Week's Best Posts

FIO ISSUES 2015 ANNUAL REPORT

October 26, 2015 by Carlton Fields

Last month, the Federal Insurance Office (“FIO”) issued its Annual Report for 2015. The Report discusses many financial consumer protection and regulatory issues, both domestic and international, relating to the business of insurance. The Report has relatively little discussion of reinsurance, largely tracking the topics discussed in the FIO’s December 2014 report on the global reinsurance market. The 2015 Annual Report discusses three topics of interest to the reinsurance sector:

Regulation of captives: Regulation of captives is discussed mainly in terms of the NAIC’s work on a captive framework and the adoption of principal-based reserves. The Report is critical of the limitation of the captive framework to cessions of reserves for term life insurance and universal life insurance with secondary guarantees, and the “uncertain timeframe for its implementation ….” See Report at 59. The FIO previously identified the regulation of captives as a topic in which it is interested and may take action, although it has not exposed any proposal relating to captives.
Credit for reinsurance: The Report is critical of the slow progress on credit for reinsurance reform and notes that the United States and the European Union are in the preliminary stages of discussions of what the Dodd-Frank Act referred to as a covered agreement on that topic. The Report states that “[b]y statute [the Dodd-Frank Act], USTR [United States Trade Representative] and FIO must give notice to Congress of the intent to commence negotiations. That notice is expected in the coming weeks.” See Report at 81 and Recommendation at Appendix, page vii.
Alternative risk transfers: The Report contains a brief discussion of the abundance of capital in the reinsurance sector and the rapid growth of alternative risk transfers such as insurance-linked securities (including cat bonds), industry-loss warranties, collateralized reinsurance and sidecars. The Report does not contain any opinions or recommendations with respect to this topic. See Report at page 42.

This post written by Rollie Goss.
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REINSURANCE DISPUTE VOLUNTARILY DISMISSED AFTER CEDENT FAILED TO ESTABLISH GOOD CAUSE TO SEAL

October 20, 2015 by John Pitblado

A reinsurance dispute we have covered previously was voluntarily dismissed shortly after the Western District of Michigan ordered that cedent’s amended motion for partial stay and accompanying memorandum, affidavits, and exhibits be unsealed. Plaintiff/counter-defendant Michigan Millers Mutual Insurance Company (MMMIC), the cedent, had filed its amended motion for partial stay and accompanying documents under seal. When the district court discovered this fact, the court directed MMMIC to “either file with the Court a notice informing the Court of the order authorizing the sealing of it’s [sic] motion and accompanying materials, or file a motion consistent with the provisions of Rule 10.6(b) establishing ‘good cause’ for sealing them.”

In response, MMMIC filed a motion to maintain under seal certain redacted passages in its motion for partial stay and accompanying exhibits. The court denied that motion and ordered the motion for partial stay and accompanying documents to be unsealed because MMMIC failed to establish either a need or good cause to seal these documents. Soon thereafter, the parties voluntarily dismissed the suit.

Michigan Millers Mut’l Ins. Co. v. Westport Ins. Corp., No. 1:14-cv-00151-PLM (USDC W.D. Mich.) (Aug. 21, 2015, denying motion to seal); (Sept. 18, 2015, stipulation of dismissal).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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SIXTH CIRCUIT HOLDS PIZZA HUT FRANCHISEE WAIVED ARBITRATION RIGHT

October 19, 2015 by John Pitblado

The world’s largest Pizza Hut franchisee, NPC International, Inc. (“NPC”), which operates more than 1200 Pizza Hut restaurants in the United States, was sued in federal district court by employees in five separate collective action lawsuits for alleged unpaid “off the clock” work, meeting, and training time. The district court found that the defendant employer’s litigation actions waived its contractual right to insist on arbitration of employees’ claims for unpaid compensation by failing to assert timely the right. The district court accordingly denied NPC’s motion to compel arbitration in all five cases. NPC appealed.

The Sixth Circuit Court of Appeals affirmed, concluding that NPC had “slept on its rights” by waiting almost fifteen months before raising the arbitration issue in any of the five cases. Further, it was only after NPC obtained unfavorable rulings on its initial dispositive motions that it moved to dismiss or compel arbitration. Finally, NPC’s belated assertion of its right to arbitration caused plaintiffs actual prejudice in the form of unnecessary delay and expense.

Gunn v. NPC Int’l, Inc., Nos. 14-6036/6040/6041/6042/6044 (6th Cir. Aug. 28, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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THIRD CIRCUIT ADOPTS CONSTRUCTIVE KNOWLEDGE STANDARD TO REVERSE VACATUR OF AWARD

October 13, 2015 by Carlton Fields

The Third Circuit reversed an order vacating an arbitration award after concluding that the plaintiff had waived its right of waiver. In the decision, the Third Circuit joined the First, Second, Eighth, and Ninth Circuits in adopting a “constructive knowledge” standard for finding waiver in the context of arbitration.

Defendant-appellants, Goldman, Sachs & Co. and others contested an order vacating an arbitration decision in favor of plaintiff-appellee, Athena Venture Partners, L.P. During arbitration, one of the three arbitrators disclosed that he had been charged with the unauthorized practice of law in an unrelated case. Neither Athena, Goldman, nor the other members contested his continued participation in the arbitration. Only after an unfavorable result, did Athena conduct a background check on the arbitrator and found that he significantly misrepresented the scope of his legal problems. Athena’s successful motion to vacate the arbitration award in District Court was premised on violation of the parties’ agreement to arbitrate due to the arbitrator’s failure to disclose. The Third Circuit reversed, adopting the “constructive knowledge” approach to waivers. Constructive knowledge requires that parties use reasonable care and diligence to investigate potential conflicts. The court noted that this standard “prevents the losing party from receiving a second bite at the apple” (citations omitted). The Ninth Circuit held that Athena failed to apply timely diligence in conducting an investigation only until after it had lost the arbitration. Athena knew or should have known of the conflict and failed to act in a timely manner, thus waiving its rights to challenge the award. Goldman, Sachs & Co. v. Athena Venture Partners, L.P., Case No. 13-3461, (3rd Cir. Sept. 29, 2015).

This post written by Joshua S. Wirth, a law clerk at Carlton Fields in Washington, DC.

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NINTH CIRCUIT HOLDS THAT STATE DECISION BARRING WAIVER OF REPRESENTATIVE CLAIMS DOES NOT CONFLICT WITH FEDERAL ARBITRATION ACT

October 12, 2015 by Carlton Fields

On June 25, 2012 and July 7, 2014, we reported on the issue of waiver of representative claims under California’s Private Attorneys General Act of 2004 (“PAGA”). In Iskanian v. CLS Transportation of Los Angeles, LLC, the California Supreme Court held that a representative claim under PAGA was not waivable. Following a district court’s dismissal of a claim under PAGA following a motion to compel arbitration, the United States Court of Appeals for the Ninth Circuit was asked to decide whether the California rule from Iskanian was preempted by the Federal Arbitration Act (“FAA”). The Ninth Circuit held that it was not.

The case involved a dispute regarding overtime wages between a former employee and Luxottica Retail North America, Inc. Prior to the California Supreme Court’s holding in Iskanian, Luxottica moved to compel arbitration under a dispute resolution agreement, and the district court agreed, dismissing the case to arbitration. However, in so doing, the district court reached a holding that ultimately was in conflict with Iskanian, which was decided during the pendency of the appeal. Finding that, among other purposes, the purpose of PAGA was to “permit aggrieved employees to act as private attorneys general to collect civil penalties for violations of the Labor Code,” the Ninth Circuit held that the FAA did not preempt the Iskanian rule because its saving clause permits invalidation by “generally applicable contract defenses, such as fraud, duress, or unconscionability,” and that the Iskanian rule was one of those generally applicable contract defenses that may be persevered by the savings clause. The court then found that the Iskanian rule expresses no preference regarding whether such representative claims must be litigated or arbitrated, and, therefore, it did not conflict with the FAA because it did not “conflict with arbitration.” Sakkab v. Luxottica Retail North America, Inc., No. 13-55184 (9th Cir. Sep. 28, 2015).

This post written by Zach Ludens.

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