Arbitration / Court Decisions

INCORPORATION OF AAA RULES “CLEARLY AND UNMISTAKABLY” DELEGATES QUESTIONS OF ARBITRABILITY TO ARBITRATOR

May 13, 2015 by Carlton Fields

In a putative class action for denial of employment benefits brought by security contractors against their hiring firm, Blackwater Security Consulting, the court found that the governing agreements delegated the issue of arbitrability to an arbitrator and compelled arbitration. The contractors contended that the agreements contained no such delegation, but the court disagreed, finding that that the agreements’ incorporation of the AAA rules was sufficient to “clearly and unmistakably” submit arbitrability to an arbitrator. The court also found that the contractors’ challenge to the validity of the AAA clause based on fraud and duress failed “because it does not specifically address the delegation agreement itself as required by” the Supreme Court’s 2010 Rent-A-Center decision. The court further found that the contractors’ challenge based on mistake and unconsionability, “fails on the merits as a matter of law.” The contractors contended that they mistakenly believed that the agreements they signed did not contain arbitration provisions. This type of mistake, however, “about the nature of the contract and its contents—is not a mistake about an ‘existing or past fact’ that could satisfy” the law. As to unconscionability, the contractors argued that the shifting of attorneys’ fees and expenses from the firm to them was unfair, but the court rejected this argument as defective under Concepcion and other precedent. Mercadante v. XE Services, LLC, Case No. 1:11-cv-01044 (USDC D.D.C. Jan. 15, 2015).

This post written by Michael Wolgin.

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VOLUNTARY-INVOLUNTARY RULE IMPLICATED IN REMOVAL PROCEEDING

May 11, 2015 by Carlton Fields

In late April, a district court in New York granted plaintiff Utica Mutual Insurance Company’s (“Utica”) motion to remand, implicating the voluntary-involuntary removal rule. Utica originally filed a breach of contract lawsuit against defendant American Re-Insurance Company (“American”). The lawsuit also named as co-defendant, Transatlantic Reinsurance Company (“Transatlantic”), a corporation domiciled and with a principal place of business in New York. American was initially unable to remove the case to federal court due to lack of diversity among the co-defendants.

A New York state court severed the claims against American and Transatlantic, thereby eliminating the diversity impediment for removal. Utica argued that “removability can only be created by Utica’s voluntary conduct,” and not by the court’s involuntary severance order. American argued that the voluntary-involuntary rule’s fraudulent misjoinder exception applied, as Transatlantic was improperly joined. The court found—citing second circuit precedent—that an action was not removable when non-diverse parties were made diverse by a court’s involuntary severance order. The voluntary-involuntary rule was designed to “protect against the possibility that a party might secure a reversal on appeal in state court of the non-diverse party’s dismissal, producing renewed lack of complete diversity in the state court action….in order to be removable, be one which could have been brought in federal court in the first instance.” The case turned on whether the order was final, and not simply voluntary.

As Utica’s severance order appeal was not yet final, a requirement under the voluntary-involuntary rule, the district court remanded the case back to the New York State Supreme Court. The court noted that American’s fraudulent misjoinder claim was “time barred” as defendants failed to file within thirty days after receipt. The court also noted that American understood “Utica’s motivation for joining Transatlantic and [American] as defendants in the same action,” an admission that went against their claim for fraudulent misjoinder.

Utica Mutual Ins. Co. v. American Re-Ins. Co., No. 6:14-CV-1558 (USDC N.D.N.Y. Apr. 27, 2015).

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

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DISTRICT COURT DISMISSES BREACH OF CONTRACT CLAIM, ALLOWS BREACH OF DUTY OF UTMOST GOOD FAITH CLAIM IN REINSURANCE DISPUTE

May 6, 2015 by John Pitblado

The District Court for the Middle District of Florida recently held that defendant First American Title Insurance Company (“First American”) could maintain its breach of the utmost duty of good faith counterclaim against plaintiff Old Republic National Title Insurance Company (“Old Republic”), but that it could not countersue Old Republic for breach of contract. First American alleged that Old Republic breached the Reinsurance Agreement (“Agreement”) the parties shared by 1) paying First American under a reservation of rights to assert claims against First American, 2) disputing Old Republic’s obligation to pay First American, and 3) improperly trying to claw back the $3.8 million payment. The court held that First American’s claims were insufficient because the Agreement did not explicitly prohibit Old Republic’s actions, a necessary basis for a breach of contract claim. The court did, however, find sufficient First American’s claim that Old Republic breached the utmost duty of good faith. As the court noted, “generously construing First American’s allegations under this count in conjunction with its claim that Old Republic breached the Reinsurance Agreement by failing to pay its share of defense costs,” the pleaded facts for First American’s “utmost good faith” claim were sufficient to survive the motion to dismiss stage.

Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ, 2015 WL 1530611 (USDC M.D. Fla. Apr. 6, 2015)

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

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PENNSYLVANIA COURT DENIES MOTION FOR SUMMARY JUDGMENT OVER FACULTATIVE REINSURANCE CERTIFICATES

May 4, 2015 by Carlton Fields

The Court of Common Pleas of Philadelphia County denied defendant OneBeacon Insurance Company’s (“OneBeacon”) motion for summary judgment against plaintiffs Century Indemnity Company (“Century”) and Pacific Employers Insurance Company (“Pacific”). Century and Pacific, which held reinsurance policies issued by OneBeacon, sued the reinsurer to recover expenses in addition to the stated policy limits and to recover an award of interest on the payments received. OneBeacon sought summary judgment on two grounds: 1) that the limit stated in the parties’ reinsurance certificates placed a total cap on its liability, and 2) that plaintiffs were not entitled to an award of interest on payments. The court denied OneBeacon’s motion. First, the court determined that certain conditions placed on premiums in the reinsurance certificates meant that the premium was subject to a condition that excluded expenses in calculating the total loss limit. “If anything,” the court noted, “the terms of the certificates may have created a presumption of expense-exclusiveness.”

Second, the court denied defendant’s motion for summary judgment on collateral estoppel grounds. OneBeacon cited two prior district court cases that considered the “limit-of-liability” issue, but the court held that this legal authority did not “hold the necessary weight of final judgments at this juncture in order to apply collateral estoppel against plaintiffs.” Finally, because the court had already granted plaintiffs’ separate motion for summary judgment on payments of interest, it denied OneBeacon’s motion on that issue as well. Century Indem. Co. v. OneBeacon Ins. Co., No. 02928 (Pa. Com. Pl. Mar. 27, 2015).

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

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DISCOVERY OF RESERVE AND REINSURANCE INFORMATION PERMITTED IN COVERAGE AND BAD FAITH ACTION AGAINST INSURERS

April 30, 2015 by Carlton Fields

A federal district court in Colorado has denied motions for a protective order filed by the insurers in a coverage litigation where Cantex, a third-party assignee to claims against the insurers, asserts causes of action for breach of contract and bad faith. The discovery dispute concerned the scope of Cantex’s Rule 30(b)(6) deposition designations which sought discovery into areas of reserve and reinsurance, claims handling, underwriting, and insurance contract interpretation. The court found that the 30(b)(6) deposition topics on reserve and reinsurance information were relevant when claims of bad faith were still pending. The court therefore denied the motion for a protective order as to those areas of discovery, but permitted the insurers to interpose objections based on privilege as they deem fit. The court further found that discovery seeking testimony relating to the (1) drafting, marketing, and underwriting of the policy, (2) handling of the claims made to the insurers, including the evaluation of the underlying litigation, and (3) interpretation of the insurance policies, was also relevant. The court denied the insurers’ motions for a protective order in their entirety. Phoenix Insurance Co. v. Cantex, Inc., No. 13-cv-00507 (USDC D. Colo. Apr. 14, 2015).

This post written by Renee Schimkat.

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