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Arbitration / Court Decisions

NEW YORK TRIAL COURT FINDS CEDENT IS NOT COVERED FOR LOSS ADJUSTMENT AND LEGAL EXPENSES IN EXCESS OF THE AMOUNTS STATED IN ITS REINSURANCE CERTIFICATE

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Relying on past New York precedent, a New York state trial court determined the language of certain reinsurance certificates at issue were unambiguous, declining to accept plaintiff’s extraneous evidence “that the custom and practice in the insurance trade is contrary” to such precedent.

The Court relied on the following three cases: Utica Mut. Ins. Co. v. Clearwater Ins. Co., 2014 WL 6610915 (N.D.N.Y. Nov. 20, 2014) (currently on appeal); Excess Ins. Co. Ltd. v. Factory Mut. Ins. Co., 3 N.Y.3d 577 (2004); and Bellefonte Reins. Co. v. Aetna Cas. & Sur. Co., 903 F.2d 910 (2d Cir. 1990), wherein the courts “concluded that the [reinsurance] certificates as to the limit of liability are unambiguous, and therefore, extrinsic evidence should not be considered.” Notably, other courts have reached different results on this issue.

Although the certificate language here – “reinsurance accepted” – was different than the “limit” language considered by the New York Court of Appeals in Excess, the Court in Excess relied, in part, on the decision by the Second Circuit in Bellefonte – which involved reinsurance certificates with the same or similar language to the certificates at issue here. Citing to Excess in support of its decision, the Court noted:

Of course, both parties were well aware of the type of product that was being reinsured. It would be far from unreasonable to expect that at the time of procuring reinsurance, [the reinusred] could anticipate the possibility of incurring loss adjustment expenses in settling a claim… Certainly, nothing prevented [the reinsured] from insuring that risk either by expressly stating that the defense costs were excluded from the indemnification limit or otherwise negotiating an additional limit for loss adjustment expenses that would have been separate and apart from the reinsurer’s liability on the insured property. Failing this, the reinsurers were entitled to rely on the policy limit as setting their maximum risk exposure. (Excess, at 584-585).

The Court granted the moving defendants partial summary judgment on their affirmative defense pertaining to a cap on liability for both loss and expenses in the face amount of the reinsurance certificates. Utica Mut. Ins. Co. v. Abeille Gen. Ins. Co., n/k/a 21st Century Nat’l. Ins. Co., et al., Index. No. CA2013-002320 (Sup. Ct. N.Y. County Aug. 15, 2016).

This post written by Nora A. Valenza-Frost.

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ELEVENTH CIRCUIT DOUBLES DOWN ON THE IMPORTANCE OF SELECTING AN AVAILABLE ARBITRATION FORUM

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The Eleventh Circuit affirmed a district court’s denial of a motion to compel arbitration on the grounds that the designated forum in the arbitration agreement was both unavailable and integral to the agreement. Appellee Jessica Parm acquired a loan from Western Sky Financial, owned by a Cheyenne River Sioux Tribe (“the Tribe”) member. The loan agreement included a binding arbitration clause, specifying the Tribe would conduct the arbitration according to tribal governing rules, but allowed Parm a right to choose amongst certain arbitral organizations to administer the arbitration. At the time of both the agreement and the lawsuit, no tribal arbitral forum nor governing rules existed.

Parm sued the National Bank of California (“Bank”) for illegally permitting Western Sky to initiate electronic fund transfers from her account under the loan agreement. Bank moved to compel arbitration under the provision referenced above. In denying the motion, the court first applied traditional rules of contract construction to reject the Bank’s arguments, interpreting the choice of arbitrator provision as subject to the tribal arbitration provision to give meaning to both. It read an exception clause as applying to its nearest-reasonable referent, the “Dispute[s]” excepted from arbitration, rather than as an exception to the tribal exclusivity provision. It then stated that even if the Bank’s arguments were persuasive, the contract would be ambiguous, and thus construed against the Bank as the draftor. Finally, the court held the arbitration clause unenforceable, rather than substituting an available forum, based on how integral the tribal forum provisions were to the agreement. The mandatory language of and pervasive references to the Tribe and its rules indicated the use of that forum was not merely an ancillary concern. Because the agreement required arbitration in an unavailable forum that was integral to the agreement itself, the arbitration clause was deemed unenforceable. Parm v. Nat’l Bank of Cal., N.A., No. 15-12509 (11th Cir. Aug. 29, 2016).

This post written by Thaddeus Ewald, a law clerk at Carlton Fields in Washington, DC .

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DIVIDED THIRD CIRCUIT PANEL HOLDS THAT WAIVER OF ARBITRATION CLAUSE DOES NOT APPLY TO FUTILE ARGUMENTS

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On July 13, 2016, a U.S. Court of Appeals for the Third Circuit panel held that an arbitration clause is not waived simply because a party failed to raise a futile argument. The case arose out of a putative class action alleging over $50 million in untrebled damages relating to purported overcharges of fees stemming from the recording of deeds and mortgage instruments. The case was pending in the District of New Jersey, where strong precedent suggested that a motion to compel bipolar arbitration—that is individual, rather than class-wide—would have been futile. Following the U.S. Supreme Court’s decision in AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), where the Court found that the Federal Arbitration Act preempted state laws that had previously prohibited a party from compelling bipolar arbitrations, the defendants notified the plaintiffs that they would be seeking to compel arbitration of this kind. The U.S. District Court for the District of New Jersey granted the motion.

On appeal, the Third Circuit found that “futility can excuse the delayed invocation of the defense of arbitration.” Examining what other federal courts had held previously, the Third Circuit panel, over a strong dissent, held that “[w]hy would we require a party to make a futile gesture to prevent waiver when we do not require such gestures in other scenarios?” The panel went on to state that the correct test is whether it was almost certain that a motion to compel arbitration would have been denied. Finding that test satisfied in these circumstances, the panel found that because defendants demanded bipolar arbitration less than a month after Concepcion, the plaintiffs were not prejudiced and affirmed the district court’s order compelling the case to individual arbitration.

Chassen v. Fidelity National Financial, Inc., Case No. 15-3789 (3d Cir. July 13, 2016).

This post written by Zach Ludens.

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ORDER COMPELLING ARBITRATION REVERSED DUE TO FAILURE TO DETERMINE THE EXISTENCE AND SCOPE OF ARBITRATION AGREEMENT

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The Ninth Circuit recently reversed a trial court for compelling arbitration without issuing an order that (1) made “the necessary factual findings as to the parties’ communications,” (2) determined “the law applicable to contract formation,” and (3) ruled “as a matter of law what constituted the offer, acceptance, or terms of the contract.” The appellate court remanded for the trial court to “resolve factual issues and make legal conclusions regarding the scope of the parties’ agreement.” Due to the basic threshold error, the court determined that it did not need to consider the parties’ arguments regarding unconscionability, waiver, and due process. Cunico Corp. v. Custom Alloy Corp., Case No. 14-56544 (9th Cir. Sept. 6, 2016).

This post written by Michael Wolgin.

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SECOND CIRCUIT PANEL ADHERES TO CIRCUIT PRECEDENT AND AFFIRMS ENFORCEABILITY OF EMPLOYMENT CLASS ACTION WAIVERS

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The Second Circuit issued a summary order affirming a decision by the Southern District of New York compelling arbitration pursuant to class-action and collective-action waivers contained in an employment arbitration agreement. The agreement required employees to submit all employment and compensation-related claims to arbitration and mandated that such claims be decided on an individual basis. The sole issue on appeal was whether the arbitration provision’s “prohibition of class or collective adjudication of work-related claims illegally restrict[ed] employees’ substantive rights under the NLRA and the [Norris-La Guardia Act], and [was] unenforceable under the [Federal Arbitration Act].” The court described the landscape of the Circuit split on this issue, noting that the National Labor Relations Board (NLRB) and the Seventh and Ninth Circuits have rejected the class/collective action waivers, whereas the Fifth and Eighth Circuits have held that such waivers may be enforceable. The Second Circuit panel then followed its own precedent, citing its 2013 decision in Sutherland v. Ernst & Young LLP, which is aligned with position of the Fifth and Eighth Circuits. The court then affirmed the enforceability of the waivers here. Patterson v. Raymours Furniture Co., Inc., Case No. 15-2820-cv (2d Cir. Sept. 2, 2016).

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

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