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Arbitration / Court Decisions

EXTENSIVE USE OF ATTORNEY-CLIENT MEMO IN PRIOR LAWSUIT DESTROYED ATTORNEY-CLIENT PRIVILEGE

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Insured companies sued Travelers for allegedly misrepresenting the scope of coverage afforded for asbestos injury claims under certain Excess Overlayer Indemnity policies. At issue has been the discoverability of a memorandum prepared by Travelers in preparation for and involuntarily produced by Travelers in an earlier related lawsuit in federal court in Pennsylvania and, ultimately, the Third Circuit Court of Appeals. See Travelers Cas. & Sur. Co. v. Ins. Co. of N. Am., previously discussed here. That case involved a dispute surrounding layers of insurance provided for losses relating to breast implants and chemical products. In preparation for that litigation, Travelers requested that its general counsel prepare a reinsurance analysis memo addressing the reinsurance implications of different coverage scenarios for the breast implant claims.

In the present lawsuit, plaintiffs requested production of this memo on the theory that it likely contained information relevant to the current plaintiffs’ claims and Travelers’ prior interpretation of its policies. Travelers, however, refused to produce the memo, claiming that it was protected by attorney-client privilege. A January 2017 discovery ruling ordered an in camera review of the memo. Following the in camera review, the court has now ruled that the significant discussion and quotation of the memo’s contents by the Third Circuit in the earlier lawsuit destroyed the privilege. While the general rule is that a party does not waive privilege for documents which it is compelled to produce, “the exhaustive discussion of it by the Third Circuit makes it impossible to consider it” privileged. The order cited the fact that the memo was admitted as an exhibit at trial as well as the fact that the Third Circuit extensively quoted from the memo and summarized testimony about it, all of which appeared in a published court ruling. As such, the memo was in the public domain, notwithstanding that the court records were later sealed. Travelers was ordered to produce the sections of the memo addressed by the Third Circuit to plaintiffs’ counsel “for attorney’s eyes only.” ITT Corp. v. Travelers Cas. & Sur. Co., Case No. 12-38 (USDC D. Conn. Feb. 27, 2017).

This post written by Gail Jankowski.

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NEW YORK FEDERAL COURT DENIES CROSS MOTIONS FOR SUMMARY JUDGMENT ON FOLLOW THE SETTLEMENTS DOCTRINE

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In a lengthy February 24, 2017 opinion, a New York federal court denied cross motions for summary judgment on the Follow the Settlements Doctrine, filed by Utica Mutual Insurance Company and Utica’s reinsurer, Fireman’s Fund Insurance Company. Utica sought to enforce certain reinsurance contracts against FFIC with respect to $35,000,000 Utica spent in settling a dispute with its insured, Goulds, regarding coverage for thousands of asbestos claims filed against Goulds in the 1990s. It is undisputed that, in settling the case, Utica and Goulds agreed that there were aggregate limits in Utica’s primary policies, which would allow penetration of the umbrella policy (this was a central issue in the underlying case, as the primary policies, dated 1966-1972, had been lost) and that the $325,000,000 settlement would come from Utica’s umbrella policy, thereby triggering the reinsurance policies.

Under the Follow the Settlements Doctrine, “as long as the cedent settles in good faith, reasonably, and within the applicable policies, the reinsurer is bound by the settlement and cannot relitigate the underlying coverage issues.” A cedent’s motive to reach reinsurance, while singularly unimportant, may, however, invalidate the follow the settlement protection if it causes the cedent to make an unreasonable settlement allocation.

Utica argued that the undisputed facts established a reasonable basis for the settlement, while FFIC argued that they established Utica’s bad faith. The court disagreed with them both, finding that, while the central facts were undisputed, reasonable inferences could lead to either conclusion and, as such, summary judgment was inappropriate. Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Feb. 24, 2017).

This post written by Brooke L. French.

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NINTH CIRCUIT HOLDS PAGA CLAIMANTS MAY BE COMPELLED TO ARBITRATE

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Terminix appealed from a district court order denying its motion to compel arbitration of a former employee’s representative claim under California’s Private Attorneys General Act (PAGA) alleging that Terminix failed to provide workers with proper breaks, payment, and pay stubs. On appeal, the Ninth Circuit reversed and remanded. It found persuasive Terminix’s argument that the district court erred in concluding that PAGA claims categorically cannot proceed to arbitration. Specifically, the district court reasoned that a PAGA claim “belongs to the state, and the state has not waived the judicial forum” even where an employee signs an employment contract requiring arbitration of PAGA claims. The Ninth Circuit disagreed and found that individual employees can bind the state to an arbitral forum. Specifically, the court reasoned “[a]n individual employee, acting as an agent for the government, can agree to pursue a PAGA claim in arbitration” and clarified that the California Supreme Court’s Iskanian ruling holds only that a complete waiver of the right to bring a PAGA claim is invalid. Valdez v. Terminix Int’l Co. Ltd. P’ship, Case No.15-56236 (9th Cir. Mar. 3, 2017).

This post written by Gail Jankowski.

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THIRD CIRCUIT RULES ARBITRATION AGREEMENT INCLUDED IN PRODUCT MANUAL IS UNENFORCEABLE

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This action involved a class action suit brought in New Jersey federal court. The complaint alleged that plaintiff David Noble saw Samsung advertisements stating that the Samsung smartwatch’s battery lasted 24 to 48 hours with typical use. Noble claimed that the battery in his Samsung smartwatch lasted only four hours, and that two replacements provided equally poor battery life. The suit was brought based on the New Jersey Consumer Fraud Act, common law fraud, negligent misrepresentation, breach of warranty and unjust enrichment, accusing the company of deceptive marketing and pricing. Samsung moved to compel arbitration, based on an arbitration provision, printed on page 97 of a 143-page “Health and Safety and Warranty Guide” in the watch box. The New Jersey district court denied the motion, finding that there was no binding contract and that the arbitration clause was unreasonably hidden. Samsung appealed.

In its analysis whether the arbitration clause is a valid contractual term, the Third Circuit noted that under New Jersey law, mutual assent between the parties is required for a contract to be binding and that mutual assent requires reasonable notice to the contracting parties of the contract’s terms. The Court noted that when the writing does not appear to be a contract and the terms are not called to the attention of the recipient, there is no reasonable notice and the terms cannot be binding. Thus, the Court stated that a contractual term, like an arbitration clause, is binding only when the terms are reasonably conspicuous, rather than in a manner that de-emphasizes its provisions. The Third Circuit then analyzed the arbitration clause at issue. The Court found that that the Samsung smartwatch arbitration clause was contained in a 3-inch by 2.5-inch booklet whose cover referred to itself as a “manual,” which “did not appear to be a bilateral contract, and the terms were buried in a manner that gave no hint to a consumer that an arbitration provision was within.” The Court also noted that the index in the manual includes “no language to tell consumers to expect bilateral terms, such as a bilateral arbitration agreement, in the guide.” Thus, the Third Circuit held that the arbitration clause was not a binding or valid contractual term, and affirmed the district court’s decision denying the motion to compel arbitration.

Noble v. Samsung Electronics America, Inc., No. 16-1903 (3rd Cir. Mar. 3, 2017).

This post written by Jeanne Kohler.

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PENNSYLVANIA APPELLATE COURT DENIES PETITION TO TRANSFER STRUCTURED SETTLEMENT INVOLVING LHWCA

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Relying on Federal Court precedent, a Pennsylvania intermediate appellate court resolved whether the plain language of Section 916 of the Longshore and Harbor Workers’ Compensation Act (“LHWCA”) prohibits the assignment of benefits where the employer/insured entered into a reinsurance agreement with another insurer to pay the structured settlement payments. “In other words, a determination must be made as to whether [the employee’s] claim under the LHWCA was resolved when the Reinsurance Agreement was entered, and whether the settlement payouts are being made to him pursuant to a contract where he is a third party beneficiary.”

The Court ultimately reversed the lower court’s decision which had permitted the transfer, holding “it would be absurd to allow a party, who expressly settled a LHWCA claim, to avoid the anti-assignment clause of the LHWCA merely by engaging in the common practice of purchasing an annuity or having a separate insurance company pay the structured settlement payments …. [and] to utilize the [petitioner’s] interpretation of Section 916 would effectively render the LHWCA inapplicable, as any form of reinsurance agreement or annuity would be considered a payment of the outstanding claim.”

In re: C. Dwyer, No. 149 WDA 2016 (Sup. Ct. Pa. January 27. 2017)

This post written by Nora A. Valenza-Frost.

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