Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Michael Wolgin

NEW YORK FEDERAL COURT DENIES CROSS MOTIONS FOR SUMMARY JUDGMENT ON FOLLOW THE SETTLEMENTS DOCTRINE

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In a lengthy February 24, 2017 opinion, a New York federal court denied cross motions for summary judgment on the Follow the Settlements Doctrine, filed by Utica Mutual Insurance Company and Utica’s reinsurer, Fireman’s Fund Insurance Company. Utica sought 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 filed against Goulds in the 1990s. It is undisputed that, in settling the case, Utica and Goulds agreed that there were aggregate limits in Utica’s primary policies, which would allow penetration of the umbrella policy (this was a central issue in the underlying case, as the primary policies, dated 1966-1972, had been lost) and that the $325,000,000 settlement would come from Utica’s umbrella policy, thereby triggering the reinsurance policies.

Under the Follow the Settlements Doctrine, “as long as the cedent settles in good faith, reasonably, and within the applicable policies, the reinsurer is bound by the settlement and cannot relitigate the underlying coverage issues.” A cedent’s motive to reach reinsurance, while singularly unimportant, may, however, invalidate the follow the settlement protection if it causes the cedent to make an unreasonable settlement allocation.

Utica argued that the undisputed facts established a reasonable basis for the settlement, while FFIC argued that they established Utica’s bad faith. The court disagreed with them both, finding that, while the central facts were undisputed, reasonable inferences could lead to either conclusion and, as such, summary judgment was inappropriate. Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Feb. 24, 2017).

This post written by Brooke L. French.

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NINTH CIRCUIT HOLDS PAGA CLAIMANTS MAY BE COMPELLED TO ARBITRATE

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Terminix appealed from a district court order denying its motion to compel arbitration of a former employee’s representative claim under California’s Private Attorneys General Act (PAGA) alleging that Terminix failed to provide workers with proper breaks, payment, and pay stubs. On appeal, the Ninth Circuit reversed and remanded. It found persuasive Terminix’s argument that the district court erred in concluding that PAGA claims categorically cannot proceed to arbitration. Specifically, the district court reasoned that a PAGA claim “belongs to the state, and the state has not waived the judicial forum” even where an employee signs an employment contract requiring arbitration of PAGA claims. The Ninth Circuit disagreed and found that individual employees can bind the state to an arbitral forum. Specifically, the court reasoned “[a]n individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration” and clarified that the California Supreme Court’s Iskanian ruling holds only that a complete waiver of the right to bring a PAGA claim is invalid. Valdez v. Terminix Int’l Co. Ltd. P’ship, Case No.15-56236 (9th Cir. Mar. 3, 2017).

This post written by Gail Jankowski.

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COURT FINDS THAT ARBITRATION AWARD THAT INTERPRETED CONTRACT “TERMINATION” TO INCLUDE CONTRACT “EXPIRATION” WAS NOT A “MANIFEST DISREGARD OF THE LAW”

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Former franchisees filed a petition to vacate an arbitration award entered in favor of their former franchisor which enforced a 2-year non-compete provision in the parties’ franchise agreement when the agreement expired. The arbitrator had determined that the non-compete provision applied, notwithstanding that the provision contemplated applying upon the agreement’s “termination,” and did not refer to the agreement’s “expiration.” The franchisees argued that the arbitrator committed a “manifest disregard of the law,” and that the award “failed to draw its essence” from the parties’ agreement. The court determined that “both readings [were] plausible,” and therefore the award “derived from the essence of the Franchise Agreement.” The court continued, “Where the arbitrator did not act with ‘manifest disregard of the law” there was “no basis to vacate the award.” The court further upheld the arbitrator’s decision to enforce the 2-year non-compete provision from the date the franchisees started to comply with the agreement’s post-expiration terms, rather than from the (earlier) date that the agreement expired. That decision, the court explained, also “comported with the law and thus did not exhibit ‘manifest disregard of the law.’” The court therefore denied the petition to vacate the award, and granted the petition to confirm the award. Frye v. Wild Bird Centers of America, Inc., Case No. 8:16-cv-03216 (USDC D. Md. Feb. 14, 2017).

This post written by Michael Wolgin.

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UPDATE ON LIQUIDATION OF THE HOME INSURANCE COMPANY

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The New Hampshire liquidation court approved the commutation, settlement, and release agreement between The Home Insurance Company (liquidating) and Pennsylvania Manufacturers Association Insurance Company (PMAIC). The commutation agreement was approved February 10, 2017 and provides for the commutation of all of Home’s ceded and assumed business to or from PMAIC, as well as the resolution of all of PMAIC’s contribution claims against Home. A redacted copy of the commutation agreement, with economic terms removed, was filed with Home’s motion for approval. Additionally, in New York, in a contested claim between the liquidator and a Danish non-admitted reinsurer, the court approved the reinsurer’s posting of a security bond in the stipulated amount of $259,886.13. In re Liquidation of The Home Insurance Co., 217-2003-EQ-00106 (N.H. Sup. Ct. Feb. 10, 2017) (order approving commutation); Motion for Approval (Dec. 15, 2016); Sevigny v. Trygvesta Forsikring A/S, Case No. 16 Civ. 4874 (USDC S.D.N.Y. Jan. 30, 2017) (stipulation and bond); (Feb. 14, 2017) (bond).

This post written by Gail Jankowski.

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NINTH CIRCUIT REAFFIRMS ISKANIAN RULE, REJECTS WAIVER OF REPRESENTATIVE ACTION UNDER PAGA

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Defendants appealed an order from a California federal district court that denied their motion to compel individual arbitration of a former employee’s representative claim under California’s Private Attorney General Act (PAGA). On appeal, the defendants argued that the plaintiff’s arbitration agreement, wherein she agreed to arbitrate all disputes regarding her employment on an individual basis, applied to her PAGA claim as well. The Ninth Circuit affirmed the district court’s order denying defendants’ motion to compel arbitration. The panel reaffirmed the Iskanian rule, which holds that under California law, an employment agreement that compels the waiver of representative claims under the PAGA, is contrary to public policy and therefore unenforceable. Hernandez v. DMSI Staffing, LLC, Case No. 15-15366 (9th Cir. Feb. 16, 2017).

This post written by Gail Jankowski.

See our disclaimer.