Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

U.K. Court Of Appeal Finds Experienced “Insurance Or Reinsurance” Lawyers Are Eligible For Appointment To Arbitration Panel Under Arbitration Clause In Reinsurance Treaty

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The U.K. Court of Appeal has held that an arbitration clause commonly found in London market excess of loss reinsurance treaties does not prohibit the appointment of insurance or reinsurance lawyers to an arbitration panel. The clause at issue provides that, “[u]nless the parties otherwise agree, the arbitration tribunal shall consist of persons with not less than ten years’ experience of insurance or reinsurance.” The Court reversed an order of the U.K.’s High Court of Justice, Commercial Court, which held that a lawyer who had over ten years of experience in insurance and reinsurance disputes did not qualify for appointment to the panel under the clause because he did not have experience in the insurance or reinsurance “industry.” On appeal, the Court held that nothing in the clause itself restricted the pool of candidates to “trade arbitrators,” and that the clause need not be interpreted as such simply because it was drafted by a “trade body.” The Court instead emphasized that the “practical and legal aspects of insurance and reinsurance are so intertwined that both market professionals and lawyers who have specialised in the field for many years are commonly appointed as arbitrators” in matters involving such disputes. Thus, unless the parties have some special reason for excluding lawyers as eligible candidates—in which case they can expressly state as such in the contract—the Court held that lawyers experienced in the field of insurance or reinsurance are naturally qualified to serve as an arbitrator under the clause.

Allianz Ins. PLC v. Tonicstar Limited, [2018] EWCA Civ. 434 (Commercial Court).

This post written by Alex Silverman.
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Third Circuit Finds Agreement to Arbitrate Unenforceable Because Arbitration Was Directed to an Illusory Forum

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Where a Loan Agreement’s arbitration provision stated disputes “will be resolved by Arbitration, which shall be conducted by the Cheyenne River Sioux Tribal Nation by an authorized representative in accordance with its consumer dispute rules and the terms of this Agreement,” the Third Circuit Court held, on review, that the Tribe was required to be involved in the arbitration. This, however, proved impossible, because the Court found no such tribal arbitral forum exists.

The Court found that “[t]he Choice of Arbitrator provision allows the parties to select the AAA, JAMS, or some other agreed upon organization ‘to administer the arbitration… [under] the chosen arbitration organization’s rules and procedures… to the extent that those rules and procedures do not contradict either the law of the [Tribe] or the express terms of [the Loan] Agreement.’” However, the Court declined to extend the Choice of Arbitrator provision to give parties the right to arbitrate before a non-Tribal representative, as it would be irreconcilable with the forum selection clause and the plain language of the provision.

The arbitration agreement was invalidated because the Tribal “arbitration provision was an integral, not ancillary, part of the parties’ agreement to arbitration, despite the inclusion of a severability clause in the contract.” References in the Loan Agreement “reflect that the primary purpose of the Loan Agreement was to arbitrate disputes subject to [the Tribe’s] oversight and its laws.”

Macdonald v. CashCall, Inc., et al., No. 17-261 (3d Cir. Feb. 27, 2018)

This post written by Nora A. Valenza-Frost.

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CASE ALLEGING THAT BARNES & NOBLE WRONGFULLY SHARED CUSTOMER INFORMATION WITH FACEBOOK ORDERED TO ARBITRATION

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Plaintiff filed a class action against Barnes & Noble in the Southern District of New York, alleging that it violated her privacy by sharing information about her purchases with Facebook. Barnes & Noble moved to compel arbitration based on an agreement to arbitrate contained in its Terms of Use. Plaintiff denied agreeing to the Terms of Use and argued that the arbitration provision was unconscionable.

In a report and recommendation, a magistrate judge found that the Terms of Use were an example of a “sign-in-wrap” agreement, in which a website notifies users of the existence and applicability of its terms of use “when proceeding through the website’s sign-in or login process.” Under Second Circuit precedent, arbitration clauses in such sign-in-wrap agreements may be enforced “where the notice of the arbitration provision was reasonably conspicuous and manifestation of assent unambiguous as a matter of law.” The magistrate examined evidence regarding the appearance and functioning of the website in detail, including evidence that, at the time plaintiff placed her DVD order, users of the website “had to click on a ‘Submit Order’ button with the language ‘[b]y making this purchase you are agreeing to our Terms of Use and Privacy Policy’ immediately below it” in order to make purchases, and that the actual Terms of Use could be accessed by clicking on those words. The magistrate found that this evidence, countered only by plaintiff’s testimony that she did not recall seeing the Terms of Use notice, was sufficient for Barnes & Noble to show “by a preponderance of credible evidence” that the notice was “reasonably conspicuous” and that plaintiff had unambiguously manifested her assent, such that an agreement to arbitrate existed. The magistrate also found that the arbitration agreement was not procedurally or substantively unconscionable.

In considering plaintiff’s objections to the magistrate report and recommendation, the district judge found that the magistrate was wrong to describe Barnes & Noble’s burden as making a showing “by a preponderance of credible evidence,” finding instead that it had to show that “no trier of fact reasonably could have found that an agreement to arbitrate did not exist between the parties.” This court found this error to be harmless, however, as the evidence was sufficient to meet the correct standard, and it granted Barnes & Noble’s motion to compel arbitration.

Bernardino v. Barnes & Noble Booksellers, Inc., Case No. 1:17-cv-04570 (S.D.N.Y. Jan. 31, 2018)

This post written by Jason Brost.

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ON RECONSIDERATION, APPLIED UNDERWRITERS AGAIN LOSES ARGUMENT TO ENFORCE MANDATORY FORUM SELECTION CLAUSE IN REINSURANCE CONTRACT

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As we previously reported, the District of Connecticut in September denied a motion to transfer based on a mandatory forum selection clause in a reinsurance contract in a dispute between Applied Underwriters, Inc. and its affiliates, and Aiello Home Services (“Aiello”), over a workers’ compensation insurance product. There, the court held the forum selection clause did not bind Aiello relative to defendants other than Applied affiliate Applied Underwriters Captive Risk Assurance Company (“AUCRAC”), did not apply to Aiello’s specific claims against AUCRAC, and was generally unenforceable under Nebraska and federal law. In the present opinion, the court granted a motion for reconsideration to clarify its prior ruling, but denied the requested relief.

The court addressed whether the claims and parties are subject to the forum selection clause and whether the resisting party showed that the enforcement of the clause would be unjust or the clause was otherwise invalid.

On reconsideration, AUCRAC first argued that the claims, while not “arising out of” the contract, are “related to” the reinsurance contract. Noting that the Second Circuit interprets the language “related to” broadly, the court reaffirmed its original ruling the claims fall outside the scope of the forum selection clause. Aiello’s statutory claims concern deceptive behavior that predated the reinsurance contract and the court was unable to determine the extent to which the alleged misrepresentations induced the parties to agree to the contract, concluding that those claims were not “related to” the contract.

Despite not needing to reach the enforceability of the forum selection clause because the court held Aiello’s claims did not “relate to” the reinsurance contract, the court analyzed the clause’s enforceability to clarify statements from its September ruling. Because Second Circuit precedent for evaluating enforceability provides that federal law controls, the court clarified that although it found the forum selection clause is unenforceable under Nebraska law, it did not ground the decision on the motion to transfer on state law. The court then doubled-down on its assessment that the forum selection clause was unenforceable under federal law because of the accompanying inefficiencies and risk of inconsistent judgments. However, it specified that it was not suggesting inefficiency alone renders the clause unenforceable, but rather in the circumstances here the inefficiency constituted sufficient injustice.

Charter Oak Oil Co. v. Aiello Home Servs., Case No. 17-689 (D. Conn. Feb. 26, 2018).

This post written by Thaddeus Ewald .

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SIXTH CIRCUIT FINDS THAT COMPELLING ARBITRATION DOES NOT IMPAIR STATE INTEREST IN EXCLUSIVE JURISDICTION OVER MATTER ALREADY REMOVED TO FEDERAL COURT

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The Sixth Circuit Court of Appeals has found that Kentucky’s Insurers Rehabilitation and Liquidation Law (IRLL) did not reverse-preempt the Federal Arbitration Act so as to prohibit the arbitration of a dispute when that dispute had already been removed to a federal district court.

The case arose out of the insolvency of the Kentucky Health Co-op, a non-profit health insurance company. The Kentucky Department of Insurance instituted a delinquency proceeding in Franklin County Circuit court and, as liquidator, brought a collateral proceeding against CGI Technologies and Solutions, Inc. CGI had provided claims processing services to the Kentucky Health Co-op under an agreement providing that all disputes would be resolved by arbitration and that Kentucky law would apply. CGI removed the case to federal court based on diversity jurisdiction and moved to compel arbitration, and the liquidator moved to remand the matter to state court. The district court refused to remand the case but denied the motion to compel arbitration, and CGI appealed the denial of the motion to compel arbitration, but did not appeal the denial of the motion to remand.

On appeal, the liquidator argued that federal law favoring arbitration was reverse-preempted by Kentucky law providing that the Franklin Circuit Court has exclusive jurisdiction over all matters relating to an insolvent insurer’s liquidation. Such reverse preemption, which is authorized by the McCarran-Ferguson Act, applies when 1) the state statute was enacted for the purpose of regulating the business of insurance; 2) the federal statute involved does not specifically relate to the business of insurance; and 3) the application of the federal statute would invalidate, impair, or supersede the state statute regulating insurance. The Sixth Circuit easily found that the first two of the requirement for preemption were satisfied, but found that the third was not. The alleged impairment of the state statute was the fact that it would deny the Franklin Circuit Court of exclusive jurisdiction over the matter as provided for by the IRLL. But since the Liquidator had not appealed the denial of the motion to remand, no matter what the court decided the action would remain in federal court, and not be returned to state court. Finding that enforcing the arbitration clause would thus not invalidate, impair, or supersede a state statute regulating insurance, the Sixth Circuit vacated the order denying CGI’s motion to compel arbitration.

Atkins v. CGI Technologies and Solutions, Inc., Case No. 17-5506 (6th Cir. Feb. 9. 2018)

This post written by Jason Brost.

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