Week's Best Posts

TEXAS SUPREME COURT HOLDS THAT ORDER VACATING ARBITRAL AWARD DUE TO UNRESOLVED QUESTIONS OF FACT IS NOT APPEALABLE

June 12, 2012 by Carlton Fields

As a condition of his employment at Bison, Aldridge signed an arbitration agreement in which he agreed to resolve by arbitration any claims for work-related injuries. After Aldridge sustained an injury at work, Bison paid him approximately $80,000 in medical and wage replacement benefits in exchange for a release in which Aldridge gave up the right to take legal action. Aldridge later demanded arbitration. The arbitrator dismissed Aldridge’s claim with prejudice based on the terms of the release. Aldridge filed a petition to vacate; Bison moved to confirm.

The trial court vacated in part, holding that there were unresolved questions of fact regarding whether the release and waiver was enforceable. In particular, the court held that there were fact issues regarding whether Texas’s fair notice requirement had been met and, if not, whether both parties had actual knowledge of the terms of the waiver. Further, the court held that there was a question regarding whether the “ambiguous terms of the waiver” precluded arbitration. Bison appealed. The court of appeals held that the trial court’s order was interlocutory and thus not appealable. The Supreme Court affirmed, holding that the order was interlocutory and non- appealable because it left “significant factual and legal issues open for further determination.” The dissenting justices opined that mandamus review was warranted under Texas procedure because the FAA would permit an appeal from the trial court’s order, which the dissent argued calls for an “arbitration Mulligan.” Bison Bldg. Materials, Ltd. v. Aldridge, No. 06-1084 (Tex. Jan. 16, 2008).

This post written by Ben Seessel.

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CITING CONCEPCION, FIFTH CIRCUIT AFFIRMS NO CLASS ARBITRATION RULING

June 11, 2012 by Carlton Fields

Jeffrey Reed brought a putative class action case against his alma mater, “on-line” school, Florida Metropolitan University, Inc. (“FMU”), in Texas state court, alleging that FMU solicited students in violation of certain provisions of the Texas Education Code. FMU removed to federal court, and moved to compel arbitration under the parties’ agreement. The court granted the motion to compel, and also refused to address the issue of whether class arbitration was allowable, which Reed had raised, finding it should be decided by the arbitrator. At arbitration, Reed moved for a “Clause Construction Award” allowing the arbitration to proceed on a class basis. Over FMU’s objection, the arbitrator ruled in Reed’s favor. Reed moved to confirm and FMU moved to vacate the ruling. The district court vacated the award, finding it exceeded the scope of the arbitrator’s power under the Federal Arbitration Act. Reed appealed. The Fifth Circuit Court of Appeals affirmed, based on the U.S. Supreme Court’s holdings in Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 130 S. Ct 1758 (2010) and AT&T Mobility, LLC v. Concepcion, 131 S. Ct. 1740 (2011), emphasizing that the arbitrator forced the parties into class arbitration without a contractual basis for doing so. Reed v. Florida Metropolitan Univ., Inc., No. 11-50509 (5th Cir. May 18, 2012).

This post written by John Pitblado.

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MOTION TO SET ASIDE DISCOVERY ORDER ON LOSS RESERVES DENIED

June 5, 2012 by Carlton Fields

In the latest development in the ongoing litigation between Granite State Insurance Company and Clearwater Insurance Company, Granite unsuccessfully moved to set aside a magistrate judge’s discovery order. As we reported in July 2011, Granite was ordered to produce certain asbestos loss reserve documents in response to Clearwater’s request for production of documents. The motion objecting to that order was denied, the district judge concluding that, first, the magistrate judge’s order was not contrary to law as the crucial issue was not merely, as Granite suggested, whether a ceding insurer has any practices in place regarding providing notice and, second, the order was not “clearly erroneous” because the notice procedures were relevant to the ultimate issue in dispute. The district judge explained that Granite’s arguments were largely tied to the merits of its defenses rather than to the permissibility of the discovery sought. Granite State Insurance Co. v. Clearwater Insurance Co., Case No. 09-10607 (USDC S.D.N.Y. Apr. 20, 2012).

This post written by John Black.

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REHABILITATION PLAN DISAPPROVED FOR FAILURE TO INCLUDE SURETY BOND LIABILITIES IN PRIORITY CLASS OF “CLAIMS UNDER POLICIES”

June 4, 2012 by Carlton Fields

On July 22, 2009 and November 2, 2011, we reported on certain disputes involving long-time rehabilitating insurer, Frontier Insurance Company. Frontier’s rehabilitator recently submitted to the supervising court a plan of rehabilitation that included a runoff of Frontier’s liabilities, with additional protection for liabilities deemed “claims under policies.” Frontier’s plan defined such claims as those made under policies of insurance, but excluded claims under its significant book of surety bonds, fidelity bonds, and similar instruments. Based on this definition, the rehabilitator contended that Frontier’s surety liabilities were entitled to low priority and could be discounted. The court rejected the proposal and disapproved the plan, siding with objectors who contended that the proposed definition of “claims under policies” unlawfully discriminated within a single priority class of Frontier’s liabilities. Surety claims fall within the same class as insurance claims, and must be paid to the same extent as all other traditional insurance claims. The court ordered the rehabilitator to either propose a revised plan or apply for an order of liquidation. In re Frontier Insurance Co., Index No. 97-06 (N.Y. Sup. Ct. May 23, 2012).

This post written by Michael Wolgin.

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TEXAS HIGH COURT HOLDS THAT STOP-LOSS INSURANCE SOLD TO EMPLOYEE-HEALTH PLANS IS NOT REINSURANCE

May 30, 2012 by Carlton Fields

The Texas Supreme Court ruled that stop-loss insurance sold to self-funded employee health benefit plans is “direct insurance in the nature of health insurance” and not reinsurance. As we reported earlier, the Court of Appeals had ruled that such policies were reinsurance beyond the scope of DOI regulation. The issue arose when the Texas DOI discovered, during a routine audit, that American Insurance Company had sold stop-loss policies from 1998-2002 without paying taxes or complying with other regulatory requirements. American argued that employers that self-fund employee health benefit plans are “insurers” engaged in the “business of insurance.” The Texas high court disagreed, holding that, although employers that self-fund health benefit plans in some respects act like insurers, they are not regulated as insurers under the Texas Insurance Code. Further, the court reasoned, ERISA generally precludes the states from deeming such plans to be insurers or engaged in the business of insurance. Texas Dep’t of Ins. v. Am. Nat’l Ins. Co., No. 10-0374 (Tex. May 18, 2012).

This post written by Ben Seessel.

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