Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Texas Department Of Insurance Seeks Comments on Reorganized Surplus Lines Insurance Chapter

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The Texas Department of Insurance has proposed to reorganize its Surplus Lines Insurance Chapter 15 in the Texas Administrative Code. The proposed new Chapter 15 can be found here. Comments on the proposal are due to the Texas Department of Insurance by July 23, 2018 and the Texas Commissioner will also consider written or oral comments on the proposal in a public hearing on July 19, 2018 in Room 100 of the William P. Hobby Jr. State Office Building.

This post written by Jeanne Kohler.

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Fourth Circuit Upholds Arbitration Award Involving Termination of Employee

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Affirming the trial court’s ruling, the Fourth Circuit upheld the denial of a motion to vacate or modify an arbitration award involving the termination of an employee.

The first challenge to the award was that “the arbitrator impermissibly ruled on whether 3D systems breached the Agreement’s manager terms – a matter not submitted to arbitration – and awarded damages based upon the breach.” The Court declined to vacate the award on this ground because “even if the arbitrator erred in determining that 3D Systems breached the manager term, the damages award is sufficiently supported by the arbitrator’s finding of three other breaches.”

The second challenge to the award was that “the arbitrator awarded [the employee] all of the potential earn-out and the amended award violated AAA Commercial Rule 50 and the common law doctrine of functus officio.” The Court declined to vacate the award on this ground, as the “district court did not err in refusing to modify the damages pursuant to 9 U.S.C. § 11(a) because 3D Systems failed to allege a mathematical error that appears on the face of the award.” Moreover, the amended award did not violate functus officio or AAA Commercial Arbitration Rule 50 because it contained only minor changes for clarification purposes.

The third challenge to the award was that “the arbitrator failed to follow the parties’ agreed-upon methodology or the Agreement’s fee-sharing provision in calculating attorney’s fees and costs” The Court again declined to vacate the award on this ground, as “3D Systems again fails to show [it is] entitled to modification of the award under 9 U.S.C. § 11(a)” and, moreover “the arbitrator’s methodology followed the exact language of the unambiguous fee-sharing provision … the arbitrator was not bound the parties’ agreed-upon methodology.”

Barranco, et al. v. 3D Systems Corp., et al., No. 17-1744 (4th Cir. May 31, 2018)

This post written by Nora A. Valenza-Frost.

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Fifth Circuit Reversed Judgment Compelling Arbitration Because Unsigned Arbitration Agreement Was Invalid

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This matter involved a lawsuit brought in Texas federal court by a former employee (Huckaba) against Ref-Chem L.P., alleging sexual harassment, discrimination and retaliation in violation of Title VII. Ref-Chem moved to dismiss the lawsuit and compel arbitration, which was granted by the Texas district court, finding that Huckaba’s “continued employment” after she signed an arbitration agreement “constituted acceptance of that agreement” by both parties, even though Ref-Chem never executed the agreement. Huckaba appealed to the Fifth Circuit.

The Fifth Circuit reversed the Texas district court’s judgment, holding that the express language of the arbitration agreement at issue required for it to be signed by both parties and it was undisputed that Ref-Chem did not sign the agreement. Therefore, there was no valid agreement to arbitrate in this case, and thus, the court remanded to the district court for further proceedings.

Huckaba v. Ref-Chem, L.P., No. 17-50341 (5th Cir. June 11, 2018).

This post written by Jeanne Kohler.

See our disclaimer.

New York’s First Department Upholds Fraud Claim Involving Alleged Sham Reinsurance Scheme

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In an action alleging claims for fraud and conspiracy to commit fraud (among others), a New York appellate court upheld the trial court’s conclusion that the “defendants are subject to jurisdiction under New York’s long-arm statute because they were part of a conspiracy that involved the commission of tortious acts in New York,” including agreements between defendants relating to Plaintiff.

The conspiracy’s overt acts included defendant Weston Capital Management’s “approval of a Gerova proxy statement on which they are listed and which seeks approval of the sham acquisition of a reinsurance company, their receipt of ‘hush money’ to ignore certain red flags and Gerova, and their failure to correct misrepresentations or disclose material information to the public.” The Court also found that, even if the individual defendants – directors of Gerova – did not themselves include misrepresentations in the public filings, by their positions “one can rationally infer… they knew of the falsity of the facts therein, did not disclose material information, and allowed the misrepresentations to be publicly stated.”

Plaintiff, the alleged target of the conspiracy, had standing to bring the fraud claim, as it sought recovery for damages for the theft of its assets.

Wimbledon Financing Master Fund, Ltd. v. Weston Capital Mgmt. LLC, et al., No. 653468 (N.Y. App. Div. April 26, 2018)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

Appellate Court of Massachusetts Finds That Reinsurer Must Pay Workers’ Compensation Benefits of Bankrupt Self-Insured Employer

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In a recent opinion, a Massachusetts appeals court was required to determine who is liable to pay workers’ compensation benefits owed by a self-insured employer that has gone bankrupt? In a choice between the state created Workers’ Compensation Trust Fund and a reinsurer of that bankrupt employer, the court chose the reinsurer.

The case involved benefits due to Robert Janocha, whose employer at the time of his injury was self-insured for workers’ compensation claims. In compliance with Massachusetts law, the employer had ensured its ability to pay such claims with a $2.4 million surety bond and a reinsurance contract with ACE American Insurance Company, which had a $400,000 retention provision applicable to each injured employee. In 2007, the employer went bankrupt, and in 2012 the surety bond was exhausted. However, Mr. Janocha’s benefits had not reached the $400,000 retention floor, and ACE argued that, until that floor was reached, his benefits were the responsibility of the Workers’ Compensation Trust Fund under a statute requiring the Trust Fund to pay benefits for claims against employers “uninsured in violation” of the law. The court found that this statute only applied when the employer was uninsured at the time of the injury in question, however, and did not apply when the lack of insurance was the result of bankruptcy. Thus, the Trust Fund was not obliged to pay the benefits. The court then found that ACE was statutorily required to pay benefits in the event the self-insured employer became insolvent, and that the retention provision would not be enforced because “a party is unable to contract away its statutory obligations.” Thus, ACE was required to pay Mr. Janocha’s benefits.

Janocha’s Case, No. 16-P-1181 (Mass. App. Ct. May 2, 2018)

This post written by Jason Brost.

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