Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

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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Puerto Rico Addresses Impact of the NRRA

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The Nonadmitted and Reinsurance Reform Act of 2010 (“NRRA”) provisions are applicable in Puerto Rico. The Office of the Commissioner of Insurance issued a circular letter setting forth the standards for the placement of surplus lines insurance for exempt commercial purchasers (as established by the NRRA). The definition of an exempt commercial customer is set forth in the letter.

Additionally, the letter states that “in order for a nonadmitted insurer domiciled in the United States to be considered an insurer that is eligible to write surplus lines insurance in Puerto Rico, such insurer must be admitted in the insurer’s home state to enter into insurance contracts for the class or classes of insurers which it proposes to contract as surplus lines insurance and shall maintain a minimum capital and surplus in the amount of $15 million.”

Government of Puerto Rico Office of the Commissioner of Insurance Circular Letter CC-2018-1936-D, August 16, 2018.

This post written by Nora A. Valenza-Frost.

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Eleventh Circuit Reverses Order Compelling Arbitration between Non-Signatories

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Plaintiff Outokumpu Stainless USA, LLC (“Outokumpu”) contracted with F.L. Industries, Inc. “”FLI”), a German company, to provide cold rolling mills (“CRMs”), which are used in the production of certain steel products. FLI later contracted with GE Energy Conversion France SAS (“GE Energy”). Both contracts contained arbitration agreements.

Outokumpu and GE Energy became involved in a dispute over failed CRMs. Outokumpu filed suit in Alabama state court and GE Energy removed to Alabama federal court, and moved to compel arbitration under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). Outokumpu sought to remand to state court. The District Court denied remand and granted GE Energy’s motion to compel arbitration. Outokumpu appealed.

The Eleventh Circuit reversed, finding that, while the District Court properly maintained jurisdiction because the dispute “related to” the arbitration agreement at issue, it reversed the granting of the motion to compel arbitration, as the New York Convention requires that the parties signed a written agreement to arbitrate. Here, no agreement was “signed” by both parties, as, at the time Outokumpu entered into the contract with FLI, GE Energy was a stranger to that contract, and had not yet entered into its own contract with GE Energy, through which it ultimately sought to enforce the Outokumpu – FLI arbitration agreement.

The Court remanded for further proceedings before the Alabama federal district court.

Outokumpu Stainless USA, LLC v. Converteam SAS, No. 17-10944 (11th Cir. Aug. 30, 2018)

This post written by John Pitblado.

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