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Arbitration / Court Decisions

DENIAL OF ARBITRATION OF STOP-LOSS INSURANCE DISPUTE AFFIRMED UNDER STATE INSURANCE LAW

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The president of a corporate administrator of a trust appealed the denial of his motion to compel arbitration against a company that sued him individually in a case seeking benefits and other relief for disputed medical stop-loss coverage. The appellate court initially held that, although the president was a non-signatory to the underlying agreements, the president could enforce the arbitration provisions based on agency and the plaintiff’s allegations, which treated the president and his corporation as one and the same. The court concluded, however, that arbitration could not be compelled under state insurance law, which prohibits arbitration involving certain insurance agreements. The court found that under the McCarran-Ferguson Act, the state insurance law was not preempted by the FAA or the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The court held that the state law regulated insurance, and the agreement at issue provided “indemnity” and was therefore properly subject to the state insurance law as a contract of “insurance.” Scott v. Louisville Bedding Co., No. 2012-CA-000252-MR (Ky. Ct. App. July 12, 2013).

This post written by Michael Wolgin.

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CLASS ACTION WAIVER ARBITRATION PROVISIONS ENFORCEABLE IN THE SECOND CIRCUIT POST-AMEX V. ITALIAN COLORS

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In back-to-back opinions addressing wage disputes brought under the Fair Labor Standards Act, the Second Circuit reversed the district court’s orders denying defendants’ motions to compel arbitration. In so doing, the Second Circuit explicitly followed the Supreme Court’s holding in American Express Co. v. Italian Colors Restaurant that plaintiffs cannot use the “effective vindication doctrine” to invalidate class action waiver provisions by showing that their claim is not economically worth pursuing individually. The Second Circuit also made clear that Amex I and its progeny that preceded the Supreme Court decision are no longer good law. The Amex I cases invalidated a class action waiver provision based on plaintiffs’ showing that “they would incur prohibitive costs if compelled to arbitrate under the class action waiver.” Sutherland v. Ernst & Young LLP, No. 12-304 (2d Cir. Aug. 9, 2013); Raniere v. Citigroup Inc., No. 11-5213 (2d Cir. Aug. 12, 2013).

This post written by Abigail Kortz.

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Round-Up Of Federal Decisions Involving Questions of Arbitrability

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Mortensen v. Bresnan Communications, LLC, No. 11-35823 (9th Cir. July 15, 2013) (vacating district court order declining to enforce arbitration agreement between broadband internet provider and consumer, finding 2011 U.S. Supreme Court decision AT&T Mobility v. Concepcion controlling; finding error in district court’s failure to apply New York law despite forum selection clause).

Biernacki v. Service Corp. Int’l, No. 11-17495 (9th Cir. June 10, 2013) (reversing district court order which held that plaintiffs – current and former employees of defendant who initially brought a putative class action in court for which certification was denied – had waived right to seek to compel arbitration, due to participation in litigation for three years. Ninth Circuit court held that merely participating in litigation, and incurring legal expense, insufficient to demonstrate waiver of right to arbitrate).

Safelite Group, Inc. v. Zurich Amer. Ins. Co., Case No. 2:12-cv-536 (USDC S.D. Ohio July 30, 2013) (compelling arbitration where “broad” clause governing “any and all” disputes, includes quasi-contractual claims; reserving questions of arbitrability for arbitrator pursuant to AAA rules incorporated into arbitration provision; staying remaining claims involving non-party until completion of arbitration).

Oracle America, Inc. v. Myriad Group, A.G., No. 11-17186 (9th Cir. July 26, 2013) (reversing denial of motion to compel arbitration, finding question of whether court or arbitrator should decide issues of arbitrability governed by contact language which unmistakably indicated parties’ intent to reserve question for arbitrator).

This post written by John Pitblado.

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BRITISH COURT VOIDS REINSURANCE COVERAGE FOR BREACH OF TYPHOON WARRANTY IN MASS-CASUALTY SHIP-SINKING OFF PHILIPPINES

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Plaintiffs sued defendant primary insurer, Oriental Assurance Company, under a reinsurance contract covering underlying risk of a Philippines shipping company, including 22 scheduled vessels. Among them was the Princess of the Stars, a ferry built in 1984 which, on June 21, 2008, set out from Manila on a trip to Cebu, with 2978 tons of cargo, including cars and SUVs, 713 passengers and 138 crew. It capsized when a typhoon struck, killing 851 people and leaving only 32 survivors. The reinsurance contract contained a “Typhoon Warranty” clause prohibiting a ship setting sail in waters after issuance of a typhoon warning, violation of which voids the policy. After hearing expert testimony and other evidence regarding the ship captain’s and shipping company’s knowledge of typhoon warnings, and decision to nonetheless sail, the UK court held the warranty breached, and the reinsurance cover void. Amlin Corporate Member, Ltd. v. Oriental Assurance Corp., [2013] EWHC 2380 (Comm) (British High Court of Justice, Queen’s Bench, July 31, 2013).

This post written by John Pitblado.

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COURT APPLIES ENGLISH LAW TO RETROCESSION AGREEMENTS, FINDING SOME CLAIMS OWING AND OTHER CLAIMS BARRED BY STATUTE OF LIMITATION, WITH NO BREACH OF RETENTION WARRANTY

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U.S.-based insurers wrote risks and obtained reinsurance from a syndicate of reinsurers, for which Republic Insurance was a fronting company. The syndicate obtained retrocessional coverage in the London market through LMX quota share contracts which ran for a number of years. The retrocessional coverage required that the reinsured retain a certain percentage of the risk, which is not an unusual warranty. Claims statements were submitted and paid over several years without dispute, but due to a change in the administration of the retrocessional coverage claims statements were not submitted on the retrocession contracts for about ten years, even though claims had been paid on the underlying coverages. Billings then resumed and a dispute arose. On motions for summary judgment, the trial court held: (1) English law applied to the retrocession contracts since the place of negotiations, contracting, obligations, subject matter, and arbitration situs for the retrocession contracts were primarily focused on London (the fact that the underlying risks were located around the world made that factor of little significance); (2) claims arising during the ten year period of non-billing were barred by the six year English statute of limitation; and (3) later claims were not contested, and were established and owing on an account stated basis. The court found that there was no breach of the retention warranty, even though Republic did not retain the requisite amount of the risk, because the warranty provided for retention by the reinsured, which was defined to be the syndicate rather than the fronting company, and the syndicate did retain the warranted amount of risk. Republic Ins. Co. v. Banco de Seguros del Estado, Case No. 10-C-5039 (USDC N.D. Ill. July 26, 2013).

This post written by Rollie Goss.

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