Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Nora Valenza-Frost

New York Federal Court Punts Request for Foreign Reinsurer to Post Security Back to Arbitrators

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The Southern District of New York found that New York Insurance Law section 1213(c)(1), requiring that foreign insurers post sufficient security, applied to the defendant, a foreign reinsurer in liquidation, in order for the defendant to file its motion to dismiss and compel arbitration. The court rejected the defendant’s reliance on non-binding precedent in In re Laitasalo, “in which the court held that a group of foreign bankrupt insurance companies was not required to post security to defend against the claim of a state insurance commissioner … explain[ing] that the security would transform the commissioner’s unsecured claim into a secured claim to the detriment of the other U.S. creditors who are solvent or insolvent insurance companies.” 193 B.R. 187 (Bankr. S.D.N.Y. 1996).

The subject reinsurance agreements contained “broad arbitration clauses providing for arbitration for all disputes or differences between the Parties arising under or relating to” the reinsurance agreements. As the panel in a prior arbitration concerning these reinsurance agreements previously required the defendant to post an interim security, the court held that “the arbitration panel must decide in the first instance whether its prior orders — which were confirmed by this Court on April 24 — preclude” the instant motion for security.

In re Platinum-Beechwood Litig., No. 1:18-cv-06658 (S.D.N.Y. July 10, 2019).

Maryland Federal Court Denies Untimely Request to Vacate Arbitration Award

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Pursuant to the FAA, a motion to vacate, modify, or correct an arbitration award must be served within three months after the award is filed or delivered. 9 U.S.C. § 12. Thus, a Maryland federal court held that the defendants’ request, via its answer on August 27, 2018, to vacate an arbitration award issued on January 31, 2018, was untimely.

The court also rejected the defendants’ argument that there was a genuine dispute of material fact regarding the existence of the franchise agreement based on the date of the subject franchise agreement referenced in the plaintiff’s papers. The defendants admitted that they entered into the franchise agreement attached to the plaintiff’s motion for summary judgment to confirm the arbitration award. The agreement contained the arbitration clause underlying their dispute. Thus, the court held that the “[p]laintiff’s failure to reference the accurate franchise agreement date in both their application to confirm arbitration award and motion for summary judgment does not create a genuine issue of material fact regarding the franchise agreement’s existence.”

Choice Hotels Int’l, Inc. v. Gopi Hosp., LLC, No. 8:18-cv-01680 (D. Md. July 18, 2019).

Florida Federal Court Compels Arbitration of Coverage Dispute Under the New York Convention

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The plaintiff sought coverage for property loss due to Hurricane Irma, and the defendant successfully moved to compel arbitration. The plaintiff opposed arbitration, arguing that the subject policy was unsigned and thus did not constitute a signed written agreement to arbitrate. As Florida law recognizes that an insurance application and the policy together “form the contract of insurance,” the district court found that the plaintiff’s signature on its insurance application “is sufficient to constitute a signature on a written agreement to arbitrate.”

The district court further rejected the plaintiff’s arguments that: “(1) it had no knowledge of the arbitration provision and (2) the Policy’s Service of Suit clause supersedes the arbitration provision or renders it ambiguous.” The plaintiff was instructed to carefully read the entire policy and “cannot now contend that it was unaware of the arbitration provision.” Furthermore, “[t]he Policy mandates arbitration and the Service of Suit Clause merely provides a means for the parties to go to court to either compel arbitration or enforce an arbitration award. Indeed, courts consistently read arbitration clauses and service of suit clauses as compatible.”

Gold Coast Prop. Mgmt. Inc. v. Certain Underwriters at Lloyd’s London, No. 1:18-cv-23693 (S.D. Fla. June 14, 2019)

Fifth Circuit Reverses Ruling That Procedural Unconscionability Is Decided by Arbitrator

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The plaintiff challenged the formation of an arbitration clause contained in her employment contracts and acknowledgment of employee handbooks, arguing: (1) there was no “meeting of the minds” and therefore there was not the mutual assent necessary for contract formation; and (2) the agreement was procedurally unconscionable because the plaintiff’s “assent was obtained through misrepresentation, she never had a meaningful opportunity to bargain, and there was a gross disparity in the parties’ bargaining power.” A Mississippi federal court rejected the plaintiff’s first argument, finding that there was a meeting of the minds, but deferred the procedural unconscionability argument to the arbitrator under the agreement’s delegation clause.

The Fifth Circuit upheld the ruling on contract formation, as the district court “correctly found that the electronic communications transmitting the Arbitration Agreement clearly identified an arbitration agreement as the subject of the communications … [and the plaintiff] was given the opportunity to read the Agreement and certified” that she had done so. The plaintiff’s “unilateral lack of diligence” in failing to do so “does not preclude contract formation under Mississippi law.”

However, the Fifth Circuit reversed with respect to procedural unconscionability, as that “objection challenges the formation of the Arbitration Agreement itself, the district court had the duty to resolve this challenge.” Thus, the case was remanded to the district court to resolve the issue.

Bowles v. Onemain Fin. Grp., LLC, No. 18-60749 (5th Cir. June 19, 2019)

An Agreement to Arbitrate Is Not a Contract Defense Under Montana Law

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The Ninth Circuit reversed the District of Montana’s denial of a motion to compel arbitration on the grounds that “the insurer was estopped from asserting contract defenses as a result of its breach of its duty to defend.” The Ninth Circuit held that neither the 2014 Montana Supreme Court decision Tidyman’s Management Services, Inc. v. Davis, 330 P.3d 1139, nor any other Montana case, treats an agreement to arbitrate as a contract defense that an insurer is estopped from asserting as a result of its breach of its duty to defend. Rather, such agreement “establishes how the parties choose to resolve disputes arising out of the contract.” A party successfully compelling arbitration “may nevertheless have any insurance contract defenses arising out of its policy resolved against it by the arbitrator.”

Am. Trucking & Transp. Ins. Co., v. Nelson, No. 18-35414 (9th Cir. June 4, 2019)