Arbitration / Court Decisions

REINSURANCE POLICY REQUIRES EXCESS CARRIER TO PURSUE SUBROGATION RIGHTS AGAINST PRIMARY CARRIER

March 26, 2012 by Carlton Fields

Excess carrier United Heritage Property and Casualty Company asserted claims for breach of duty to defend and breach of duty to indemnify in a subrogation action against primary carrier Farmers Alliance Mutual Insurance Company (“FAMI”). FAMI moved to exclude evidence of United Heritage’s alleged damages, i.e., the amount that United Heritage had paid the insured under its excess policy. FAMI argued that United Heritage had been reimbursed for the payments by its reinsurer and that obtaining a further recovery would constitute a “windfall” for United Heritage. FAMI further contended that the reinsurance policy did not require United Heritage to reimburse FAMI for any recovery it might obtain in the lawsuit. The court disagreed and denied FAMI’s motion, finding that United Heritage’s reinsurance policy required it to pursue subrogation claims and to credit the proceeds of any such claims to the reinsurer. United Heritage Property & Casualty Co. v. Farmers Alliance Mutual Insurance Co., Case No. 10-cv-00456 (USDC D. Idaho Feb. 27, 2012).

This post written by Ben Seessel.

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TWO RECENT DECISIONS HIGHLIGHT POTENTIAL IMPACT OF STATE LAW ON ENFORCEABILITY OF CLASS-WAIVER ARBITRATION AGREEMENTS UNDER CONCEPCION

March 22, 2012 by Carlton Fields

In Carey v. 24 Hour Fitness, USA, Inc., the Fifth Circuit affirmed the denial of a motion to compel arbitration and permitted a class action employee-overtime lawsuit to go forward despite the parties’ putative agreement to arbitrate such disputes on a non-class basis. While the court cited Concepcion for the “fundamental principle that arbitration is a matter of contract,” it did not enforce the underlying class arbitration waiver agreement, finding that under state law, the underlying arbitration agreement was “illusory” and unenforceable because the employer reserved the right to change the agreement at any time. A similar approach (albeit, with a different outcome) was taken in another class action suit, Gore v. Alltell Communications, LLC. There, the Seventh Circuit reversed an order denying a motion to compel individual arbitration based on its interpretation of an arbitration agreement under state law. The court found that the arbitration agreement, which was contained in only the second of two contracts between the parties, applied to the parties’ dispute because it unambiguously provided that “any dispute arising out of” the agreement would “be settled by arbitration” on a non-class basis. The court held that based on the plaintiff’s allegations, all of the plaintiff’s causes of action could be deemed to arise from the second agreement, thus falling within the scope of the arbitration clause. The court further held that even the question of whether the agreement was unconscionable should be decided in arbitration because plaintiff challenged the entire agreement, not just the arbitration clause. Carey v. 24 Hour Fitness, USA, Inc., Case No. 10-20845 (5th Cir. Jan. 25, 2012); Gore v. Alltel Communications, LLC, Case No. 11-2089 (7th Cir. January 19, 2012).

This post written by Michael Wolgin.

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FLORIDA APPELLATE COURT RULES EXTRINSIC EVIDENCE APPROPRIATE TO CONSTRUE AMBIGUOUS REINSURANCE CONTRACT PROVISION

March 21, 2012 by Carlton Fields

On an appeal arising out of a dispute regarding personal accident reinsurance for an aircraft, Florida’s 4th District Court of Appeals reversed and remanded the trial court’s grant of summary judgment finding that the court should have considered extrinsic evidence in interpreting the policy. The DCA concluded that although ambiguous policies are often construed against the insurer as drafter of the contract, the unique and highly specialized nature of the insurance justified the examination of extrinsic evidence. Accordingly, the case was sent back to the trial court to allow the parties to submit extrinsic evidence on what, if any, coverage is provided to unemployed passengers. Kiln PLC v. Advantage Gen. Ins. Co., Ltd., No. 4D10-2995 (Fl. Ct. App. Feb. 22, 2012).

This post written by John Black.

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NINTH CIRCUIT CONCLUDES AT&T v. CONCEPCION PREEMPTS CALIFORNIA STATE LAW

March 19, 2012 by Carlton Fields

Plaintiffs brought a putative class action alleging violations of California’s Unfair Competition Law in connection with student loans. Each of the loan contracts contained an arbitration clause, which the district court declined to enforce. The Ninth Circuit granted review to consider whether the US Supreme Court’s recent decision in AT&T Mobility, Inc. v. Concepcion that the FAA preempts California’s state law rule prohibiting the arbitration of claims for broad injunctive relief. The District Court had denied the motion to compel arbitration largely in discretion to California’s policy prohibiting the arbitration of claims for public injunctive relief, despite the parties’ agreement to arbitrate. It is notable that the District Court’s decision was made nearly two years before the Supreme Court issued its Concepcion decision. The Ninth Circuit held that Concepcion does indeed preempt the California state law rule and that the arbitration clause in the parties’ contracts must be enforced because it was not unconscionable. The Ninth Circuit thus overruled the District Court’s denial of KeyBank’s motion to compel arbitration, vacated the judgment entered, and remanded to the District Court with instructions to stay the case and compel arbitration. Kilgore v. KeyBank, N.A., No. 09-16703 (9th Cir. Mar. 7, 2012).

This post written by John Black.

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INSURER PRECLUDED FROM ENFORCING POLICY ARBITRATION CLAUSE IN GARNISHMENT ACTION BROUGHT BY INSURED’S ASSIGNEE

March 15, 2012 by Carlton Fields

Penford Products entered into a contract with C.J. Schneider Engineering (“CJS”) for the construction of an ethanol plant. Penford demanded arbitration under the contract, asserting that the plant was defectively designed and constructed. CJS tendered its defense to Lexington Insurance Company, CJS’s professional liability insurer. After Lexington claimed no coverage and refused to defend, CJS assigned all of its rights against Lexington to Penford. Shortly thereafter, a seven-million dollar arbitration award was issued in Penford’s favor and against CJS. After judgment on the award was entered, Penford initiated garnishment proceedings against Lexington in Iowa state court to collect on the judgment. Lexington moved to compel arbitration, arguing that Penford must abide by the arbitration clause in the Lexington insurance policy issued to CJS. The trial court rejected Penford’s request and the appellate court affirmed holding that, while Penford “stands in the shoes” of CJS for purposes of the garnishment action, Penford was not bound by the arbitration clause in the Lexington/CJS policy. Penford Prods. Co. v. C.J. Schneider Eng’g. Co., No. 1-575/10-1754 (Iowa Ct. App. Dec. 21, 2011).

This post written by Ben Seessel.

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