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Arbitration / Court Decisions

COURT REVERSES DISMISSAL OF INSURED’S CLAIM AGAINST REINSURER ASSERTING TORTIOUS INTERFERENCE WITH INSURANCE SETTLEMENT AGREEMENT

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Gardner Denver, Inc. (“Gardner”), had entered into a settlement agreement with its liability insurer, National Union Fire Insurance Company of Pittsburgh, Pennsylvania (“NUF”) to resolve a dispute over Gardner’s coverage under various indemnity agreements. NUF honored the settlement agreement for several years, paying Gardner’s claims. However, once NUF entered into a “retroactive reinsurance” agreement with National Indemnity Company (“NICO”), in which NICO assumed NUF’s obligations and liabilities, NICO delegated the claims handling to another entity, which asserted a coverage defense and ceased paying Gardner’s claims under the settlement agreement. Gardner sued NICO and the claims administrator for tortious interference with a contract, and NICO countered with a motion to dismiss. NICO contended that the tortious interference claim failed because NICO had a qualified privilege as NUF’s agent (similar to the protection afforded to corporate officers under the “business judgment” rule) to handle claims on behalf of NUF. The trial court agreed with NICO and found that the complaint failed to overcome the privilege by sufficiently alleging that NICO acted without justification and with malice, and dismissed the case.

The appellate court, however, reversed the dismissal, holding that it was a factual question whether NICO’s actions were in fact unjustified or malicious, based on interpretation of the underlying insurance and settlement agreements and other evidence not before court, and thus it was not a decision for the court to resolve on a motion to dismiss. “Until the court answers whether NICO’s defense was frivolous, it could not determine whether NICO acted in good faith or, alternatively, acted without justification or malice, in its failure to pay claims pursuant to the settlement agreement.” Gardner Denver, Inc. v. National Indemnity Co., et al., Case No. 4-14-0713 (Ill. App. Ct. May 21, 2015).

This post written by Barry Weissman.

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NLRB FINDS MANDATORY ARBITRATION CLAUSE UNENFORCEABLE

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An administrative law judge for the National Labor Relations Board (“Board”) found in favor of Talina Torres (“Torres”) against Employers Resource (“Employers”) after determining that an arbitration clause within an employment contract was unenforceable. From September 2009 until June 2011, Torres was employed by Beth’s Kitchen, Inc., which was staffed by Employers. Torres filed a wage and hour putative class action lawsuit in California state court after being laid-off. Employers was named as a co-defendant. Employers then successfully moved to compel individual arbitration arguing that, under Stolt-Nielsen, class arbitration may not be inferred when a contract is silent on the issue. Following this ruling, Torres filed a complaint with the Board contending that Employers restricted her rights to engage in “protected concerted activities” as an employee under the National Labor Relations Act, citing recent Board decisions Murphy Oil and D.R. Horton.

In response to the Board complaint, Employers made various arguments, including that the Board lacked standing to hear the case as Torres was not an employee of Employers. Employers further contended that, contrary to the facts in Murphy Oil and D.R. Horton, the employment agreement in this case was not mandatory as a condition of employment with Beth’s Kitchen. The Board, however, found that while Torres did not interact with Employers, Employers did prepare the employment agreement for Beth’s Kitchen, Employers made itself a party to the agreement, and Employers then relied on the agreement in the litigation. Therefore, Employers was sufficiently implicated as violating Torres’s rights under the NLRA. The Board also noted that based on various representations made by Employers and Beth’s Kitchen, Torres was led to believe that the employment agreement was mandatory as a condition of employment. The Board ordered that Employers rescind or revise the mandatory arbitration provision and also that they not oppose Torres’ class action wage and hour suit on the basis of the employment agreement. Employers Resource and Talina Torres, Case 31-CA-097189 (N.L.R.B. May 18, 2015).

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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COURT OF APPEALS AFFIRMS REJECTION OF CLAIMS RELATING TO CAT BOND

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We previously posted on a district court’s dismissal, with prejudice, of an Amended Complaint challenging the propriety of payments to the ceding insurer of the Mariah Re catastrophe bond which exhausted the cat bond’s trust account.  The Amended Complaint contended that the payment amount had not been calculated in accordance with the provisions of the cat bond’s documents, and that a lesser amount, which would not have exhausted the trust account, should have been paid instead.  The district court found that the documents clearly set forth the process for calculating the payment amount, and that the payment amount had been calculated in accordance with the contractual agreements.  It therefore dismissed the case with prejudice.  The Court of Appeal, after briefly describing the contractual relationships, simply stated that “[w]e AFFIRM the judgment of the district court for substantially the reasons stated by Judge Sullivan in his opinion of September 30, 2013.”  This result demonstrates the importance of clarity in the drafting of cat bond documents, and may help to reduce whatever uncertainty this lawsuit engendered in the cat bond market.  Mariah Re Limited v. American Family Mutual Insurance Company, No. 14-4062 (2nd Cir. June 30, 2015).

This post written by Rollie Goss.

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DISTRICT COURT DENIES PRELIMINARY RELIEF IN REINSURANCE DISPUTE OVER RELATED LITIGATION

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Plaintiff Excalibur Reinsurance Corporation (“Excalibur”) sought a preliminary injunction in the Eastern District of Pennsylvania to enjoin Defendants Select Insurance Company and the Travelers Indemnity Company from proceeding with litigation on the same issues in the District of Connecticut. Excalibur argued that without the injunction, it would need to post security in the Connecticut action, an action that would deplete its corporate assets and seriously affect its liquidity. The district court, however, denied Excalibur’s preliminary injunction because it found that Excalibur would not be “irreparably harmed” if the request were denied. The court found that Excalibur would recover posted funds in Connecticut if it prevailed. It also noted that a sworn statement by its Assistant Vice President was insufficient evidence to demonstrate the potential injury the company faced from posting security in two different matters.

Excalibur Reinsurance Corp. v. Select Ins. Comp., No. 15-2522 (USDC E.D. PA. June 2, 2015)

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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