Arbitration / Court Decisions

CLASS CERTIFICATION RECOMMENDED IN ALLEGED PRIVATE MORTGAGE REINSURANCE “KICKBACK” SCHEME

May 29, 2013 by Carlton Fields

When prospective home buyers cannot make a down payment at a certain level (usually twenty percent of the purchase price), lenders often require them to purchase private mortgage insurance, to cover the risk of default. Typically, the lender places the insurance on behalf of the borrower. The premium is charged to the borrower along with other escrow items, such as property tax and homeowners insurance premiums. This practice has come under attack in suits in recent years – often class action suits – alleging that private mortgage insurers and lenders (and/or their captive reinsurers) have unlawfully entered into reinsurance arrangements between the primary insurers that issue the insurance, and captive reinsurers of the lender, that amount to “kickbacks” to the lenders violating the Real Estate Settlement Procedures Act, among other causes of action.

In the long-running Munoz v. PHH Corp. case pending in the Eastern District of California, a federal magistrate recommended a partial grant of class certification, which would certify a class of “all persons who obtained residential mortgage loans originated and/or acquired by PHH and/or its affiliates on or after June 2, 2007, and, in connection therewith, purchased private mortgage insurance and whose loans were included with PHH’s captive mortgage reinsurance arrangements.” Munoz v. PHH Corp., Case No. 08-cv-0759 (USDC E.D.Cal. May 15, 2013).

This post written by John Pitblado.

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REINSURER CAN DENY COVERAGE BASED ON INSURER’S LATE NOTICE

May 28, 2013 by Carlton Fields

AIU brought an action against TIG asserting breach of contract and seeking a declaratory judgment as to coverage under nine certificates of facultative reinsurance issued by TIG’s predecessor in interest in the late 1970s and early 1980s. The parties’ dispute arose in 2007 after AIU sought coverage from TIG regarding a multimillion dollar settlement AIU had reached with its insured Foster Wheeler relating to Foster Wheeler’s exposure to numerous asbestos-related lawsuits. TIG contested coverage under the certificates, arguing that AIU had failed to provide prompt notice of Foster Wheeler’s demand for payment which AIU had received in 2003 but did not report to TIG until early 2007.

AIU contended that New York law applied, under which a reinsurer must demonstrate prejudice due to late notice in order to avoid coverage. TIG argued that prejudice to TIG need not be shown in order for it to deny coverage based on late notice under applicable Illinois law. The court determined that Illinois law applied because the certificates were issued in Illinois and AIU was required to perform under the certificates in Illinois by submitting claims to TIG’s Chicago-based intermediary. The court granted TIG’s motion for summary judgment. AIU Insurance Co. v. TIG Insurance Co., Case No. 07-civ-7052 (USDC S.D.N.Y. Mar. 25, 2013).

This post written by Ben Seessel.

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INVALID ATTORNEYS FEE PROVISION SEVERED AND ARBITRATION COMPELLED

May 23, 2013 by Carlton Fields

An arbitration provision in an employment agreement provided that the “costs and expenses of the arbitration, including the arbitrator’s fees, shall be borne equally by the parties.” The court held the provision invalid because it would have prevented the plaintiff, if successful, from recovering attorneys fees as provided for in Title VII. However, the court severed the invalid provision and compelled arbitration. Adams v. Republic Parking System, Inc., Case No. 12-1310 (USDC W.D. Okla. April 9, 2013).

This post written by Rollie Goss.

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EIGHTH CIRCUIT AFFIRMS DISMISSAL OF CONTRACT DISPUTE BETWEEN INSURER AND REINSURANCE BROKER

May 20, 2013 by Carlton Fields

In a contract dispute between an insurer and its reinsurance broker on which we previously reported, the Eighth Circuit affirmed the district court’s dismissal of the insurer’s complaint for failure to state a claim. The brokerage sharing agreement at issue required the reinsurance broker to pay an annual fee to the insurer in exchange for status as the insurer’s exclusive broker and included a forfeiture provision which discontinued the broker’s obligation to make the annual payment upon notice of the insurer’s decision to terminate or replace the broker. The insurer replaced the reinsurance broker, the broker refused to pay the annual fee, and the insurer sued for breach of contract. On appeal, the insurer argued that the district court misconstrued several key terms in the agreement, that the terms were ambiguous, and that theories of equity therefore applied. Applying Minnesota law, the Eighth Circuit determined that an “integrated definition” of a key term and the forfeiture provision were unambiguous, the broker was no longer obligated to make annual payments after receiving notice from the insurer that the broker was being replaced, and equitable relief was not available since the contract was clear and unambiguous. Olympus Ins. Co. v. AON Benfield, Inc., No. 12-1974 (8th Cir. Ap. 1, 2013).

This post written by Abigail Kortz.

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ROUNDUP OF APPELLATE ARBITRATION DECISIONS

May 16, 2013 by Carlton Fields

Confirming Award

Mandell v. Reeve, No. 11-5238 (2d. Cir. Feb. 4, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; denying appellee’s motion for sanctions, finding that the appeal was not frivolous).

Timegate Studios, Inc. v. Southpeak Interactive, L.L.C., No. 12-20256 (5th Cir. Apr. 9, 2013) (reversing district court’s decision to vacate an arbitration award with instructions to reinstate the award, holding that the arbitrator’s award of a perpetual license as relief to the prevailing party was not inconsistent with the essence of the parties’ contract).

Data & Development, Inc. v. Infokall, Inc., No. 12-2456 (2d Cir. Mar. 13, 2013) (affirming district court’s decision to confirm arbitration award, holding that the arbitrator did not manifestly disregard New York law in awarding lost profits to the prevailing party on breach of contract claim).

Stonebridge Equity v. China Automotive Systems, Inc., No. 12-1548 (6th Cir. Mar. 26, 2013) (affirming district court’s confirmation of arbitration award, holding that arbitrators did not act in manifest disregard of the law by using extrinsic evidence to interpret the parties’ contract and that the district court’s minor modification of the award to assure compliance was in accordance with the FAA).

Johnson Controls, Inc. v. Edman Controls, Inc., Nos. 12-2308 & 12-2623 (7th Cir. Mar. 18, 2013) (affirming district court’s confirmation of arbitration award and denial of petition to vacate award; arbitrator had not disregarded the parties’ choice of law nor exceeded his powers in awarding damages and attorneys fees to prevailing party).

Vacating Award

Town & Country Salida, Inc. v. Dealer Computer Services, Inc., No. 12-1850 (6th Cir. Apr. 9, 2013) (affirming district court’s partial vacatur of arbitration award, holding that the district court did not commit clear error in making the factual determination that an entity was not bound by an arbitration clause).

City of Oswego v. Oswego City Firefighters Association, No. 49 (N.Y. Apr. 2, 2013) (reversing order of appellate division; ordering that an arbitration award be vacated because the award would require a municipality to provide a benefit no longer authorized by law and that the final result would conflict with other laws and well-defined policy considerations).

Class Action Waiver and FAA Preemption

McKenzie Check Advance of Florida, LLC v. Betts, No. SC 11-514 (Fla. Apr. 11, 2013) (FAA preemption prevents court from invalidating class action waiver as void against state public policy because waiver would prevent consumers from vindicating rights under state consumer protection laws).

Jurisdiction

Community State Bank v. Knox, No. 12-1304 (4th Cir. Apr. 11, 2013) (affirming district court’s dismissal of petition to compel arbitration holding that that the FAA by itself does not bestow federal jurisdiction and that there was no independent basis for federal jurisdiction).

This post written by Ben Seessel.

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