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COURT FINDS STATE LAW BARRING INSURANCE ARBITRATIONS REVERSE-PREEMPTS FEDERAL ARBITRATION ACT

December 19, 2017 by Michael Wolgin

The case involved a dispute between the parties to a Reinsurance Participation Agreement (RPA). Defendants moved to compel arbitration, citing the Federal Arbitration Act and a provision in the RPA agreeing to resolve “[a]ll disputes arising with respect to any provision of this Agreement” in arbitration. However, the RPA also contained a choice of law provision providing that “[t]his Agreement shall be exclusively governed by and construed in accordance with the laws of Nebraska.” Plaintiffs argued that the Nebraska Uniform Arbitration Act (NUAA), which prohibits enforcement of an arbitration clause in any “agreement concerning or relating to an insurance policy,” made the arbitration provision unenforceable.

In most cases, the FAA would preempt a state law regarding arbitration, but the McCarran-Ferguson Act allows state laws “regulating the business of insurance” to preempt any federal statute that is not specifically related to the business of insurance and impairs a state insurance law. Defendants argued that the FAA preempts the NUAA and that the RPA requires all questions concerning construction or enforceability of the arbitration clause, including the applicability of the NUAA, to be decided by the arbitrator.

The court rejected defendants’ arguments, finding first that the question of whether the FAA preempts the NUAA is not a question of arbitrability that an arbitrator can decide. The court then determined that the FAA does not regulate the business of insurance, that the relevant portion of the NUAA was “enacted for the purpose of regulating the business of insurance,” and that application of the FAA would operate to impair the NUAA. Thus, all of the conditions set by the McCarran Ferguson Act for a state law to preempt the FAA were met. As a result, the court found that the NUAA rendered the arbitration clause in the RPA unenforceable and denied plaintiffs’ motion to compel arbitration. Citizens of Humanity v. Applied Underwriters, Inc., Case No. B276601 (Cal. Ct. App. Nov. 22, 2017).

This post written by Jason Brost.

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ESTATE AVOIDS ARBITRATION IN WRONGFUL DEATH MARITIME SUIT BECAUSE DEFENDANT WAS NOT A SIGNATORY OR PARTY TO CONTRACT WITH ARBITRATION CLAUSE

December 18, 2017 by Michael Wolgin

The Ninth Circuit refused last month to disturb a district court order denying a defendant’s motion to compel arbitration against a sailor in a maritime action pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention Act”) where the defendant company was not a signatory or a party to an employment agreement with an arbitration clause. The sailor (“Yang”) entered into an employment agreement with the vessel’s owner (“Majestic”) that contained an arbitration clause. While defendant Dongwon Industries Co. was responsible for the vessel’s repairs, maintenance, and supplies, it was neither a signatory nor party to Yang and Majestic’s agreement. After Yang died when the ship sank due to inadequate repairs, Yang’s wife sued Majestic and Dongwon for wrongful death. The district court compelled arbitration of her claims against Majestic based on the employment agreement, but denied Dongwon’s motion to compel arbitration.

First, the Ninth Circuit affirmed because the Convention Act does not allow non-signatories or non-parties to compel arbitration. Dongwon attempted to argue that the language in the Convention Treaty limiting arbitration to signatories applied only to a phrase addressing arbitration agreements, but not the phrase addressing arbitration clauses in other contracts. The court relied heavily on a Second Circuit case Kahn Lucas Lancaster, Inc. v. Lark International Ltd., which held that the signatory requirement language applied to both arbitration agreements and clauses in other contracts. Kahn Lucas relied on the last-antecedent rule, the grammar of the Treaty’s foreign texts, and the Treaty’s legislative history. In relying on Kahn Lucas, the court explicitly recognized the punctuation canon, under which a phrase applies to “all antecedents instead of only to the immediately preceding one” when the phrase is separated from the antecedents by a comma. The court also noted that every circuit considering Kahn Lucas’s logic has followed it. Lastly, the court found Dongwon failed to demonstrate that it was a party to the agreement containing the arbitration clause, a foundational requirement to compel under the Convention Treaty.

Second, the court rejected Dongwon’s argument that a non-party may invoke arbitration under the Federal Arbitration Act (“FAA”) if the relevant state contract law allows such a litigant to enforce the agreement. Initially the court noted FAA arbitration was unavailable to Dongwon because it specifically exempts “contracts of employment of seamen.” The court dismissed the argument as a “doctrinal sleight of hand” because arbitrations under the Convention Act require additional prerequisites than those required for arbitrations under the FAA, a conflict which prevents application of the FAA. Furthermore, even if the court were to ignore the additional Convention Act requirements, Dongwon would not be entitled to arbitration because its theories under the applicable state law—California—do not provide a basis to compel arbitration. To conclude, the court noted there was “no reason to depart from the general rule” that the contractual right to compel arbitration may not be asserted by a non-party to the agreement that does not otherwise possess the right to compel arbitration. Yang v. Majestic Blue Fisheries, LLC, Case No. 15-16881 (9th Cir. Nov. 30, 2017).

This post written by Thaddeus Ewald .

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IOWA AND VIRGINIA INSURANCE REGULATORS ADOPT THE NAIC’S TERM MODEL RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

December 12, 2017 by Michael Wolgin

Insurance regulators in Iowa and Virginia have adopted the NAIC’s Model Rules regulating term and universal life insurance reserve financing. The stated purpose of the rules is “to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, life insurance policies containing guaranteed nonlevel benefits, and universal life insurance policies with secondary guarantees” and to require certain funds or securities to be held in association with such financing arrangements. The regulations “specif[y] additional requirements relating to the valuation of asset or reserve credits, the amount and forms of security supporting certain reinsurance arrangements, and the circumstances pursuant to which credit will be reduced or eliminated.

Both states provide a rule specifically prohibiting an insurer that has policies covered by the rules from “tak[ing] any action … or enter[ing] into any transaction … if the purpose of such action, transaction or arrangement … is to avoid the requirements of this chapter, or to circumvent its purpose and intent.”

The Iowa regulations take effect on January 10, 2018, and can be found at 191 – Chapter 112, Iowa Administrative Code. The Virginia regulations take effect on January 1, 2018, and can be found at Title 14, Chapter 318, Virginia Administrative Code.

This post written by Benjamin E. Stearns.

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LESS THAN TWO WEEKS BEFORE TRIAL, DISTRICT COURT JUDGE IN UTICA V. FIREMAN’S FUND RULES ON MOTIONS IN LIMINE

December 11, 2017 by Michael Wolgin

This case concerns an action filed by Utica Mutual Insurance Company (Utica) against its reinsurer, Fireman’s Fund Insurance Company (FFIC) seeking to enforce certain reinsurance contracts against FFIC with respect to $35,000,000 Utica spent in settling a dispute with its insured, Goulds, regarding coverage for thousands of asbestos claims from the 1990s. Presently at issue were (1) Utica’s motion to preclude FFIC’s expert Garrett Redmond, (2) FFIC’s motion to preclude five specific evidentiary matters, and (3) Utica’s omnibus motion in limine regarding various evidentiary issues it anticipated to arise at trial.

Utica sought to preclude Redmond from offering testimony that Utica misrepresented or omitted facts to Fireman’s Fund in 1966 through 1972 relating to whether the primary policies it issued to Goulds had aggregate limits and that the primary policies Utica issued to Goulds did not have aggregate limits. The Court ultimately granted Utica’s motion to the extent that it precluded Redmond from testifying that Utica did in fact make misrepresentations to Fireman’s Fund in obtaining the reinsurance policies and that the primary policies in question did in fact lack aggregate limits. The Court noted, however, that “[d]ue to how much time has passed since these policies were issued, there are no witnesses who were personally involved with negotiating or writing the policies [and] [a]s a result, both sides will attempt to offer circumstantial evidence and testimony regarding the usual practices at that time in order to support their positions on the existence of aggregate limits.”

The Court denied FFIC’s motion to preclude Utica’s argument that FFIC had constructive notice of the loss, reasoning that “[w]hile the law in New York requires actual notice and not constructive notice, any facts showing that Fireman’s Fund had prior knowledge of the Goulds loss are relevant to Fireman’s Fund’s claimed prejudice.” However, the court granted, among other requests, FFIC’s motion to preclude Utica from introducing judicial decisions or settlements involving other insurer’s challenges to Utica’s aggregate limit position. In the same light, the Court granted Utica’s motion to preclude evidence of other disputes, holding that “disputes with other reinsurers under different facts are irrelevant and inadmissible.” Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Nov. 16, 2017).

This post written by Gail Jankowski.

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NORTHERN DISTRICT OF GEORGIA ORDERS CEDENT TO PRODUCE INFORMATION ON ITS PAYMENT OF CLAIMS

December 5, 2017 by Carlton Fields

Defendant Golden Isles Reinsurance Company, Limited (“Golden Isles”) sought detailed information regarding individual claims Canal Insurance Company (“Canal”) submitted for reimbursement under the parties’ reinsurance agreement, as outlined in the court’s hearing notes. The Court ordered production of the following:

Check register information (purportedly to enable Golden Isles to verify the amount Canal paid on the claim, in lieu of settlement agreements which would be more burdensome to produce);
Documents showing the date Canal first had notice of each individual claim for which Canal has the claim date within 6 months of either the start or end of the parties’ agreement; and
A 30(b)(6) witness who can address questions Golden Isles has concerning claims data and how certain numbers were entered and calculated, as the Court found “Golden Isles is entitled to answers to these questions,” but also found that “producing large quantities of documents is not the most efficient manner in which to address this.”

The Court will address the parties’ additional discovery disputes by a separate order. This is not the first discovery issue addressed by the court in this case. Further background is available in the amended initial disclosures of Canal Insurance. Canal Ins. Co. v. Golden Isles Reinsurance Co., Ltd., Case No. 1:15-cv-03331 (USDC N.D. Ga. Oct 6, 2017).

This post written by Nora A. Valenza-Frost.
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