Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Applies The “Intertwined-Ness Test” To Find That A Non-Signatory Could Invoke Equitable Estoppel To Compel Arbitration

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The court applied a two-part “intertwined-ness test” to determine whether an arbitration agreement allowed a non-signatory to invoke equitable estoppel to compel arbitration. The first prong of the test examines whether the claims advanced by the signatory to the arbitration agreement arise under the same subject matter of the agreement. The second prong asks whether the non-signatory has a “close relationship” to a signatory of the agreement.

The first prong is heavily fact dependent. Here, the court held it was met because the “bulk of Plaintiffs’ claims … [arose] from the formation, execution, and existence of the Reinsurance Agreements,” which contained the arbitration agreement. The court was also influenced by the fact that the plaintiffs simultaneously filed a complaint in court and a demand for arbitration, both of which provided nearly identical factual allegations, alleged injuries, and theories of the case.

The second prong “is centered on the role of the non-signatory defendants when the misconduct occurred.” The court noted that an agency relationship between the non-signatory and a signatory may be sufficient to permit the non-signatory to compel arbitration. The fact that the plaintiffs also connected the non-signatory defendants to a signatory through conspiracy allegations clinched the matter for the court. The defendants had the requisite “close relationship” with a signatory to allow them to compel arbitration. Bankers Conseco Life Insurance Company v. Feuer, Case No. 16-Civ-7646 (USDC S.D.N.Y. Mar. 15, 2018).

This post written by Benjamin E. Stearns.

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California Federal Court Remands Fraud Claims in Workers’ Compensation Reinsurance Action To State Court

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In a March 15, 2018 order, noting that only state law claims remained in the case, a California federal court remanded to state court a lawsuit against an insurance company and its affiliates, which alleged that they fraudulently marketed and sold a workers’ compensation program.

This case involves a matter that plaintiff BSA Framing Inc. (“BSA”) filed against defendants Applied Underwriters, Inc. (“AUW”), Applied Underwriters Captive Risk Assurance Company, Inc. (“AUCRA”), California Insurance Company (“CIC”), and Applied Risk Services, Inc. (“ARS”) (collectively, the “Applied Defendants”). BSA entered into the Applied Defendants’ EquityComp workers’ compensation package, which consists of three consecutive one-year workers’ compensation policies issued by defendant CIC, an affiliate of AUW, and a “Reinsurance Participation Agreement” with defendant AUCRA (the “RPA”). According to the complaint, over the course of its three-year participation in the EquityComp program, BSA paid the Applied Defendants a total of $2,133,345 in premiums and defendants paid $352,623 in BSA-related workers’ compensation claims pursuant to the terms of the workers compensation policies and the RPA. BSA also alleges that defendants made misrepresentations or omissions that led it to believe that its participation in the EquityComp program would be more financially favorable to BSA than it was. Specifically, BSA alleges that it expected to pay “at least $868,583” less than it actually paid in premiums over the course of its participation in the EquityComp program. BSA also alleges that the RPA was “purposefully written to be as vague as possible and to obfuscate and hide the manner in which an insured’s payment obligations are to be determined.”

BSA first filed its suit against the Applied Defendants in California state court, asserting several California state law claims and federal RICO claims. The Applied Defendants removed the case, invoking the district court’s federal-question jurisdiction on the basis of BSA’s RICO claims. In a November 28, 2017 order, the California district court granted the Applied Defendants’ motion to dismiss the RICO claims, but allowed BSA to file an amended complaint. BSA then filed an amended complaint, in which it again asserted RICO claims against the Applied Defendants, which again moved to dismiss the RICO claims. On February 27, 2018, the California district court granted the Applied Defendants’ motion without leave to amend and also ordered the Applied Defendants to show cause why the action, which now involves only state claims, should not be remanded to state court. The Applied Defendants did not file a response, and thus, the California district court remanded the case to state court.

BSA Framing, Inc. v. Applied Underwriters, Inc. et al., No. CV-17-1836 (USDC C.D. Cal. Feb. 27 and Mar. 15, 2018)

This post written by Jeanne Kohler.
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Minnesota Court of Appeals Affirms Dismissal of Claims Against Reinsurer Under Filed-Rate Doctrine

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The filed-rate doctrine precluded recovery of deficiency assessments the Workers’ Compensation Reinsurance Association (WCRA) levied against employers which were alleged to have been wrongfully collected in 2013 and 2014 when the WCRA no longer had a deficit.

The employers argued that the filed-rate doctrine “does not apply to deficient-premiums assessments and deficiency assessments, and that the doctrine does not bar their claims because they seek only to enforce the WCRA statutes and the commissioner’s orders imposing those assessments.” A Minnesota trial court disagreed, and its dismissal of the claims was affirmed by Minnesota’s Court of Appeals, which noted:

  1. the separation-of-powers concerns favor application of the filed-rate doctrine as the challenged assessments were recommended by a legislatively created nonprofit entity;
  2. justiciability concerns favor application of the filed-rate doctrine because “a court order requiring WCRA to refund millions of assessments dollars would substantially reduce the funding base that WCRA uses to pay claims” potentially triggering the need for future assessments and the “courts are ill-equipped to fashion relief that appropriately contextualizes deficient-premiums assessments and deficiency assessments within this complex and evolving scheme; and
  3. non-discrimination concerns favor application of the filed-rate doctrine, because a “retroactive judicial damages award that effectively adjusts a rate for some ratepayers but not others would create discrimination in the rate schedule.”

Ambassador Press, Inc., et al. v. Trifac Workers’ Compensation Fund, et al., 62-CV-16-1713 (Minn. Ct. App. Dec. 11, 2017).

This post written by Nora A. Valenza-Frost.
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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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