Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

California Court of Appeals Affirms Decision that Arbitration Provision and Its Delegation Clause Were Unlawful and Void

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The California Court of Appeals rejected defendants’ appeal seeking to enforce an arbitration provision in a reinsurance participation agreement (“RPA”). Several months prior, the California Insurance Commissioner issued an administrative decision which challenged the same insurance program offered by the same defendants, finding the RPA to be unlawful and void for various reasons, including for the carrier’s failure to file with and obtain approval from the Commissioner.

In its motion to compel arbitration, defendant argued that the language in the arbitration provision of the RPA which stated that “all disputes between the parties relating in any way to (1) the execution and deliver, construction or enforceability of this Agreement… shall be finally determined exclusively by binding arbitration in accordance with the procedures provided herein” required arbitration of disputes concerning the enforceability of the RPA, and “was a delegation clause that gave the arbitrator the sole and exclusive authority to rule on challenges to the enforceability of the arbitration agreement.” However, the trial court determined that the plaintiff was asserting both the arbitration clauses and the delegation clauses themselves are illegal and unenforceable because they were not filed and approved by the Commissioner.

On appeal, the Court determined the trial court properly found plaintiff’s challenge to the delegation clause was sufficient to require the court to rule on the question of enforceability, as courts are to resolve this question when the challenge is directed specifically to the delegation clause. In a similar matter, the Fourth Circuit recently held the court was the proper entity to resolve challenges to a delegation clause in a similar RPA.

Finding “that the arbitration and delegation provisions were prohibited because they were not properly filed with the Insurance Commissioner,” the Court affirmed the trial court’s decision that the arbitration and delegation clauses were unenforceable, as “a contract made in violation of a regulatory statute is void.”

Nielsen Contracting, Inc. v. Applied Underwriters, Inc., D072393 (Cal. Ct. App. May 3, 2018).

This post written by Nora A. Valenza-Frost.

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New York Federal Court Denies Cedent’s Motion For Reconsideration In Reinsurance Dispute Regarding Expense Provisions

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This case was previously reported by us on April 30, 2018. As we previously reported, on March 20, 2018, a New York federal court largely denied the motions for summary judgment of both plaintiff, Utica, and defendant, Munich Re, finding that the expense provisions in the facultative certificates at issue were ambiguous and that extrinsic evidence was not submitted by the parties. Utica made a motion for reconsideration. In denying the motion, the court rejected Utica’s argument that extrinsic evidence was presented on the ambiguity found by the court in the facultative certificates. The court noted that the evidence noted by Utica “would in no way alter the conclusion the Court previously reached on this matter” and also that Utica failed to show that reconsideration was required.

Utica Mut. Ins. Co. v. Munich Reins. Am., Inc., Nos. 12-cv-00196; 12-cv-00743 (USDC N.D.N.Y. May 23, 2018).

This post written by Jeanne Kohler.

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The Eleventh Circuit Found No Waiver Of Right To Compel Arbitration Against Unnamed Class Members

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The procedural history of the case can be found here. However, in sum, the case involves five consolidated class actions brought in Florida federal court against banks by bank customers in 2008 and 2009 alleging that they were unlawfully charged overdraft fees. Early in the case, the court ordered all defendant banks to file motions directed to the complaints, including those to compel arbitration. Wells Fargo did not file a motion to compel arbitration as to the named class representatives, but instead joined several other banks in filing a motion to dismiss. Wells Fargo also reserved its arbitration rights against unnamed class members in the event of class certification. Wells Fargo later filed answers to the complaints, stating that “’[a]bsent members of the putative classes have a contractual obligation to arbitrate any claims they have against Wells Fargo.’”

After the Supreme Court decision in AT&T Mobility LLC v. Concepcion, which held that the Federal Arbitration Act preempted state laws purporting to void prohibitions on class arbitration, Wells Fargo then moved to compel the named class representatives to arbitrate their claims. However, the Florida district court found that Wells Fargo waived its right to arbitrate against the named class representatives, and the Eleventh Circuit affirmed. After remand to the district court, the plaintiffs moved for class certification. Wells Fargo opposed the motion on the grounds of lack of numerosity because the unnamed class members had arbitration agreements with the bank, and also filed conditional motions to compel arbitration as to the unnamed class members. The district court denied Wells Fargo’s motions to compel arbitration. Wells Fargo appealed, and the Eleventh Circuit vacated the district court’s decision, finding that because no class had been certified, the district court lacked jurisdiction to rule on the arbitration obligations of unnamed class members. On remand, the district court then granted the plaintiffs’ motion to certify the class. Wells Fargo then moved to compel arbitration of the claims of the unnamed class members. The district court denied the motion, finding that Wells Fargo waived its right to seek arbitration by acting “inconsistently with its arbitration rights during its pre-certification litigation efforts” and that the plaintiffs would suffer “significant prejudice” if Wells Fargo were allowed to invoke arbitration after nearly 10 years of litigation. Wells Fargo appealed.

The Eleventh Circuit first noted that a party asserting waiver of arbitration faces a heavy burden of proof: it requires a showing that the party seeking arbitration has acted inconsistently with the arbitration right and that the opposing party has in some way been prejudiced. The court held that, even though Wells Fargo had waived its arbitration rights as to the named class representatives, it provided “fair notice at a relatively early stage of litigation” that it wished to preserve its right to compel arbitration as to unnamed plaintiffs in the event the classes were certified. The court also noted that “it would have been impossible in practice to compel arbitration against speculative plaintiffs and jurisdictionally impossible for the District Court to rule on those motions before the class was certified.” The court rejected the argument that, to avoid waiver, filing a conditional motion to compel was required much earlier in the litigation, because the district court would lack jurisdiction over such a motion until the class was certified.

Thus, the Eleventh Circuit vacated the district court’s order denying Wells Fargo’s motion to compel arbitration of the unnamed plaintiffs’ claims and remanded for further proceedings.

Gutierrez v. Wells Fargo Bank, No. 16-16820 (11th Cir. May 10, 2018).

This post written by Jeanne Kohler.

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Implications of U.S. Withdrawal from Iran Nuclear Deal on (Re)insurance Industry

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On May 8, 2018, President Donald Trump issued a Presidential Memorandum announcing his decision to withdraw the United States from its participation in the Joint Comprehensive Plan of Action (JCPOA), the agreement under which Iran committed to limiting its nuclear activities in exchange for sanctions relief from the U.S. and others. The Presidential Memorandum directed the Secretary of State and the Secretary of the Treasury to immediately re-impose all nuclear-related sanctions that were suspended when the JCPOA was implemented in January 2016.

The JCPOA significantly impacted the insurance and reinsurance industry. By lifting sanctions once applicable to vast sectors of the Iranian economy, the JCPOA facilitated opportunities for insurers and reinsurers that were previously unable to transact business in or with Iran, or that were required to sacrifice lucrative dealings with U.S. companies in order to do so. Recognizing Iran was ripe for new insurance and reinsurance products, global companies quickly entered the Iranian market. The President’s recent decision to withdraw the U.S. from the JCPOA raises concerns as to the continued viability of those transactions. For instance, upon re-imposition of the National Defense Authorization Act for Fiscal Year 2012 (NDAA), U.S. and non-U.S. entities may be restrained from providing insurance, reinsurance or underwriting services relating to any Iranian activity for which certain other sanctions are also being re-imposed. The NDAA will also require compliance with restrictions on the underwriting of insurance and reinsurance risks to or for any person or entity on the List of Specially Designated Nationals and Blocked Persons. Underwriting, insurance and reinsurance services have also been specifically called out by the U.S. Department of the Treasury as areas in which sanctions are being re-imposed.  (See Question 1.3 v.)

Restrictions impacting underwriting, insurance and reinsurance services are expected to take effect after a 180-day “wind-down” period scheduled to end of November 4, 2018. At that time, they will have immediate, far-reaching implications on the ability of non-U.S. companies that transact business in or with Iran to continue such business in the U.S. and with U.S. companies. All companies, insurers and reinsurers in particular, are advised to reevaluate their business risks in light of the Presidential Memorandum, and to take care not to enter any foreign transactions without ensuring compliance with all applicable sanctions.

We are continuing to monitor JCPOA-related developments and will update this post when there is more clarity.

This post written by Alex Silverman.
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Eastern District Of Pennsylvania Holds That Plaintiffs Forfeited American Pipe Tolling By Filing Their Lawsuit Too Soon

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A federal district court has dismissed with prejudice a Real Estate Settlement Procedures Act (RESPA) class action filed against JPMorgan Chase Bank N.A. and related entities on statute of limitations grounds a year after finding that the continuing violations doctrine applied to RESPA.

Plaintiffs claimed that defendants violated RESPA when JPMorgan created captive reinsurers to reinsure private mortgage insurance. Plaintiffs alleged that JPMorgan received kickbacks from the reinsurers, which did not assume any real risk and provided no real services. Defendants moved to dismiss the initial complaint on the basis that the claims were untimely under RESPA’s one year statute of limitations. In response, plaintiffs relied (1) on the argument that the limitations period was tolled by the filing of an earlier class action called Samp v. JPMorgan Chase Bank, N.A., which asserted similar claims on behalf of the same putative class members, under the doctrine established by the Supreme Court in American Pipe American Pipe & Construction Co. v. Utah, and (2) on the doctrine of equitable tolling. While that motion was pending, the Third Circuit decided Cunningham v. M & T Bank Corp., in which it held that the equitable tolling doctrine did not save very similar RESPA claims, as plaintiffs in that suit knew or should have known of their claims at the time they were provided with certain disclosures regarding reinsurance. Plaintiffs in the JPMorgan case then moved to amend their complaint to abandon their reliance on equitable tolling, instead asserting that, under the continuing violations doctrine, their RESPA claims were triggered each time a kickback payment was made. The court found that this doctrine applied to such RESPA claims and allowed the amendment.

Defendants moved to dismiss the amended complaint, again asserting that the RESPA claims were time-barred. In its order, the court reiterated its position that the continuing violations doctrine could be applied to the RESPA claims and rejected defendants’ argument that plaintiffs’ knowledge of their claims more than one year before filing their complaint defeated the application of this doctrine. Such knowledge was irrelevant, the court found, as plaintiffs did “not seek to aggregate earlier wrongful acts that would otherwise be untimely,” but limited their claims to conduct occurring within one year prior to the date of accrual.

Plaintiffs victory on this point did not save their RESPA claims, however, as the court then found that plaintiffs had forfeited the tolling made possible by American Pipe because they filed their complaint before the issue of class certification was resolved in the earlier Samp class action. Finding that this was a question of first impression in the Third Circuit, the court found that the purpose of the American Pipe doctrine was to avoid forcing putative class members to file individual suits to avoid the operation of the statute of limitations, and that this purpose would not be served if parties could, after taking advantage of this tolling and file duplicative lawsuits before the issue of class certification was decided in the earlier-filed class action. Thus, the court dismissed plaintiffs’ RESPA claims with prejudice as time-barred and, refusing to exercise ancillary jurisdiction over the remaining state law claims, dismissed those claims without prejudice. The court has already denied a motion for reconsideration filed by plaintiffs, reaffirming its decision that plaintiffs forfeited American Pipe tolling. The court has also denied a motion to intervene by parties seeking to become class representatives, finding that it lacked jurisdiction to continue the matter after dismissing it prior to class certification and that there was no entity with which to intervene.

Blake et al. v. JPMorgan Chase Bank, N.A., et al. (E.D. Pa. March 28, 2018)

This post written by Jason Brost.

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