Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Rhode Island Makes Technical Changes to Its Credit for Reinsurance Regulation

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Rhode Island adopted the NAIC Credit for Reinsurance Model Regulation in 2014. Recently, Rhode Island made technical changes to the regulation and substituted forms issued by the Rhode Island Department of Insurance by separate Bulletin. The regulation is codified in the Rhode Island Insurance Regulation 230-RICR-20-45-3 – Financial Standards and Corporate Operations – Credit for Reinsurance. The regulation and accompanying form bulletin are available online.

This post written by Gail Jankowski.

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Reinsurer’s Summary Judgment Upheld on Motion for Rehearing

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Capitol Life Insurance Co. moved the Court of Appeals for the Fifth District of Texas for rehearing of the court’s prior affirmance of summary judgment against Capitol in favor of MetLife Insurance Company USA, MetLife Investors Group, Inc., and American General Life Insurance Company, a decision we previously wrote about here [https://www.reinsurancefocus.com/archives/13403]. The Court denied Capitol’s motion but withdrew and superseded its previous opinion with a new memorandum opinion. The result for Capitol, however, was more of the same.

The Fifth District reversed the trial court’s summary judgment against Capitol in favor of the policyholder, holding that fact issues related to the policyholder’s intent in serving a demand letter on Capitol prevented summary judgment for either party. With regard to MetLife and American General, the court affirmed the no-evidence summary judgments against Capitol, stating Capitol had failed to provide “more than a scintilla of probative evidence” to demonstrate it had performed under the contracts, a necessary element of Capitol’s claim against both parties. Capitol Life Ins. Co. v. Newman, Case No. 05-16-01476-CV (Tex. Civ. App. Sept. 13, 2018).

This post written by Benjamin E. Stearns.

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Second Circuit Affirms Denial of Arbitration in Case Involving Misappropriation of Trade Secrets

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Medidata brought suit against its competitor, Veeva, alleging that Medidata’s former employees, who eventually left the company to work for Veeva, violated their employment agreements which required them to protect Medidata’s confidential information and to refrain from competing with Medidata during their employment there and for up to one year thereafter. Specifically, Medidata alleged that the former employees misappropriated Medidata’s trade secrets and other confidential information. Three of the five former employees’ agreements included an arbitration clause that mandated arbitration of “any dispute or controversy arising out of or relating to” their agreements. Veeva urged the court to compel arbitration based on the former employees’ arbitration agreements under a theory of equitable estoppel.

The district court denied the motion, and on appeal, the issue was whether Veeva demonstrated the requisite “relationship among the parties” that would make it unfair to decline to require arbitration of this dispute. The Second Circuit, in a summary order, affirmed, reasoning that no such relationship existed: “Veeva was not involved at all in those relationships until it intruded by allegedly poaching Medidata employees and inducing them to divulge Medidata’s secrets; in other words, by ‘wrongfully inducing’ the former employees to breach their contract with Medidata.” As such, because Veeva was in no such relationship at the time the arbitration agreements were signed, no equitable estoppel justification existed to compel arbitration. Medidata Solutions Inc., et al. v. Veeva Systems Inc., Case Nos. 17-2694(L) & 18-681(CON) (2d Cir. Sept. 6, 2018).

This post written by Gail Jankowski.

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Data Breach Bill Applicable to Reinsurers Heads to Floor of Us House of Representatives

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The “Consumer Information Notification Requirement Act” (H.R. 6743) was passed out of the House of Representatives Committee on Financial Services one week after being introduced and is now headed to the floor for consideration by the full chamber. The bill, which amends the Gramm-Leach-Bliley Act to provide a national standard for financial institution data security and breach notification, expressly applies to reinsurers. The bill, however, does not in its current form address its application to reinsurers domiciled outside the United States. It requires reinsurers to provide a “breach notice” to the state insurance authority of the reinsurer’s domicile state “in the event of unauthorized access that is reasonably likely to result in identity theft, fraud, or economic loss.” The bill also requires the state insurance authority of the reinsurer’s domicile to enforce standards related to data security safeguards. The bill preempts states from enacting any data protection-related requirements for insurers that are in addition to or different from those described in the bill. The bill is opposed by the NAIC, among others. We will track the progress of this bill and post on any further legislative action. H.R. 6743, “Consumer Information Notification Requirement Act.”

This post written by Benjamin E. Stearns.

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Ninth Circuit Holds Putative Class Action ERISA Claims Fall Outside Scope of Individual Arbitration Agreements

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Plaintiffs, current and former employees of the University of Southern California (“USC”), were participants in two USC-sponsored ERISA contribution plans. In order to participate in the plans, individual employees were required to sign arbitration agreements covering all claims between the parties. The arbitration agreements expressly covered claimed violations of federal law, including ERISA. Plaintiffs filed a putative class action against USC alleging breach of fiduciary duty pursuant to ERISA § 502(a)(2). The action sought various forms of equitable relief for the benefit of the plans only, rather than for employees in their individual capacity. USC moved to compel arbitration, arguing that the arbitration agreements prohibited employees from litigating claims on behalf of the ERISA plans. The district court denied USC’s request, and the Ninth Circuit affirmed.

The Ninth Circuit agreed that the arbitration agreements did not encompass breach of fiduciary duty claims filed under ERISA § 502(a)(2). The court compared Plaintiff’s claims to a 2017 decision in which the Ninth Circuit held that an individual arbitration agreement did not extend to a qui tam action filed against an employer by its employee because the claim was filed on behalf of the government under the False Claims Act, not in the employee’s individual capacity. Likewise, the court observed that breach of fiduciary duty claims under § 502(a)(2) are filed for the benefit of the ERISA plan, not any individual participant. Thus, as in the qui tam context, the Ninth Circuit concluded that Plaintiffs’ putative class claims against USC fell outside the scope of the arbitration agreements, as the parties consented only to arbitrate claims filed in an employee’s individual capacity. The court specifically declined to rule, however, that individual agreements to arbitrate ERISA claims are per se unenforceable, leaving that issue for another day.

Munro v. Univ. of Southern California, No. 17-55550 (9th Cir. July 24, 2018)

This post written by Alex Silverman.

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