Contract Formation

NINTH CIRCUIT APPLIES OREGON LAW TO FIND CLASS ACTION WAIVER UNENFORCEABLE

May 1, 2009 by Carlton Fields

The Ninth Circuit recently concluded that a district court improperly dismissed a consumer class action pursuant to an arbitration agreement between a wireless provider and its customers, holding that the agreement’s class action waiver was unconscionable and therefore unenforceable under Oregon law. The court found that the waiver was substantively unconscionable for two reasons. First, the waiver was unilateral in effect: “It can hardly be imagined that T-Mobile or its suppliers would ever want or need to bring a class action against T-Mobile’s customers.” Second, the class action waiver created a disincentive to litigate since the actual damges alleged were below $700 a year. Given the small size of the individual claims covered by the agreement, the waiver made it impracticable for customers to vindicate their rights in court. The court also found that under the arbitration agreement the class action waiver was not severable since the agreement itself included a provision prohibiting severance of the waiver. Chalk v. T-Mobile USA, Inc., No. 06-35909 (9th Cir. Mar. 27, 2009).

This post written by Brian Perryman.

UK COURT OF APPEALS DISMISSES REINSURER’S APPEAL OF DECISION FINDING CREATION OF REINSURANCE CONTRACT PRIOR TO CASUALTY

January 27, 2009 by Carlton Fields

We previously posted on November 12, 2008 about a British court’s decision holding that a reinsurance contract was created prior to a putatively covered ocean-going casualty, based on certain written exchanges between the parties reflecting their negotiations. The reinsurer, Aigaion Insurance Company S.A. (“Aigaion”), appealed, arguing that the lower court’s decision was unclear, and that even if a contract had been formed, it contained a warranty provision allowing the policy to lapse without notice in the case of non-payment of premium (the parties did not dispute that the reinsured, Allianz Insurance Company of Egypt, forwarded timely premium payment to an intermediary broker, who failed to then forward payment to Aigaion).

The Court of Appeals disagreed with Aigaion, finding no basis for its appeal, which it dismissed. The Court found that whether or not the parties negotiated the warranty provision Aigaion sought, it was nonetheless not explicitly included in the terms of the agreement that the lower court had found the parties made by a date certain which, at the latest, preceded the casualty. Allianz Insurance Company of Egypt v. Aigaion Insurance Company, S.A. [2008] EWCA Civ 1455 (Court of Appeals, Civ. Div. Dec. 19, 2008).

This post written by John Pitblado.

U.K. COURT CONSTRUES PARTIES’ INTENT IN CREATING REINSURANCE CONTRACT AGAINST REINSURER

November 12, 2008 by Carlton Fields

Allianz Insurance Company of Egypt (“Allianz”) sued its reinsurer, Aigaion Insurance Company S.A. (“Aigaion”), for US $675,000 arising from the constructive loss of the oceangoing vessel “Ocean Dirk,” one of several scheduled ships under the reinsurance contract. Aigaion denied liability for the claim on the theory that the parties never arrived at consensus over the terms of the reinsurance contract, and thus it was null and void ab initio.

Allianz countered with evidence of communications by and between Allianz, Aigaion, and the intermediary broker who placed the risk, Chedid & Associates Ltd. (“Chedid”). The court held that these communications, consisting mainly of e-mail correspondence, indicated that the parties clearly intended for Aigaion to be bound as Allianz’s reinsurer for certain risks covered by Allianz’s underlying insurance. Aigaion took the position that the communications reflected a continued intent on the part of both parties to negotiate certain terms of the contract, even after the reinsurance contract had issued, but that the parties failed to reach consensus sufficient to create a contract. The court found in Allianz’s favor, noting that the communications reflected a resort to certain shorthand understood in the industry, and that Aigaion clearly communicated its intent to be bound by those terms with the same understanding as had Allianz, at the latest by a date certain which may have post-dated the contract, but nonetheless pre-dated the loss. The Court entered judgment in favor of Allianz for the net premium due. Allianz Insurance Company of Egypt v. Aigaion Insurance Company S.A. [2008] EWHC 1127 (Queen’s Bench Div. Comm. June 2, 2008).

This post written by John Pitblado.

DISTRICT COURT CERTIFIES STANDING ISSUE FOR INTERLOCUTORY APPEAL IN CAPTIVE REINSURER KICKBACK CASE

August 20, 2008 by Carlton Fields

On July 21, 2008, we reported on the decision of a court denying a motion to dismiss, which contended that the filed rate doctrine barred claims relating to alleged kickbacks on mortgage insurance placed with a captive reinsurer. One of the issues addressed was whether the plaintiffs, who are borrowers, have standing to assert claims that their lender and a mortgage reinsurance company violated the Real Estate Settlement Procedures Act by collecting illegal referral payments in the form of excessive reinsurance premiums. The district court has denied a motion for reconsideration, but has certified the issue of whether the plaintiffs have standing to sue for interlocutory appeal pursuant to 28 U.S.C. §1292(b). Under §1292, the Third Circuit has discretion to accept or decline to accept the interlocutory appeal. Alexander v. Washington Mutual, Inc., Case No. 07-4426 (USDC E.D. Pa. Aug. 4, 2008).

This post written by Rollie Goss.

COURT DENIES MORTGAGE COMPANY’S MOTION TO DISMISS CLAIMS RELATING TO ALLEGED KICKBACKS ON MORTAGAGE INSURANCE PLACED WITH CAPTIVE REINSURER

July 21, 2008 by Carlton Fields

Mortgage loan borrowers filed a class action complaint alleging that Washington Mutual, Inc. (WaMu) violated the Real Estate Settlement Procedures Act (RESPA) by collecting illegal kickbacks or splitting fees from private mortgage insurance providers who had agreed to reinsure the borrowers’ mortgage insurance with WaMu’s captive reinsurer, WaMu Mortgage Reinsurance. WaMu Mortgage Reinsurance allegedly received nearly $300 million in premiums while never paying a single loss.

Citing the policy reason that statutes “like RESPA are enacted to protect consumers from unfair business practices,” the court held that while the filed rate doctrine may bar direct challenges to insurance rates, it does not prohibit plaintiffs from bringing suit for a violation of fair business practices based upon allegations of illegal kickbacks. The court also rejected the other grounds argued for dismissal. Alexander v. Wash. Mut., Inc., Case No. 07-4426 (USDC E.D. Pa. June 30, 2008).

This post written by Rollie Goss (with thanks to Jason Morris).