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New reinsurance-related and arbitration developments from Carlton Fields

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Nora Valenza-Frost

Texas District Court Compels Arbitration Involving Hurricane Harvey Loss

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In opposing a motion to compel arbitration, Nueces County made two procedural arguments: first, that the carrier waived its right to arbitrate by virtue of the policy’s service-of-suit clause. The District Court for the Southern District of Texas rejected the County’s argument, as the policy contained no such express override of the arbitration agreement, and both the “service-of-suit and arbitration clauses can be construed harmoniously such that the service-of-suit clause allows the courts, including the federal courts, to enforce the policy’s arbitration rights.”

Second, the County argued that the McCarran-Ferguson Act eliminated the court’s jurisdiction under the Convention Act. The court rejected this argument, as the Fifth Circuit has held that McCarran-Ferguson did not reverse-preempt an insurance company’s invocation of arbitration under the Convention Act.

The court also rejected the County’s substantive arguments against arbitration. The County claimed there was no written agreement for arbitration because the County did not sign the arbitral clause – the insurance policy. The court rejected this argument, as the Fifth Circuit has already held that a signature is not required to enforce an arbitration agreement in an insurance policy. The County argued that an insurance policy does not represent a commercial relationship as required by 9 U.S.C. § 2, 202. The court rejected this argument as well, as the insurance policy containing the arbitration agreement arises out of a commercial relationship between the County and its carrier. The parties were directed to arbitration, and any questions as to arbitrability were referred to the arbitrator.

Nueces County, Texas v. Certain Underwriters at Lloyd’s of London, et al., 2:20-cv-00065 (U.S.D. Tex. August 31, 2020)

Uber Price Fixing Class Action Award Still Fares Despite Arbitrator’s Unfunny Joke

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The petitioner unsuccessfully sought to vacate an arbitration award permitting Uber’s use of a “surge” pricing algorithm to set fares, arguing that comments made by the arbitrator reflected his “evident partiality” toward Uber in violation of 9 U.S.C. § 10(a)(2). Specifically, on the third day of the arbitration hearing, the arbitrator offered concluding remarks on the record including the statement: “I must say I act out of fear. My fear is if I ruled Uber illegal, I would need security. I wouldn’t be able to walk the streets at night. People would be after me.” The petitioner also argued the arbitrator was “starstruck” by the presence of Kalanick, Uber’s co-founder and then CEO, taking his picture on the first day of the hearing.

Uber first argued that the petitioner waived his right to seek vacatur by waiting until after the arbitrator ruled against him. The court agreed, as attacks on the qualifications of arbitrators on grounds previously known but not raised until after an award has been rendered are precluded. The petitioner’s claim that vacatur of an “openly partial award” is not waivable was “belied by Second Circuit precedent.” The court also agreed with Uber’s second argument, that the arbitrator’s conduct did not justify vacatur, finding the arbitrators remarks “were simply an attempt at humor – one of many made by the arbitrator throughout the hearing.”

Meyer v. Kalanick & Uber Technologies, Inc., No. 1:15-cv-09796 (S.D.N.Y. Aug. 3, 2020).

SDNY Finds Cedent Entitled to Indemnification for $20 Million Settlement Payment Under English Law

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The question before the Southern District of New York was whether, under English law, certain facultative reinsurance policies obligated a reinsurer to indemnify its cedent for a $20 million settlement. The finding was notwithstanding the three-year stated policy period of each of the reinsurance policies, as the insured was held liable on an “all sums” basis for a continuous injury occurring outside the relevant policy period.

Similar to the laws in the United States, “[u]nder English law, settlements paid under the reinsured policy are presumed to be covered as a matter of law by the reinsurance policy if the reinsured can prove: (1) that the reinsured has actually paid the settlement sums; and (2) that the claim arguably falls within the insurance/reinsurance policy under which the payment was made as a matter of law.” Further, English law has a strong presumption that liability under a proportional facultative reinsurance policy is “co-extensive” with the underlying insurance policy.

Accordingly, the court found both the cedent and the reinsurer assumed the risk that the cedent could be held liable on an “all sums” basis for continuous injury occurring outside the insured’s policy period. Thus, the reinsurer would have to indemnify the cedent for any settlement the cedent was required to pay its insured as a result of the injury under the follow-the-settlements provision in the reinsurance policies.

The court also rejected the reinsurer’s argument that the cedent breached its notice obligations by providing notice of the claims nearly six years after the cedent first became aware of an occurrence likely to result in a claim under the policies. The court found the reinsurer failed to meet its burden establishing its cedent acted with “extreme dishonesty” such that the reinsurer was “seriously prejudiced” under English law, or that its cedent acted in “bad faith” under New York law. The cedent’s motion for summary judgment was granted.

Insurance Company of Pennsylvania v. Equitas Insurance Ltd., No. 1:17-cv-06850 (S.D.N.Y. July 16, 2020).

Eighth Circuit Affirms Ruling That NLRB Retains Jurisdiction to Review Arbitration Decision on NRLA Charge, Not Court

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An arbitrator resolved a dispute between the parties in favor of the union, deciding that Exide Technologies had violated the collective bargaining agreement and the National Labor Relations Act (NLRA) by unilaterally changing its procedures for implementing the Family and Medical Leave Act without bargaining with the union. Exide sought to vacate the award and the union sought to confirm it. The U.S. District Court for the Western District of Arkansas confirmed the arbitrator’s finding of a collective bargaining agreement violation but concluded that it lacked jurisdiction to review the NLRA finding.

Procedurally, the union had filed a grievance, and then filed two unfair labor practice charges with the National Labor Relations Board (NLRB). The NLRB deferred pursuant to its policy that “the NLRB will conditionally dismiss a case when a set of facts may present not only an alleged violation of the NLRA but also an alleged breach of the collective-bargaining agreement subject to arbitration. However, the NLRB retains limited jurisdiction to decide, among other things, whether an arbitrator has reached a result repugnant to the NLRA.” The parties proceeded to arbitration.

The district court confirmed the arbitrator’s collective bargaining agreement ruling, because it drew its essence from the parties’ agreement. However, the district court decided it lacked jurisdiction to review the arbitrator’s NLRA ruling and that Exide should have moved the NLRB to reopen the deferred unfair labor practice charges so that the NLRB can review the arbitrator’s findings. The Eighth Circuit ruled that when a court possesses jurisdiction to decide a collective bargaining agreement issue under section 301 of the Labor Management Relations Act, it is not preempted from exercising its jurisdiction by the fact that the employer’s conduct may also violate the NLRA. However, section 301 does not provide the court with original jurisdiction to decide whether Exide violated the NLRA, and the NLRA had retained jurisdiction to determine whether the arbitrator’s actions were appropriate.

Exide Technologies v. International Brotherhood of Electrical Workers, Local No. 700, No. 19-2317 (8th Cir. July 10, 2020).

SDNY Grants 28 U.S.C. § 1782 Application for Discovery in Dispute Involving Republic of Lithuania

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The applicant sought to require documents and deposition testimony from an individual located in, and a corporation headquartered in, New York for use in an international arbitration initiated against the Republic of Lithuania arising out of Lithuania’s nationalization of a bank. The court found all three statutory requirements of the application were met, which provided the court with the authority under 28 U.S.C. § 1782 to order the discovery sought by the applicant: (1) the individual and corporation are located in New York; (2) the discovery is for use in an international arbitration; and (3) the application is made by the complaining party – and thus an “interested party” in the arbitration.

As to the court’s discretion, looking at the factors set forth in Intel Corp. v. Advanced Micro Devices, Inc., 542 U.S. 241 (2004), the court found the factors weighed in favor of granting the application: (1) the individual and corporation were not participants in the international arbitration; (2) there is no reason to doubt that the foreign tribunal would be receptive to U.S. federal-court judicial assistance because, while the tribunal did not address the question of admissibility of evidence obtained by the applicant, it did not preclude the applicant from pursuing this proceeding; (3) granting the applicant’s request would not allow it to circumvent foreign proof-gathering restrictions or other policies, as the discovery is to be used in an international proceeding, with its own rules governing discovery and admissibility of evidence; and (4) the applicant’s request is not unduly intrusive or burdensome, as its requests “go to the heart of their case in the arbitration, and appear to be proportionate to their needs.” The individual and corporation were free to apply to the court for a protective order or for other relief as necessary to appropriately limit discovery consistent with federal law. The court permitted the applicant to issue subpoenas for documents in substantially the same form as those filed in support of its application.

In re Application of the Fund for Protection of Investor Rights in Foreign States pursuant to 28 U.S.C. § 1782 for an Order Granting Leave to Obtain Discovery for Use in a Foreign Proceeding, No. 1:19-mc-00401 (S.D.N.Y. July 8, 2020).