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COURT ORDERS PRODUCTION OF REINSURANCE AND RESERVE INFORMATION IN INSURANCE CLAIM SUIT, FINDING INFORMATION RELEVANT AND NOT SUBJECT TO THE COMMON INTEREST PRIVILEGE

July 17, 2012 by Carlton Fields

In an insurance coverage case arising out of the sinking and salvage of a dry dock, the insured sought the production of documents concerning reinsurance purchased by its insurer, from the procurement of the reinsurance through the claim submitted to the reinsurer. The insurer resisted production based upon two grounds: (1) relevance; and (2) the common interest privilege, claiming that it and its reinsurer had “a joint legal interest in the outcome of the litigation ….” The insured contended that the reinsurance documents were discoverable and potentially relevant in that the insurer had contended that the insured had fraudulently failed to disclose certain information to it about the dry dock, and the facts considered by the reinsurer in pricing the reinsurance might reveal that the information allegedly not disclosed was in fact known to the insurer. Accepting this argument, the court found the reinsurance file, including information concerning reserves, to be relevant and discoverable.

The court held that the common interest doctrine requires a two-part showing: (1) a common legal, rather than solely commercial, interest; and (2) an exchange of privileged information made in the course of formulating a common legal strategy, with an understanding that the communication would be in furtherance of a shared legal interest. The first element requires an oral or written agreement “embodying a cooperative and common enterprise towards an identical legal strategy.” Finding that the mere status of insurer-reinsurer did not establish these elements, and the fact of the reinsurer merely turning its file over to the insurer was insufficient, the court analyzed the facts and determined that neither of these two elements of the common interest privilege had been satisfied. Accordingly, it ordered the production of the reinsurance information. In a separate order, the court deferred other discovery issues not related to reinsurance to a later hearing. Fireman’s Fund Insurance Company v. Great American Insurance Company of New York, Case No. 10-1653 (USDC SDNY July 3, 2012).

This post written by Rollie Goss.

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FOURTH CIRCUIT: STATE STATUTE DOES NOT REVERSE PREEMPT FEDERAL LAW

July 16, 2012 by Carlton Fields

The Fourth Circuit issued an opinion “preserving the United States’ ability to speak with one voice” in regulating foreign arbitrations. ESAB Group argued that a South Carolina statute “reverse preempts” federal law pursuant to the McCarran-Ferguson Act which is directed at protecting state insurance regulation by implied preemption by federal domestic commerce legislation. In particular, the Court of Appeals considered whether McCarran-Ferguson applied such that state law can reverse preempt federal law to invalidate a foreign arbitration agreement mandating dispute resolution before Swedish tribunals. The court concluded that the federal government articulated a uniform policy in favor of enforcing agreements to arbitrate internationally (through a treaty and its enacting regulations) even when a contrary result would be forthcoming in a domestic context. Thus, insurance disputes were not exempted from the treaty, which controlled. In addition, the Court of Appeals held that the district court properly exercised personal jurisdiction over Zurich Insurance, and that the court was within its rights to remand nonarbitrable claims to state court. ESAB Group, Inc. v. Zurich Insurance PLC, No. 11-1243 (4th Cir. July 9, 2012).

This post written by John Black.

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FEDERAL INSURANCE OFFICE SEEKS COMMENTS ON GLOBAL REINSURANCE MARKET

July 10, 2012 by Carlton Fields

The Federal Insurance Office (“FIO”) has requested comments on the global reinsurance market to facilitate the preparation of a report that Dodd Frank requires it to submit to Congress on the impact of the global reinsurance market on insurance in the United States. It invites comments on the purpose of reinsurance, the breadth and scope of the global reinsurance market, the role that the global reinsurance market plays in supporting insurance in the United States, the effect of domestic and international regulation on reinsurance in the United States, the role and impact of government reinsurance programs, the coordination of reinsurance supervision nationally and internationally, and any other relevant topic. Comments are due by August 27, 2012 and the FIO’s report is due by September 30, 2012.

This post written by Ben Seessel.

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FIRST CIRCUIT HOLDS THAT STOLT-NIELSEN DOES NOT SET A BRIGHT LINE ON CLASS ARBITRATION

July 9, 2012 by Carlton Fields

An association of franchisees, Fantastic Sams Regional Owners Association (“FSRO”) made a demand for arbitration on behalf of its members against Fantastic Sams Franchise Corporation (“FSFC”). FSRO’s members have individual license agreements with FSFC and alleged breach of contract and related violations of the Massachusetts Consumer Protection Act. FSFC moved to stay arbitration and to compel that each member arbitrate its claims individually. The district court granted FSFC’s motion with respect to most of the agreements, which provided that “arbitration be of a licensee’s individual claim only,” but denied it as to ten other agreements that provided in broad terms that all disputes must be resolved by arbitration under AAA rules, but did not specifically preclude collective arbitration.

FSFC argued that collective arbitration of the remaining claims was foreclosed by the Supreme Court’s decision in Stolt-Nielsen, which FSFC contended holds that no class or collective arbitration can proceed unless “expressly authorized” by an arbitration agreement. The First Circuit held that FSFC was reading Stolt-Nielsen too broadly. According to the First Circuit, although the Supreme Court held that class arbitration may not be imposed “unless there is a contractual basis for concluding that the party agreed to” it, the Supreme Court had not decided what might constitute a contractual basis for class arbitration. The First Circuit rejected FSFC’s argument that Stolt-Nielsen requires “express contractual language evincing the parties’ intent to permit class or collective arbitration,” citing in support the Third Circuit’s decision in Sutter v. Oxford Health Plans LLC and the Second Circuit’s decision in Jock v. Sterling Jewelers, Inc. The court further distinguished Stolt-Nielsen on the basis that FSRO sought to arbitrate claims collectively on behalf of the individual members of its association, rather than to commence a class action arbitration. According to the First Circuit, the concerns regarding class action arbitrations raised by the Supreme Court in Stolt-Nielsen were thus inapplicable. The arbitrators will decide whether collective arbitration will be permitted with respect to the agreements that provide that all disputes will be arbitrated but do not specifically require arbitration on an individual basis. Fantastic Sams Franchise Corp. v. FSRO Ass’n Ltd., No. 11-2300 (1st Cir. Jun. 27, 2012).

This post written by Ben Seessel.

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RECENT DECISIONS ADDRESSING ENFORCEABILITY OF CLASS-WAIVER ARBITRATION CLAUSES UNDER CONCEPCION SUGGEST CONTINUED CONFLICT IN CALIFORNIA

July 3, 2012 by Carlton Fields

On June 25, 2012, we reported on Iskanian v. CLS Transportation Los Angeles, LLC, where a California appellate court, following the U.S. Supreme Court’s Concepcion decision, affirmed the enforcement of an arbitration clause waiving class claims, subsequent to the court’s pre-Concepcion suggestion that the waiver was unenforceable based on state precedent. In Samaniego v. Empire Today LLC, another California appellate court reached a different result in a similar context. There, the court found that a class action could proceed despite the existence of a class waiver arbitration clause, on the grounds that the entire agreement between the parties was unconscionable. The court construed Concepcion narrowly, noting Concepcion precluded only “defenses that apply only to arbitration or that derive their meaning from the fact that an agreement to arbitrate is at issue,” but did not preclude “generally applicable contract defenses, such as fraud, duress, or unconscionability.” Samaniego v. Empire Today LLC, Case No. A132297 (Cal. Ct. App. April 5, 2012).

This post written by Michael Wolgin.

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