Arbitration Process Issues

INSUREDS ORDERED TO ARBITRATE NOTWITHSTANDING ALLEGEDLY CONFLICTING CONTRACTUAL PROVISIONS

December 9, 2010 by Carlton Fields

AIG insureds were directed to arbitrate their breach of contract, tortious breach of the covenant of good faith and fair dealing, unfair competition, and other causes of action based on AIG’s alleged misconduct in denying their claims for benefits. AIG moved to compel arbitration, citing a provision in the insurance contracts requiring any controversy to be settled by binding arbitration. Plaintiffs opposed, pointing to what they argued was a conflicting provision, which stated that “in the event of [the insurer’s] failure to pay any amount claimed to be due hereunder, we, at your request, will submit to the jurisdiction of a court of competent jurisdiction within the United States.” Relying on the presumption favoring arbitration, the court held that the contractual provisions were harmonious–all disputes were required to be resolved through arbitration but the insureds could bring suit in a court of their choice to enforce compliance with an arbitration award. The court also held that AIG could compel arbitration under an equitable estoppel theory, notwithstanding that it was not a signatory to the arbitration agreement. NS Holdings LLC v. Am. Int’l Group, Inc., Case No. 10-1132 (U.S.D.C. C.D. Cal. Nov. 15, 2010).

This post written by Ben Seessel.

COURT ORDERS ARBITRATION UNDER “FOLLOW FORM” AGREEMENT TO ARBITRATE IN EXCESS LIABILITY POLICY

December 1, 2010 by Carlton Fields

C.B. Fleet Company, Inc., a manufacturer of certain FDA-regulated over-the-counter medication, sued one of its excess liability carriers, Aspen Insurance UK Ltd., alleging it breached the excess policy by refusing to provide coverage for underlying products liability suits against Fleet. Aspen moved to stay the lawsuit in favor of arbitration. Fleet contested the existence of an agreement to arbitrate, and, even if there was one, Fleet asserted that Aspen waived its right to invoke it by engaging in the litigation process. The court rejected both arguments, finding that a valid, binding arbitration agreement was incorporated by reference into the Aspen excess policy, because the underlying policy to which Aspen’s policy “followed form” contained an arbitration agreement. The court also held that Aspen’s limited engagement in the litigation process prior to demanding arbitration did not constitute waiver of the right to arbitrate, citing the policy underlying the FAA which heavily favors arbitration of disputes. Aspen had only engaged in limited discovery pertaining to whether an agreement to arbitrate existed, filed an answer raising an affirmative defense pertaining to arbitration, and then demanded arbitration ten days later. C.B. Fleet Company, Inc. v. Aspen Insurance UK, Ltd., No. 6:09-cv-00062 (USDC W.D. Va. Oct. 15, 2010).

This post written by John Pitblado.

CAL. CT. APP. OVERTURNS CONFIRMATION OF AWARD DUE TO NONDISCLOSURE OF PERTINENT BUSINESS RELATIONSHIP BETWEEN ARBITRATOR AND PARTY

November 26, 2010 by Carlton Fields

Nancy Hurwitz Kors appealed to the California Court of Appeals an order confirming an arbitration award in favor of the law firm Benjamin, Weill & Mazer in a dispute over attorneys’ fees. Kors argued that the confirmation must be reversed because the chief arbitrator failed to disclose business relationships casting doubt on his ability to be impartial, as required by the California Arbitration Act. Shortly after the issuance of the arbitration award, Kors’ counsel discovered that the chief arbitrator was counsel for the defendant law firm in a recent case in which the law firm had sought to arbitrate a fee dispute with another client, had filed a brief on behalf of the law firm with the California Supreme Court shortly before his appointment as chief arbitrator in the present dispute and argued the case to the Supreme Court on behalf of the law firm while serving as chief arbitrator in this matter. The California Court of Appeals reversed the order confirming the award finding that the circumstances of the chief arbitrator’s business relationship with the law firm could cause a person to “entertain a doubt that the proposed neutral arbitration would be able to be impartial.” Benjamin, Weill & Mazer v. Kors, No. 07-00939 (Cal. Ct. App. Oct. 12, 2010).

This post written by John Black.

SUPREME COURT HEARS ORAL ARGUMENT ON THE RELATIONSHIP BETWEEN THE FAA AND STATE LAW REGARDING UNCONSCIONABILITY OF CLASS ARBITRATION WAIVERS

November 16, 2010 by Carlton Fields

On November 9, the Supreme Court heard oral argument in AT&T Mobility LLC v. Concepcion, an appeal from an opinion of the Ninth Circuit. The issue, as framed in the briefs, is whether the Federal Arbitration Act (“FAA”) preempts states from conditioning the enforcement of an arbitration agreement on the availability of particular procedures — here, class-wide arbitration — when those procedures are not necessary to ensure that the parties to the arbitration agreement are able to vindicate their claims. The Supreme Court’s docket reflects the filing of 25 amicus briefs. It is hoped that this case will clarify the relationship between the Federal Arbitration Act and state laws and opinions holding certain arbitration provisions to be unenforceable as unconscionable. The transcript and audio recording of the oral argument are both available. Some vote counters at the oral argument suggested that the questioning by the Justices indicated deference to state law as opposed to the FAA. AT&T Mobility v. Concepcion, No. 09-893 (U.S.).

This post written by Rollie Goss.

FEDERAL COURT COMPELS ARBITRATION AND STAYS ACTION UNDER FEDERAL LAW DESPITE STATE LAW PROHIBITING ARBITRATION OF INSURANCE DISPUTES

November 11, 2010 by Carlton Fields

In an action for breach of an insurance policy and the tort of bad faith, the Western District of Arkansas recently compelled arbitration and stayed the action. The court considered whether an arbitration clause in a policy governed by the Federal Arbitration Act (FAA) was invalidated by an Arkansas state law that purports to invalidate arbitration clauses “in any insurance policy” in Arkansas. The court held that although the McCarran-Ferguson Act would typically operate to preempt the FAA with the state insurance law, in this case an exception to McCarran-Ferguson existed, namely that another federal law that “specifically relates to the business of insurance” and provides for arbitration (the Federal Crop Insurance Act), applied to the policy at issue and required arbitration. The court also stayed the entire action, rather than just the claim for breach of contract, based on the language of the relevant arbitration clause, on the broad mandate of the FAA to “stay the trial of an action” until arbitration has occurred, and in the interests of judicial economy. Hays v. Rural Community Insurance Services, Case No. 1:10-cv-01020 (W.D. Ark. Oct. 7, 2010) (Magistrate Report and Recommendation adopted on October 26, 2010).

This post written by Michael Wolgin.