Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Fourth Circuit Reverses Dismissal, Finding Federal Question Jurisdiction for Review of Arbitral Award

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The Fourth Circuit Court of Appeals reversed a Virginia federal court’s dismissal of a challenge to an arbitration award. The underlying dispute arose out of a lawsuit filed by Alvin Moore against his email service provider, America Online, Inc. (“AOL”), for divulging information about his account to law enforcement who sought the information as part of an investigation into a claimed imminent threat. Moore sued AOL in state court, alleging a claim under Title II of the Electronic Communications Privacy Act of 1986 (known as the Stored Communications Act), 18 U.S.C. § 2701 et seq., for divulging the information about him without a warrant, a subpoena, or his consent. Moore also alleged that AOL had, without his consent, deleted all his emails, causing him damages in the amount of $74,999 (presumably just under the jurisdictional requirement for diversity jurisdiction in order to avoid removal to federal court).

However, AOL successfully compelled arbitration under its service provider agreement with Moore, and prevailed in the arbitration. Moore filed a petition to vacate the award in Virginia federal court, alleging both federal question and diversity jurisdiction. The court granted AOL’s motion to dismiss the petition for want of jurisdiction, finding it did not satisfy the amount in controversy requirement to sustain diversity jurisdiction. It did not address the issue of whether it had federal question jurisdiction due to the fact that the subject of the arbitration included a claim under the federal Stored Communications Act.

The Fourth Circuit reversed and remanded, for a merits consideration of Moore’s petition, given its finding that the district court has jurisdiction. It sided with the First and Second Circuits in a circuit split about whether the enforcement mechanisms under the FAA §§ 10 and 11 required the court to “look through” the petition to determine if the underlying dispute could have been brought in federal court, absent the arbitration agreement. Other Circuits have held in favor of an approach treating petitions to vacate or confirm as strictly matters of contract under an arbitration agreement, regardless of the subject matter of the dispute, and thus governed by state law, providing no independent basis for federal question jurisdiction. The Fourth Circuit explicitly rejected that approach, based on U.S. Supreme Court precedent adopting the “look through” approach with respect to petitions to compel arbitration under FAA § 4, and finding no reason that this approach should not also apply to the FAA’s enforcement mechanisms under §§ 10 and 11.

McCormick v. America Online, Inc., No. 17-1542 (4th Cir. Nov. 29, 2018).

This post written by John Pitblado.

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Court Declines to Reconsider Summary Judgment Decision in Latest Development in Ongoing Asbestos Liability Reinsurance Litigation

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The Northern District of New York declined to reconsider a September 2018 decision on competing motions for partial summary judgment we previously reported on in a long-running reinsurance dispute related to asbestos liability exposure. Subsequent to the court’s decision, Century Indemnity Co. moved for reconsideration of the court’s denial of summary judgment on its collateral estoppel defense and denial of its motion to dismiss for lack of standing because the court allegedly overlooked “controlling” evidence and decisions on these issues.

First, on the collateral estoppel claim, the court rejected Century’s argument that the court’s September decision improperly relied on a similar decision in a case involving Utica because that decision was issued after the summary judgment briefing was complete and the court cited the decision “without the benefit of briefing” on the decision’s impact. The court explained the September decision merely recognized the similar decision as involving a “similar estoppel argument” and did not improperly “adopt” the decision’s conclusions or impute a controlling effect to the decision.

Second, on standing, the court disagreed with Century’s contention that the September decision relieved Utica of its burden to establish standing. Harkening back to its September decision, the court emphasized Utica submitted evidence “tending to establish” standing and Century failed to “conclusively undermine” that showing.

Thus, the court denied the motion for reconsideration.

Utica Mutual Ins. Co. v. Century Indemnity Co., Case No. 13-995 (USDC N.D.N.Y. Nov. 30, 2018).

This post written by Thaddeus Ewald .

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Illinois Legislation Revises Laws Applicable to Captive Insurance Companies

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Illinois has adopted a bill that includes a number of revisions to its laws regarding captive insurance companies. These include, inter alia:

  •  changes to the types of risk that a captive insurance company may insure;
  • new requirements regarding minimum capital and surplus;
  • a new requirement that captive insurance companies include with their annual reports of financial condition a statement of actuarial opinion regarding the reasonableness of their losses and loss adjustment expense reserves;
  • a provision allowing captive insurance companies to make loans to affiliates with the prior approval of the Director of Insurance;
  • new notice requirements for reinsurance agreements;
  • a provision allowing captive insurance companies to accept risks from or cede risks to captive reinsurance pools or affiliated captive insurance companies with the prior approval of the Director of Insurance;
  • standards for the approval of captive reinsurance pools;
  • authority for the Director of Insurance to issue standards for risk management of controlled unaffiliated businesses;
  • rules regarding the issuance of dividends by captive insurance companies;
  • rule regarding credits allowed to ceding insurers for reinsurance;
  • reporting and certification requirements for assuming insurers regarding trust funds, capital and surplus requirements, and financial strength ratings;
  • a requirement that the Director of Insurance create and publish a list of jurisdictions with rules sufficient to allow assuming insurers licensed in those jurisdictions to be certified in Illinois and standards for determining the sufficiency of those rules.

These revisions went into effect immediately upon the adoption of the law on November 27, 2018.

2017 Illinois Senate Bill No. 1737, Illinois One Hundredth General Assembly – Second Regular Session

This post written by Jason Brost.

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D.C. Federal Court Permits Insured to Amend Complaint in Reinsurance Dispute Related to Credit Insurance Policy

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A District of Columbia federal court partially granted and partially denied a reinsured’s motion to amend its complaint in a dispute over a reinsurance agreement for a credit insurance policy. Assured Risk Transfer (“ART”) extended a credit insurance policy to Vantage. The policy was reinsured under a contract with the reinsurer defendants, which was placed through a broker, the Willis Defendants. ART denied a claim under the credit insurance policy made by Vantage, and Vantage won an arbitration award against ART based on the denial. Vantage sued ART, the Willis Defendants, and the reinsurers after the reinsurers declined to pay under ART’s reinsurance agreement, but the court dismissed for jurisdictional issues. Thereafter, Vantage moved to amend.

First, the court denied Vantage’s effort to amend its complaint regarding its breach of contract and accompanying declaratory judgment claims. Vantage’s proposed amended complaint alleges that the parties created a contractual relationship via credit insurance “binders” which purportedly confirmed that the underlying credit insurance policy was reinsured, but the court concluded such allegations were insufficient because insurance binders describing a reinsurance agreement do not create a binding contractual relationship with the Willis Defendants or reinsurers.

Second, the court accepted Vantage’s proposed amendments related to the breach of implied contract, promissory estoppel, and unjust enrichment claims. On the implied contract claim, the amendments sufficiently alleged that ART and the Willis Defendants acted as agents for the reinsurers by claiming ART facilitated the transaction and the reinsurers delegated their underwriting authority to ART. Additionally, the allegations that reinsurers’ agents gave the insurance binders to Vantage and the reinsurers knew ART was unable to pay Vantage’s loses without reinsurance led he court to conclude it was plausible the reinsurers knew Vantage expected the reinsurers to pay and agreed to that arrangement.

On the promissory estoppel claim, the court interpreted the reinsurers’ agents’ delivery of the binders as a sufficiently alleged “promise” to pay any losses according to the credit insurance policy terms. Furthermore, Vantage plausibly alleged reliance upon the promise and an agency relationship between ART, the Willis Defendants, and the reinsurers. On the unjust enrichment claim, the court found the amendments adequately pleaded that reinsurers indirectly benefited through receipt of premiums to allow the claim to proceed. The court noted that Vantage is unable to prevail on its unjust enrichment and promissory estoppel claims if it prevails on its implied contract claim, but allowed amendment to permit Vantage to pursue all three until a conflict arises.

Lastly, the court granted Vantage’s request for leave to attempt to serve the reinsurers, declined to require the D.C. Department of Insurance, Securities, and Banking to accept service on their behalf, and dismissed Vantage’s complaint as to ART as a defendant where Vantage failed to establish the necessity for ART to remain.

Vantage Commodities Fin. Servs. I, LLC v. Assured Risk Transfer PCC, LLC, Case No. 17-1451 (USDC D.D.C. Nov. 16, 2018).

This post written by Thaddeus Ewald .

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Florida Court Finds that Arbitration Agreement Broadening Judicial Review Violates Florida Public Policy

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In a lawsuit brought by a contractor against a subcontractor and its insurer, Florida’s Fourth District Court of Appeals found a provision in an arbitration agreement allowing for a broad ranging review of any arbitration award to be void as a matter of law and policy.

The subcontractor and insurer moved to compel arbitration under an agreement providing that on review of any award issued pursuant to that agreement, “the court shall be empowered to address on review any failure by the arbitrator(s) to properly apply Florida law to the dispute. To the extent the arbitrator(s) or the court fail to apply the law properly, the Award of the arbitrator(s) is subject to further review through the Florida appellate process.” This is, of course, a much broader judicial review than is normally permitted with respect to arbitration awards, and thus the contractor argued that the provision was void and that the entire arbitration agreement should be discarded.

The trial court granted the motion to compel arbitration, but the appellate court reversed, finding that the subject provision violated public policy as expressed in the Florida Arbitration Code. The Code limits a courts’ ability to vacate an arbitration award to a fairly narrow set of circumstances, such as when an arbitration award is “procured by corruption, fraud, or other undue means,” when there is “evident partiality,” corruption, or misconduct on the part of the arbitrator, or when the arbitrator exceeds the authority provided by the parties’ agreement. The Code also prohibits parties from waiving or agreeing to vary their right to seek judicial confirmation of awards or the grounds for vacating or modifying an arbitration award.
The court found that the Code clearly prohibited expansions of the scope of judicial review of arbitration awards and thus made the contested provision in the arbitration agreement unenforceable. Rather than finding that the arbitration agreement was unenforceable as a whole, however, the court remanded the matter to the trial court to determine whether this provision was severable, such that the arbitration agreement could be enforced with that provision removed.

National Millwork, Inc. v. ANF Group, Inc. and Liberty Mutual Insurance Company, No. 4D18-545 (4th DCA, Sep. 25, 2018)

This post written by Jason Brost.

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