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Arbitration Process Issues

LIQUIDATOR NOT BOUND TO ARBITRATE REINSURANCE DISPUTE WITH JOHN HANCOCK

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This dispute is between the Ohio Superintendent of Insurance, in her capacity as liquidator for Credit General, and John Hancock over amounts potentially owed by Hancock under 13 reinsurance agreements pursuant to which Hancock reinsured risks initially insured by the now-insolvent Credit General. The sole issue presented on this appeal was whether the provisions of the Ohio Liquidation Act precluded enforcement of arbitration clauses against the Superintendent of Insurance functioning as liquidator, when those arbitration provisions were part of a contract that the liquidator otherwise sought to enforce.

The state appellate panel held that the liquidator was not bound to the arbitration clause in a reinsurance agreement finding that the purpose of the Ohio Liquidation Act outweighed the public policies in favor of arbitration. The panel also disagreed with John Hancock’s argument that the Ohio Liquidation Act could not overcome the explicit enforcement of arbitration under the Federal Arbitration Act. The panel reasoned that under the McCarran-Ferguson Act, state statutes that govern the liquidation of insurers supersede federal statutes. Hudson v. John Hancock Financial Srvs., No. 06AP-1284 (Ct. App. Ohio, Dec. 27, 2007).

This post written by Lynn Hawkins.

AMBIGUOUS ARBITRATION PROVISION FOR ARBITRATION PANEL, NOT COURT, TO DECIDE

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This dispute arose out of property damage to two Dow Chemical facilities caused by Hurricanes Katrina and Rita in 2005. Dow sought payment for the damage from Dorinco, Dow’s captive insurer. Dorinco then sought reimbursement under the policy from its reinsurers, the respondents in this case. The reinsurers disputed their obligation to reinsure the settlement amounts, totaling $289.7 million. Dorinco made two arbitration demands to the Reinsurers, one for claims resulting from Hurricane Katrina, and the other for the claim resulting from Hurricane Rita. Dorinco argued that the Reinsurers – as a group – were required to appoint a single arbitrator to each of the two panels. The Reinsurers contended that each reinsurer was entitled to its own arbitration panel and to appoint its own arbitrator to each panel.

The Court concluded that the arbitration provision was ambiguous and that, as a result, the Court was without authority to determine the parties’ intentions with respect to the provision. Relying on the Supreme Court’s decision in Green Tree v. Bazzle, and the arbitration provision at issue, the Court held that the arbitrators, not the Court, possess the authority to determine the parties’ intentions in agreeing to the arbitration provision. Dorinco Reinsurance Co. v. Ace American Ins. Co. et. al., No. 07-12622 (E.D. Mich. Jan. 23, 2008).

This post written by Lynn Hawkins.

CASE UPDATE: FOURTH CIRCUIT FINDS LOWER COURT’S INTERPRETATION OF ARBITRATION AWARD INSUFFICIENT

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On June 20, 2006 we reported on a decision of a US District Court decision declaring the relationship between two arbitration awards. The Fourth Circuit has reversed that decision. The district court was asked to determine whether an arbitration panel’s second award was intended to supplement or incorporate the first award. After receiving yes/no responses from two of the three arbitrators, the district court concluded that the first award had been factored into and setoff by the second.

The Fourth Circuit reversed and remanded, concluding that while the district court correctly concluded that the second arbitration award was ambiguous and correctly sought clarification from the arbitrators, the procedure employed by the district court to clarify the ambiguity was unsuccessful. The court was “unable to discern, without further discovery into the arbitrators’ intent, how the one-word response from two of the arbitrators resolved the ambiguity.” The Burlington Insurance Company v. Trygg-Hansa Ins. Co., No. 06-2082 (USCA 4th Cir., Jan. 17, 2008).

This post written by Lynn Hawkins.

KFC EMPLOYEES WAIVED RIGHT TO ARBITRATE

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Nearly 1,000 KFC employees filed suit against KFC alleging that it violated the Fair Labor Standards Act by failing to pay overtime to assistant managers at its restaurants. Later, a portion of the employees demanded arbitration. KFC argued that the employees had waived their right to arbitrate by opting in to the collective lawsuit. KFC claimed it would suffer prejudice from the delayed request for arbitration because during the lawsuit the American Arbitration Association had raised the applicable filing fee by forty-four percent. In response, the employees argued that arbitration would be far less expensive for KFC then pursuing the additional discovery in the lawsuit. A Minnesota federal court ruled that the employees had waived their right to arbitrate and would have to pursue their claims in court. Christian Parler v. KFC Corp., Case No. 05-cv-2198 (USDC D. Minn. Jan. 3, 2008).

This post written by Lynn Hawkins.

COURT GRANTS SUMMARY JUDGMENT ON CLAIMS AMOUNTING TO ABUSE OF ARBITRATION PROCESS

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Myles had a credit card from Juniper Bank and failed to pay amounts due under the credit card. Wolpoff & Abramson LLP filed an arbitration claim against Miles on behalf of Juniper Bank. Myles contended that he never agreed to arbitrate, and no arbitration agreement signed by Myles was ever produced. The arbitrator retained the matter but dismissed the claim with prejudice. Myles then sued Wolpoff under the Fair Debt Collection Practices Act (“FDCPA”), the Michigan Collection Practices Act and the Michigan Occupational Code. The claims essentially alleged that Wolpoff had abused the arbitration process by filing a baseless arbitration claim. The district court found that the FDCPA claims failed as a matter of law because they amounted to a collateral attack on the arbitration award, which should have been challenged under the Federal Arbitration Act. The state law claims were then dismissed without prejudice pursuant to 28 U.S.C. § 1367. Myles v. Wolpoff & Abramson, LLP, Case No. 07-12247 (USDC E.D. Mich. Jan. 14, 2008).

This post written by Rollie Goss.