Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ESTATE AVOIDS ARBITRATION IN WRONGFUL DEATH MARITIME SUIT BECAUSE DEFENDANT WAS NOT A SIGNATORY OR PARTY TO CONTRACT WITH ARBITRATION CLAUSE

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The Ninth Circuit refused last month to disturb a district court order denying a defendant’s motion to compel arbitration against a sailor in a maritime action pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“Convention Act”) where the defendant company was not a signatory or a party to an employment agreement with an arbitration clause. The sailor (“Yang”) entered into an employment agreement with the vessel’s owner (“Majestic”) that contained an arbitration clause. While defendant Dongwon Industries Co. was responsible for the vessel’s repairs, maintenance, and supplies, it was neither a signatory nor party to Yang and Majestic’s agreement. After Yang died when the ship sank due to inadequate repairs, Yang’s wife sued Majestic and Dongwon for wrongful death. The district court compelled arbitration of her claims against Majestic based on the employment agreement, but denied Dongwon’s motion to compel arbitration.

First, the Ninth Circuit affirmed because the Convention Act does not allow non-signatories or non-parties to compel arbitration. Dongwon attempted to argue that the language in the Convention Treaty limiting arbitration to signatories applied only to a phrase addressing arbitration agreements, but not the phrase addressing arbitration clauses in other contracts. The court relied heavily on a Second Circuit case Kahn Lucas Lancaster, Inc. v. Lark International Ltd., which held that the signatory requirement language applied to both arbitration agreements and clauses in other contracts. Kahn Lucas relied on the last-antecedent rule, the grammar of the Treaty’s foreign texts, and the Treaty’s legislative history. In relying on Kahn Lucas, the court explicitly recognized the punctuation canon, under which a phrase applies to “all antecedents instead of only to the immediately preceding one” when the phrase is separated from the antecedents by a comma. The court also noted that every circuit considering Kahn Lucas’s logic has followed it. Lastly, the court found Dongwon failed to demonstrate that it was a party to the agreement containing the arbitration clause, a foundational requirement to compel under the Convention Treaty.

Second, the court rejected Dongwon’s argument that a non-party may invoke arbitration under the Federal Arbitration Act (“FAA”) if the relevant state contract law allows such a litigant to enforce the agreement. Initially the court noted FAA arbitration was unavailable to Dongwon because it specifically exempts “contracts of employment of seamen.” The court dismissed the argument as a “doctrinal sleight of hand” because arbitrations under the Convention Act require additional prerequisites than those required for arbitrations under the FAA, a conflict which prevents application of the FAA. Furthermore, even if the court were to ignore the additional Convention Act requirements, Dongwon would not be entitled to arbitration because its theories under the applicable state law—California—do not provide a basis to compel arbitration. To conclude, the court noted there was “no reason to depart from the general rule” that the contractual right to compel arbitration may not be asserted by a non-party to the agreement that does not otherwise possess the right to compel arbitration. Yang v. Majestic Blue Fisheries, LLC, Case No. 15-16881 (9th Cir. Nov. 30, 2017).

This post written by Thaddeus Ewald .

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THE ALLEGATION OF NON-ARBITRABLE PRIVATE ATTORNEY GENERAL CLAIMS DOES NOT PREVENT ARBITRATION OF INDIVIDUAL CLAIMS RAISED SIMULTANEOUSLY

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A contractual arbitration clause may not be avoided by the allegation of “private attorney general” claims that are not arbitrable on public policy grounds in conjunction with claims raised on an individual basis that would otherwise clearly be subject to arbitration. A plaintiff claiming to have suffered harm as a result of misclassification as an independent contractor rather than as an employee raised a “smorgasbord of claims … in a mix of capacities,” including as an individual, a putative class representative, and a private attorney general under California’s Private Attorneys General Act (“PAGA”).

The contract between the plaintiff and his employer provided that arbitration will occur on only an individual basis and expressly waived claims as a representative. However, California law prohibits PAGA claims from being waived in such a manner. The plaintiff argued that because the PAGA claims could not be submitted to arbitration, his related individual and class representative claims should not be arbitrated either. The Ninth Circuit disagreed. The court simply restricted the contractual arbitration provision from applying to the PAGA claims and ruled that arbitration should be compelled on the other claims. Furthermore, the court held that the PAGA claims should be stayed until the arbitration of the plaintiff’s individual claims made a critical determination. Depending on the outcome of that determination, the plaintiff may be allowed to pursue his PAGA claims in district court. Aviles v. Quik Pick Express, LLC, Case No. 15-56951 (9th Cir. Nov. 24, 2017).

This post written by Benjamin E. Stearns.

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FIRST CIRCUIT AFFIRMS DENIAL OF MOTION TO COMPEL ARBITRATION OF NON-SIGNATORY EMPLOYEE’S WAGE AND HOUR CLAIMS

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As a condition of plaintiff Ouadani’s employment with defendant TF Final Mile LLC (f/k/a/ Dynamex Operations East, LLC (Dynamex)) as a delivery driver, Ouadani was required to associate with Dynamex’s vendor, Birtha Shipping LLC (SBS), from which he received his compensation. Ouadani did not have a written contract with either the Dynamex or SBS. Ouadani ultimately complained to Dynamex that he lacked the independence of a contractor, and that he should be paid as an employee, and he was terminated shortly thereafter.

Later, Ouadani brought various wage and hour claims against Dynamex as a putative class action on his behalf and on behalf of others similarly situated. Dynamex responded by filing a motion to compel arbitration, citing an agreement between it and SBS, which contained a mandatory arbitration clause. The District Court for the District of Massachusetts denied Dynamex’s motion to compel, reasoning that Ouadani had never signed the agreement containing the arbitration clause and had no idea that the agreement even existed.

On appeal, Dynamex argued that Ouadani should nonetheless be compelled to arbitrate under federal common law principles of contract and agency. The First Circuit rejected this argument and refused to bind Ouadani, a non-signatory, to the agreement. The Court was not persuaded by Dynamex’s arguments that (1) Ouadani was bound to arbitrate inasmuch as he was an “agent” of SBS and (2) Ouadani knowingly sought and obtained benefits from the agreement because he performed the “Contracted Services” pursuant to the agreement for compensation. On the latter issue, the Court held that the benefits of the arbitration clause accrue to the contracting signatories – Dynamex and SBS – not to Ouadani, who could “hardly be said to have ‘embraced’ the Agreement when he was unaware of its existence.” Ouadani v. TF Final Mile LLC, Case No. 17-1583 (1st Cir. Nov. 21, 2017).

This post written by Gail Jankowski.

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IOWA AND VIRGINIA INSURANCE REGULATORS ADOPT THE NAIC’S TERM MODEL RULES GOVERNING TERM AND UNIVERSAL LIFE INSURANCE RESERVE FINANCING

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Insurance regulators in Iowa and Virginia have adopted the NAIC’s Model Rules regulating term and universal life insurance reserve financing. The stated purpose of the rules is “to establish uniform, national standards governing reserve financing arrangements pertaining to life insurance policies containing guaranteed nonlevel gross premiums, life insurance policies containing guaranteed nonlevel benefits, and universal life insurance policies with secondary guarantees” and to require certain funds or securities to be held in association with such financing arrangements. The regulations “specif[y] additional requirements relating to the valuation of asset or reserve credits, the amount and forms of security supporting certain reinsurance arrangements, and the circumstances pursuant to which credit will be reduced or eliminated.

Both states provide a rule specifically prohibiting an insurer that has policies covered by the rules from “tak[ing] any action … or enter[ing] into any transaction … if the purpose of such action, transaction or arrangement … is to avoid the requirements of this chapter, or to circumvent its purpose and intent.”

The Iowa regulations take effect on January 10, 2018, and can be found at 191 – Chapter 112, Iowa Administrative Code. The Virginia regulations take effect on January 1, 2018, and can be found at Title 14, Chapter 318, Virginia Administrative Code.

This post written by Benjamin E. Stearns.

See our disclaimer.

LESS THAN TWO WEEKS BEFORE TRIAL, DISTRICT COURT JUDGE IN UTICA V. FIREMAN’S FUND RULES ON MOTIONS IN LIMINE

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This case concerns an action filed by Utica Mutual Insurance Company (Utica) against its reinsurer, Fireman’s Fund Insurance Company (FFIC) seeking to enforce certain reinsurance contracts against FFIC with respect to $35,000,000 Utica spent in settling a dispute with its insured, Goulds, regarding coverage for thousands of asbestos claims from the 1990s. Presently at issue were (1) Utica’s motion to preclude FFIC’s expert Garrett Redmond, (2) FFIC’s motion to preclude five specific evidentiary matters, and (3) Utica’s omnibus motion in limine regarding various evidentiary issues it anticipated to arise at trial.

Utica sought to preclude Redmond from offering testimony that Utica misrepresented or omitted facts to Fireman’s Fund in 1966 through 1972 relating to whether the primary policies it issued to Goulds had aggregate limits and that the primary policies Utica issued to Goulds did not have aggregate limits. The Court ultimately granted Utica’s motion to the extent that it precluded Redmond from testifying that Utica did in fact make misrepresentations to Fireman’s Fund in obtaining the reinsurance policies and that the primary policies in question did in fact lack aggregate limits. The Court noted, however, that “[d]ue to how much time has passed since these policies were issued, there are no witnesses who were personally involved with negotiating or writing the policies [and] [a]s a result, both sides will attempt to offer circumstantial evidence and testimony regarding the usual practices at that time in order to support their positions on the existence of aggregate limits.”

The Court denied FFIC’s motion to preclude Utica’s argument that FFIC had constructive notice of the loss, reasoning that “[w]hile the law in New York requires actual notice and not constructive notice, any facts showing that Fireman’s Fund had prior knowledge of the Goulds loss are relevant to Fireman’s Fund’s claimed prejudice.” However, the court granted, among other requests, FFIC’s motion to preclude Utica from introducing judicial decisions or settlements involving other insurer’s challenges to Utica’s aggregate limit position. In the same light, the Court granted Utica’s motion to preclude evidence of other disputes, holding that “disputes with other reinsurers under different facts are irrelevant and inadmissible.” Utica Mutual Insurance Co. v. Fireman’s Fund Insurance Co., Case No. 6:09-cv-00853 (USDC N.D.N.Y. Nov. 16, 2017).

This post written by Gail Jankowski.

See our disclaimer.