with laws similar to Texas and Wisconsin are now authorized to issue domestic coverage provided that they satisfy certain eligibility requirements, including minimum capital and surplus requirements. Domestic surplus lines carriers may still not issue coverage in admitted markets. The Texas law is effective January 1, 2018, and the Wisconsin law was effective on June 22, 2017. Texas H.B. No. 2492; Wisconsin 2017 S.B. No. 77.

This post written by Michael Wolgin.

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COURT FINDS CALIFORNIA INSURANCE CODE SECTION 11658.5 REVERSE-PREEMPTS SECTION 4 OF THE FAA

July 17, 2017 by Michael Wolgin

National Union Fire Insurance Company of Pittsburgh, PA provided Seneca Family of Agencies with workers’ compensation and employers’ liability insurance for Seneca’s operations in California from 2004 to 2013. The parties entered into a payment agreement that governed the parties’ financing and credit obligations with respect to the insurance policies. The agreement’s arbitration provision provided that, among other things, “any action or proceeding concerning arbitrability, including motions to compel or to stay arbitration, may be brought only in a court of competent jurisdiction in the City, County, and State of New York.” In 2013, the parties amended the arbitration provision to include: “any action or proceeding concerning arbitrability, including motions to compel or to stay arbitration, may be brought only in a court of competent jurisdiction in the City, County, and State of New York.”

Years later, a dispute over the amount of collateral to be paid under the payment agreement arose and National Union moved to compel arbitration. At issue before the court was Seneca’s objection based on the application of Cal. Ins. Code § 11658.5, which requires arbitration provisions in workers’ compensation policies to be disclosed to potential insureds. The court approached this issue in two parts— first, addressing claims related to policies issued on or after July 1, 2012, the effective date of § 11658.5, (the “Post-July 2012 policies”) and second, addressing claims related to policies issued prior to July 1, 2012 (the “Pre-July 2012 policies”).

With regard to claims related to the Post-July 2012 policies, the Court denied National Union’s motion to compel arbitration. The Court analyzed an issue not previously addressed in the case of Monarch Consulting (see blog post dated March 15, 2016)— that is, whether the McCarran-Ferguson Act reverse-preempts the FAA with respect to § 11658.5. Applying the three-prong test to determine if a state statute reverse-preempts a federal statute, the Court found all prongs to be met: (1) the FAA did not specifically relate to insurance; (2) § 11658.5 was enacted to regulate the business of insurance; and (3) the FAA would invalidate, impair, or supersede § 11658.5 because § 4 of the FAA directly conflicted with § 11658.5 in this case.

With regard to the Pre-July 2012 policies, the Court found that any claims related to those policies must be arbitrated, primarily because § 11658.5 did not apply to those policies, and any claims related to Pre-July 2012 policies plainly fell within the scope of the payment agreement’s arbitration provision. As such, the Court granted National Union’s motion to compel arbitration of claims related to the Pre-July 2012 policies. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Seneca Family of Agencies, Case No: 17-cv-01061 (USDC S.D.N.Y. June 12, 2017).

This post written by Gail Jankowski.

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MONTANA ENACTS CAPTIVE INSURANCE LAW IMPACTING RECIPROCAL AND DORMANT INSURERS

June 29, 2017 by Michael Wolgin

On May 4, 2017 Montana enacted a new law that will remove the requirement that reciprocal captive insurers have 25 or more persons domiciled in Montana. The law also permits captive insurers to go into dormancy. The certificate of dormancy is subject to expiration at the end of a five-year period and includes a $1,000 annual dormancy tax and a requirement to maintain paid-in capital and surplus of not less than $25,000. Previously, a captive that no longer desired to operate would terminate its license and pay no insurance premium tax after termination. The law also removes the requirements of examinations and investigations of companies existing under a certificate of dormancy. The law went into effect upon its approval on May 4, 2017. 2017 Montana S.B. 245.

This post written by Michael Wolgin.

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TENTH CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION AS TO THE CLAIMS OF NON-SIGNATORY PLAINTIFFS

June 28, 2017 by Michael Wolgin

A buyer of a manufactured home sued the manufacturer, seller and lender in connection with toxic mold that was found in the home’s water system. The underlying retail installment contract contained an arbitration agreement which included a provision providing, “[t]his Arbitration Agreement also covers all co-signors and guarantors who sign this Contract and any occupants of the manufactured Home (as intended beneficiaries of this Arbitration Agreement).” Notwithstanding that provision, the buyer, along with her husband and children, brought a civil action for damages against the manufacturer, seller, and lender. The manufacturer and seller (the “Defendants”) moved to compel arbitration and stay the court proceedings pursuant to the arbitration agreement in the installment contract. The trial court granted the motion as to the buyer’s claims, but denied the motion as to her husband and children, finding that they were not parties to the installment contract, and as such, were not bound by the arbitration provision.

The Defendants appealed the denial of their motion to compel the claims of the husband and children to the Tenth Circuit, which affirmed. The court rejected both of Defendants’ arguments – first, that the husband and children were third party beneficiaries and were therefore bound to arbitrate, and second, that they were bound to arbitrate under the doctrine of equitable estoppel. As to the first argument, the court found unpersuasive Defendants’ reliance on the arbitration provision which defined occupants of the home as third party beneficiaries. Specifically, the court found that Defendants did not meet their burden of establishing that the non-signatory plaintiffs were bound to arbitrate and declined to bind “unwitting third parties” to a contract without their first knowing of its terms or ever realizing some benefit. As to Defendants’ second argument, the court rejected Defendants’ equitable estoppel theories asserting “intertwined claims” and “direct benefits.” The former does not govern a case “where a signatory-defendant seeks to compel arbitration with a non-signatory-plaintiff,” and the latter is not a recognized doctrine under Oklahoma law. Jacks v. CMH Homes, Case No. 15-6197 (10th Cir. May 17, 2017).

This post written by Gail Jankowski.

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FIRST CIRCUIT FINDS FAA APPLICABILITY A QUESTION FOR COURT AND HOLDS FAA EXEMPTION APPLICABLE TO INDEPENDENT-CONTRACTOR RELATIONSHIP

June 27, 2017 by Michael Wolgin

The case presented two issues to the court: 1) whether a court must determine the applicability of the FAA to the case when asked to compel arbitration, where parties delegated questions of arbitrability to the arbitrator; and 2) whether the FAA’s transportation worker exemption applies to independent contractors. The court answered both questions in the affirmative.

Oliveira, a truck driver, participated in an apprenticeship program established by New Prime (“Prime”), a trucking company. Upon completion of the program, Prime told Oliveira that he would make more money as an independent contractor than as a company driver. Thereafter, Oliveira signed an independent contractor operating agreement with Prime. Oliveira brought suit against Prime for violation of the Fair Labor Standards Act (FLSA). He claimed that the FAA transportation worker exemption covers his contract, and Prime moved to compel arbitration under the FAA arguing that applicability of the FAA exemption is a question the parties had delegated to the arbitrator. The district court held that the applicability question was for the court and that the section 1 exemption does not apply to independent contractors. Prime appealed.

On the first issue, Prime relied on the Eighth Circuit’s holding that “application of the FAA’s transportation worker exemption is a threshold question of arbitrability” which the parties delegated to an arbitrator. However, the court found the Eighth Circuit’s characterization of the issue as “a question arbitrability” a flawed premise. In doing so, the court borrowed the reasoning of a Ninth Circuit case and explained that for a district court to compel arbitration, the FAA must first apply to the case and confer on a district court the authority to compel arbitration. Following this reasoning, the First Circuit held that the question of the court’s authority to act under the FAA is an antecedent determination for the district court before it can compel arbitration.

On the second issue, Prime argued that the exemption does not apply to independent contractors, citing numerous district court decisions. The First Circuit disagreed, noting that statutory interpretation is not simply a “numbers game.” The court explained that the ordinary meaning of “contracts of employment” is simply “agreements to do work,” which encompasses works of independent contractors and that such interpretation is consistent with Congress’s concern with transportation workers and their necessary role in the free flow of goods at the time Congress enacted the FAA. As such, the court affirmed denial of Prime’s motion to compel arbitration. Oliveira v. New Prime, Inc., Case No. 15-2364 (1st Cir. May 12, 2017).

This post written by Rollie Goss.

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