Arbitration Process Issues

THIRD CIRCUIT REVERSES ORDER DENYING ARBITRATION, RULING THAT STATE LAW PROHIBITING ARBITRATION OF INSURANCE MATTERS CHALLENGED REINSURANCE CONTRACT AS A WHOLE

November 29, 2016 by Michael Wolgin

Applied Underwriters Captive Risk Assurance Company appealed from the denial of its motion to compel arbitration in a dispute related to a reinsurance participation contract with South Jersey Sanitation Company. The trial court denied the motion because it held that Nebraska law: (1) governed the dispute, (2) prohibits arbitration provisions that relate to insurance policies, as the relevant provision here purportedly does (according to South Jersey), and (3) preempted the FAA under the McCarran-Ferguson Act. The Third Circuit reversed, holding that it was for the arbitrator to determine the precise nature of the reinsurance participation contract, and whether it fell under an exception to the Nebraska law. Similarly, the Third Circuit held that South Jersey’s contention that the contract was procured based on fraud, implicated the contract “as a whole,” rather than specifically the arbitration provisions. “Therefore,” the court ruled, “the question of whether the [contract’s] arbitration provision is enforceable under Nebraska law is a question for the arbitrator,” and not the court. The court vacated the judgment and remanded to the trial court. Because the default location set forth in the contract was not within the district in which the petition to compel arbitration was filed, as is required by the FAA, the trial court was directed to determine the proper forum for arbitration, and “how to proceed” if the trial court is not able “to compel arbitration in the default location provided for in the contract.” South Jersey Sanitation Co. v. Applied Underwriters Captive Risk Assurance Co., Case No. 14-4010 (3d Cir. Oct. 25, 2016).

This post written by Michael Wolgin.

See our disclaimer.

APPLYING KENTUCKY LAW, SIXTH CIRCUIT FINDS CONTINUED EMPLOYMENT CONSTITUTES ASSENT TO ARBITRATION AGREEMENT

November 28, 2016 by Michael Wolgin

During the time Plaintiffs Aldrich and Nolan worked as recruiters for the University of Phoenix, they allegedly signed an electronic form acknowledging their understanding of updated terms to the employee handbook. The acknowledgment form included an arbitration clause, and the updated employee handbook contained a class action waiver. Thereafter, both Aldrich and Nolan continued to work for the University of Phoenix for almost two years and were eventually let go. They later brought claims for wrongful termination on account of their refusal to engage in allegedly unfair, deceptive, and fraudulent practices related to recruiting veterans and service members. The trial court granted the University of Phoenix’s motion to dismiss and compel arbitration. Although Aldrich and Nolan asserted that they never received or signed the acknowledgement form, the court reasoned that under Kentucky law, continued employment constituted assent to the terms of the agreement. Moreover, the court held that there was no dispute of material fact entitling plaintiffs to a jury trial on the issue of whether they in fact signed, and because the arbitration agreement was valid, the waiver provision was valid as well.

On appeal, Sixth Circuit affirmed, reiterating Kentucky law holding that “an employee can be bound by an arbitration agreement, even without a signature, when he or she demonstrates acceptance of the agreement by continuing to work for the employer.” Aldrich v. University of Phoenix, Inc., Case No. 16-5276 (6th Cir. Oct. 24, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

OKLAHOMA DISTRICT COURT DENIES MOTION TO STAY ACTION DURING DEFENDANT’S INSURER’S CALIFORNIA CONSERVATION PROCEEDINGS

November 23, 2016 by John Pitblado

This case involved a personal injury negligence action brought by plaintiffs Cameron David and Shelby Gladd against defendants Satnam Singh and his employer Landmark Logistics, Inc. (“Landmark”) in Oklahoma federal court. Landmark was insured by CastlePoint National Insurance Company(“CastlePoint”), which is currently the subject of a California conservatorship proceeding. Defendant Singh made a motion to stay, asking the Oklahoma federal court to exercise its inherent discretion to stay the case pending the resolution of the California conservatorship proceeding. Singh’s motion was based on Burford abstention, a federal abstention doctrine to prevent interference with state insurance receivership matters. Landmark did not move for a stay or join the motion.

The Oklahoma district court denied defendant Singh’s motion for a stay, finding that the appropriate circumstances warranting Burford abstention were not present in the case. Notably, the court noted that Burford abstention requires the remand or dismissal of the action, and not merely a stay. In its analysis, the Oklahoma district court found that there was no basis to determine whether defendants’ insurance claims against CastlePoint are likely to be satisfied in the California conservatorship or any ancillary proceeding. The court noted that defendant Singh did not assert or attempt to show any irreparable harm that he would suffer if plaintiffs’ negligence case was allowed to proceed, and that his reasons for staying the case related solely to who was responsible for paying the cost to defend the case and, if plaintiffs were to prevail, for satisfying an award of damages. The court also noted that because CastlePoint had already retained counsel to represent the defendants in the action, Singh had not shown any specific injury to his defense of the case. On the other hand, the court noted that a stay would cause substantial harm to plaintiffs, whose personal injury claims against defendants would be delayed while CastlePoint’s conservator receives and processes insured claims. Thus, the court held that it would be fundamentally unfair to prevent plaintiffs’ timely pursuit of their claims, for reasons having nothing to do with the merit of the claims. Thus, the court held that defendant Singh had failed to justify a stay of the case at this juncture.

Gladd v. Landmark Logistics, Inc., No. 16-894 (D) (USDC W.D. OK. Oct. 28, 2016).

This post written by Jeanne Kohler.

See our disclaimer.

SEVENTH CIRCUIT UPHOLDS DENIAL OF MOTION TO COMPEL ARBITRATION

November 22, 2016 by John Pitblado

Applying Wisconsin law, the Seventh Circuit Court of Appeals determined the parties did not have an agreement to arbitrate because, even though their excess/reinsurance agreement contained “follow form” language, and the underlying contract to which the policy followed form contained an arbitration provision, it nevertheless “merely codifie[d] a procedure whereby the parties can potentially agree to arbitrate.” The procedure required: (1) a demand by the insured; (2) a dispute between the insurers about liability; (3) payment by each insurer of half the disputed amount; and (4) acceptance of payment by the insured.

Although the insured and the insurers on the underlying policy met these steps prompting arbitration, none occurred with respect to the excess/reinsurance policy. The excess/reinsurance insurer never received a request for payment from the insured or made a payment to the insured. As such, the Court determined the parties did not agree to arbitrate a dispute with the excess/reinsurance insurer.

State of Wisconsin Local Government Property Ins. Fund v. Lexington Ins. Co., No. 15-1973 (7th Cir. Oct. 21, 2016).

This post written by Nora A. Valenza-Frost.

See our disclaimer.

SOUTHERN DISTRICT OF INDIANA DETERMINES PARTIES’ DISPUTE REGARDING NONPAYMENT OF BOND BY SURETIES WAS NOT WITHIN THE SCOPE OF ARBITRATION CLAUSE

November 16, 2016 by Rob DiUbaldo

In order to be arbitrable, a dispute must fall within the scope of the parties’ operative arbitration agreement. Here, a non-signatory to the relevant agreement was seeking to “invoke an arbitration provision that was not expressly incorporated into a contract to which the non-signatory is a party”. Finding that authority for this proposition was absent from the movant’s papers, a federal court denied a party’s motion to compel.

The co-surety non-signatories were defendants in the action by way of their nonpayment of a payment bond, the amount of which was undisputed. The service agreement which addressed the work to be performed, for which the co-sureties issued a payment bond, contained an arbitration provision to which they were not parties. Ultimately, the Court determined the “arbitration provision cannot be read to encompass a dispute of this nature” and that there was no evidence at the time the service agreement was executed that the parties “intended for the arbitration provision to cover an unnamed surety’s failure to perform under a yet-to-be-secured payment bond” for an undisputed sum. Thus, the co-sureties’ motion to dismiss or in the alternative stay litigation and compel arbitration was denied.

Aztech Engineering Group, Inc. et al. v. Liberty Mut. Ins. Co., et al., 1:16-cv-01657 (USDC S.D. Ind. Oct. 1, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.