New reinsurance-related and arbitration developments from Carlton Fields
Following the Supreme Court’s decision in AT & T Mobility, LLC v. Concepcion, many courts have found that the Federal Arbitration Act preempts unconscionability challenges. In this Special Focus, John Pitblado addresses cases which distinguish Concepcion and refuse to compel arbitration.
This post written by Brian Perryman.
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Two US Courts of Appeals recently issued opinions bearing on the unconscionability of arbitration agreements. In Coneff v. AT&T, the Ninth Circuit reversed a district court’s refusal to enforce an arbitration agreement between AT&T and current and former customers. The district court had ruled that the agreement’s class action waiver provision was unconscionable based on Washington’s state law invalidating class action waivers. The Ninth Circuit reversed, holding specifically that the Supreme Court’s recent decision in Concepcion controlled. Thus, the FAA preempted the Washington state law. Further, the Court remanded the case to the district court to apply Washington choice of law rules on the putative class action plaintiffs’ procedural unconscionability arguments. Coneff v. AT&T Corp., No. 09-035563 (9th Cir. Mar. 16, 2012).
In Quilloin v. Tenet Healthsystem Philadelphia, Inc., the Third Circuit also reversed a district court’s determination that an arbitration provision was unconscionable and unenforceable. As a threshold issue, the Third Circuit held that the plaintiff did not agree to arbitrate the question of arbitrability itself so the district court did not err in addressing the validity of the arbitration agreement. The Court applied Concepcion and found no basis for substantive unconscionability under Pennsylvania law. Specifically, the Court determined that, among other things, Pennsylvania’s prohibition against class action waivers was preempted by the FAA. Additionally, the Court ruled that the plaintiff did not lack a meaningful choice in agreeing to arbitrate, and thus raised no genuine issue of material fact with regard to procedural unconscionability. The case was reversed and remanded with instruction to stay the proceedings and compel arbitration. Quilloin v. Tenet HealthSystem Philadelphia, Inc., No. 11-1393 (3d Cir. Mar. 13, 2012).
This post written by John Black.
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In November 2011, the NAIC Executive Committee charged the Financial Condition (E) Committee with studying insurers’ use of captives and special purpose vehicles to transfer third-party insurance risk in relation to existing state laws and regulations and establish regulatory requirements, including revising or creating NAIC model laws, to address concerns identified in the study. To that end, the Financial Condition (E) Committee created the “Captives & SPV Use Subgroup” with representatives from the Financial Analysis (E) Working Group, the Life Actuarial (A) Task Force, and the Reinsurance (E) Task Force. The Subgroup held its inaugural conference call on January 27, 2012, in which it issued a survey to state insurance regulators with respect to commercial insurers domiciled in their respective states that transfer risk to captives or SPVs. The survey sought comment on various issues, including the basics of each state’s laws impacting captives or SPVs, the types of products permitted to be transferred, the business purpose behind such transfers, solvency standards, credit for reinsurance, and other topics designed to provide perspective on the general legal and business environment surrounding the use of captives and SPVs. Thirty-one states responded to the survey by the February 20, 2012 deadline, and the results were discussed at the NAIC Spring National Meeting held in early March. The Subgroup plans on developing another survey targeted to companies, the results of which will be kept confidential with the exception of an aggregate summary that will be circulated for comment. Conference calls are scheduled every two-to-three weeks going forward through the Summer National Meeting in August 2012, with the goal of drafting a proposal or a white paper addressing the Subgroup’s charge. This group has a web page on the NAIC’s internet site.
This post written by Michael Wolgin.
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Reinsurance broker Guy Carpenter placed a “finite quota share reinsurance agreement” for Workmen’s Auto Insurance Company with PMA Capital Insurance Company. After dispute arose over the terms of the agreement, Workmen’s brought suit against Guy Carpenter, alleging, among other things, that Guy Carpenter failed to obtain the “best terms” it could have in the reinsurance market. The court granted summary judgment on the failure-to-secure-best-terms claim. After losing at trial on breach of fiduciary duty and price-fixing claims, Workmen’s appealed, arguing that summary judgment was inappropriate because the quota share agreement did not qualify as “reinsurance” at all. The appellate court affirmed, however, finding that Workmen’s improperly raised the issue on appeal, and improperly relied on trial evidence on appeal of a summary judgment ruling. It also affirmed defense verdicts for Guy Carpenter on the breach of fiduciary duty and price-fixing claims. Workmen’s Auto Insurance Co. v. Guy Carpenter & Co., Inc., No. B211660 (Cal. Ct. App. Mar. 1, 2012).
This post written by John Pitblado.
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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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