Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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Week's Best Posts

COURT COMPELS FINRA ARBITRATION OF EMPLOYMENT DISPUTE

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Kevin Imhoff left his job as a broker for Primerica, for whom he sold various securities and insurance products, to go work for a competitor. He sued Primerica in state court, alleging that they harmed his relationship with his clients and with AIG (one of the insurance companies whose products he sold), as a result of various communications Primerica sent announcing his departure. Primerica filed a petition in federal court seeking to compel arbitration under FINRA. Imhoff conceded he agreed to arbitrate certain disputes, as set forth in his FINRA registration, but that the dispute pertaining to his sale of insurance products was exempt from arbitration by FINRA Rule 13200. The Court rejected this claim, narrowly construing Rule 13200’s exception for “insurance related claims,” which states that “disputes arising out of insurance business activities of a member that is also an insurance company are not required to be arbitrated under FINRA,” and finding that it does not encompass employment disputes, but rather only “intrinsically insurance” claims. The Court compelled arbitration of all claims. PFS Investments, Inc. v. Imhoff, No. 11-10142 (USDC E.D. Mich. March 25, 2011).

This post written by John Pitblado.

NEW YORK HIGH COURT HOLDS CHOICE OF LAW SHOULD BE EMPLOYED FOR EACH POLICY IN MIDLAND INSURANCE LIQUIDATION PROCEEDINGS

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On March 17, 2010 we reported on the decision of a New York intermediate appellate court to apply New York law to disallowed claims under insurance policies issued by Midland Insurance Company, an insolvent multiline insurer placed into liquidation in New York. The appellate court based its decision, in part, on the New York “paramount state interest” of ensuring that distributions from an insolvent insurer are made “in an equitable manner.” The appellate court had reversed the trial court, which had found that New York’s standard choice of law analysis for contracts, known as a “grouping of contacts” or “center of gravity” test, should be conducted to determine which laws to apply to each Midland policy. The New York Court of Appeals has now reversed the appellate court and reinstated the trial court’s decision. The high court explained that because the claims of the policyholders “derive from the insurance policies issued by Midland prior to its insolvency,” choice of law analysis for each policy should be employed. In re Liquidation of Midland Insurance Co., 2011 N.Y. Slip Op. 02716 (N.Y. April 5, 2011).

This post written by Michael Wolgin.

APPELLATE COURT REJECTS REINSURER’S PRIORITY CLAIM TO ASSET DISTRIBUTION IN PRIMARY INSURER’S REHABILITATION PROCEEDINGS

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In the course of Ideal Mutual Insurance Company’s rehabilitation proceedings, Allstate Insurance Company, one of Ideal’s reinsurers, objected to a referee’s report, which denied Allstate’s claim of a vested, and therefore priority, right to the distribution of assets, by retroactive application of a New York insurance statute. The trial court denied Allstate’s motion to reject the referee’s report. On appeal, the Appellate Division affirmed, disagreeing with Allstate’s reading of the applicable statute, which Allstate argued could not constitutionally be applied retroactively. The appellate court held that the statute could and should be applied retroactively, because the plain language indicated the legislature’s awareness that it would be so applied. In re Ideal Mutual Ins. Co., No. 40275/85 (N.Y. App. Div. March 15, 2011).

This post written by John Pitblado.

THIRD CIRCUIT AFFIRMS VACATING ARBITRATION AWARD, WHICH WAS THE “ESSENCE OF MANIFEST DISREGARD”

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The Third Circuit Court of Appeals affirmed a ruling vacating an arbitration award in an employment dispute involving a collective bargaining agreement (“CBA”). Armstrong County Hospital unilaterally instituted a smoking ban on its property. Its employees’ union disputed that policy, and sought arbitration of the dispute. The arbitrator ruled in favor of the union, finding that the policy unfairly altered the past practice of allowing smoking in designated areas, which was a working condition expected by employees, and which could not be altered unilaterally. The Hospital moved to vacate the award in federal court, on grounds that the arbitrator failed to address key language in the CBA stating that the Hospital’s management rights to institute policy unilaterally was “specifically not limited by existing or ‘prior practices.’” The district court agreed with the Hospital and vacated the award, finding it the “essence of manifest disregard.” The Third Circuit, citing the constraint on courts to “exceedingly narrow” review of such arbitration awards, nevertheless affirmed, finding the arbitrator’s award effectively rewrote the parties’ agreement. Armstrong County Memorial Hospital v. United Steel, Paper and Forestry, Rubber, Mfg. Energy, Allied Industrial and Service Workers Int’l Union, No. 10-2495 (3d Cir. March 14, 2011).

This post written by John Pitblado.