Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NINTH CIRCUIT AFFIRMS APPLICATION OF ARBITRATION CLAUSE FOUND IN AMAZON’S CONDITIONS OF USE

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Applying Washington law, the Ninth Circuit Court of Appeals affirmed a California federal court’s ruling that Amazon’s Conditions of Use (COU) created a valid contract between Amazon and its customers, and there was no procedural unconscionability in the presentation of the arbitration clause. Further, the Court found that, “[w]hile the COU are adhesive in nature, adhesion is insufficient to support a finding of procedural unconscionability.”

Plaintiff made three arguments for substantive unconscionability which the Court found lacked merit: (1) “the unilateral modification clause does not render the arbitration provision substantively unconscionable because Amazon is limited by the implied covenant of good faith and fair dealing;” (2) “the arbitration clause’s exemption of intellectual property claims for injunctive relief does not make the provision overly harsh or one-sided;” and (3) “the attorneys’ fees provision does not create substantive unconscionability because it mirrors Washington’s statutory right to attorneys’ fees for frivolous claims” and “also complies with California law, which permits Amazon to seek fees as a sanction for frivolous claims.”

Class action waivers continue to be a hotly contested issue. We previously reported that the California Fifth District Court of Appeal held that, while California Private Attorneys General Act (PAGA) claims for civil penalties cannot be arbitrated or waived, the underlying worker claims for the wages themselves are subject both to arbitration and a class action waiver, which substantially undercuts an employer’s group exposure in wage and hour actions.

Wiseley, et al. v. Amazon.com, Inc., No. 15-56799 (9th Cir. Sept. 19, 2017)

This post written by Nora A. Valenza-Frost.

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RELIANCE LIQUIDATION COURT APPROVES APPLICATION FOR DIRECT PAYMENTS FROM RELIANCE’S REINSURERS TO CERTAIN INSUREDS

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The court handling the liquidation of Reliance Insurance Company has approved an application for the direct payment of reinsurance proceeds by Hunt Equities, Inc., as guarantor of Mount Vernon Insurance company (the “Reinsurer”), to Reliance’s insured, Hunt Consolidated, Inc., with respect to certain workers compensation and employers liability policies issued to Hunt Consolidated, Inc., for the policy periods of 1991 to 1996. The court found that the Reinsurer had unequivocally assumed Reliance’s direct coverage obligations to Hunt Consolidated, Inc., that Hunt Consolidated, Inc. had consented to the substitution of the Reinsurer for Reliance and to the release of Reliance for all coverage related claims, and that permitting such direct payment complied with the Section 534 of Article V of the Pennsylvania Insurance Department Act of 1921, the court’s own guidelines for enforcement of the Act, and it prior orders.

In re Reliance Insurance Company, No. 1 REL 2001 (Pa. Comm. Ct. Aug. 9. 2017)

This post written by Jason Brost.

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COURT COMPELS DISCOVERY, AWARDS SANCTIONS IN DISPUTE OVER WHETHER REINSURANCE ARBITRATION CLAUSE APPLIES

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In 2011, Top’s Personnel entered into a reinsurance agreement with Applied Underwriters Captive Risk Assurance Company (“AUCRA”), and several years later executed a promissory note (“the Note”) in favor of a related entity, Applied Underwriters. Applied Underwriters (“Plaintiff”) sued Top’s Personnel (“Defendant”) for breach of its obligations under the Note, and Defendant moved to compel arbitration pursuant to an arbitration clause in the reinsurance agreement. The court denied the motion to compel arbitration because, on the evidence before it, Plaintiff was not subject to the arbitration clause. However, the court acknowledged the possibility that discovery might show circumstances that justify binding Plaintiff to the arbitration clause in AUCRA’s reinsurance agreement.

Defendant sought discovery as to the relationship between the two entities, the reinsurance agreement, and the Note’s connection to that agreement. Defendant moved to compel complete responses to its interrogatories and document requests, as well as sought to depose Plaintiff’s counsel. The court granted that motion in part, requiring revised responses to discovery requests, but denied the request to depose Plaintiff’s counsel. Defendant subsequently filed another motion to compel to remediate what Defendant argued were continued deficiencies in Plaintiff’s discovery responses.

The court granted Defendant’s motion to compel in full, including allowing the deposition of Plaintiff’s counsel and imposing sanctions for Plaintiff’s failure to comply with the court’s first order. The court addressed each disputed response in a piecemeal fashion, issuing specific directives for Plaintiff to cure its deficient responses by answering completely interrogatories regarding the negotiations of the Note and why different entities signed the Note and the reinsurance agreement, producing any correspondence or communications regarding the Note or reinsurance agreement, and supplementing its initial disclosures to include relevant information about all individuals with discoverable information.

Furthermore, the court granted the motion to compel the deposition of Plaintiff’s counsel. Whereas before the court ordered Defendant to attempt to first depose another individual who allegedly had the same information as Plaintiff’s counsel, this time the court determined the deposition was necessary because some of Plaintiff’s revised discovery responses and other communications indicated the attorney was the only individual involved in negotiating the Note on behalf his client.

Finally, the court granted Defendant’s request for sanctions, including attorney’s fees, for Plaintiff’s failure to comply with the court’s prior discovery order. The court concluded that the majority of the second motion was previously addressed during Defendant’s first motion to compel and the resulting order, and moreover it was Plaintiff’s failure to fully comply with the previous order that necessitated the second motion. Thus, an award of sanctions and attorney’s fees was just and sufficient to address Plaintiff’s discovery failures.

Applied Underwriters, Inc. v. Top’s Personnel, Inc., Case No. 15-90 (USDC D. Neb. Aug. 7, 2017).

This post written by Thaddeus Ewald .
See our disclaimer.

SECOND CIRCUIT ENFORCES ARBITRATION AGREEMENT IN FAVOR OR NON-PARTY WHOSE AGENT ENTERED INTO THAT AGREEMENT

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The Second Circuit has affirmed an order compelling a plaintiff-employee to arbitrate his employment related claims against Carnival Cruise Lines, despite the fact that the one page employment agreement that he signed did not contain an arbitration clause and did not mention Carnival.

The plaintiff sued Carnival in connection with injuries allegedly suffered while working on one of their ships, and Carnival moved to compel arbitration. The plaintiff argued that he should not be required to arbitrate his claims because his employment contract did not contain an arbitration clause or expressly incorporate any other document, and Carnival was not a party to or even mentioned in that agreement. The Court disagreed.

First, the Court noted that incorporation by reference was a matter of law and thus for the court to decide. Second, it found that the language – stating that the “herein terms and conditions in accordance with POEA Governing Board Resolution No. 09 and Memorandum Circular No. 10 … shall be strictly and faithfully observed,” was sufficient to incorporate those documents, which contained an arbitration clause. Third, the Court found that it did not matter that the plaintiff was unaware of the arbitration clause, as he was bound by the terms of his contract and the incorporated documents, regardless of whether he had actually read them. Finally, the court held that the company with which the plaintiff had entered into a contract was acting as an agent for Carnival, and that Carnival had the power to enforce an arbitration agreement made by its agent.

Pagaduan v. Carnival Corporation et al., No. 16-465 (2d Cir. Sept. 18, 2017)

This post written by Jason Brost.

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BANKRUPTCY COURT GRANTS MF GLOBAL HOLDINGS’ MOTION TO RECONSIDER DECISION TO COMPEL ARBITRATION IN BERMUDA, BUT REACHES SAME RESULT

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On September 6, 2017, the Bankruptcy Court for the Southern District of New York issued the latest order in the ongoing coverage battle between MF Global Holdings (“MF Global”) and Allied World Assurance Company regarding the former’s bankruptcy. The decision stemmed from MF Global’s motion to reconsider the court’s August 24, 2017 order compelling arbitration in Bermuda. While the court initially granted the motion to reconsider, it reached the same result and granted Allied World’s motion to compel arbitration.

MF Global’s request for reconsideration was based on the court’s alleged failure to address its argument that the global bankruptcy plan explicitly retained jurisdiction over adversary proceedings, a provision which should have superseded the underlying insurance contract’s arbitration provision which formed the basis of the court’s decision to compel arbitration. The court noted that while its decision mentioned the argument, it did not address the merits of the argument, so the court granted the motion to reconsider.

On reconsideration, the court was unpersuaded by MF Global’s argument that the bankruptcy court retained jurisdiction pursuant to the global bankruptcy plan. In a short opinion, the court distinguished the principal authority upon which MF Global relied: Ernst & Young LLP v. Baker O’Neal Holdings, Inc., 304 F.3d 753 (7th Cir. 2002). That case addressed an adversary proceeding that commenced before the bankruptcy plan and a plan provision which retained jurisdiction over pending adversary proceedings. Here, the adversary proceeding was not filed until after the plan was confirmed, and, the court concluded, the plan language retaining jurisdiction of pending adversary proceedings should not be interpreted to supersede the contractual arbitration provision in the pre-petition contract without explicit instruction in the plan as to that interpretation. Furthermore, Allied World had not waived its right to demand arbitration at any point in the proceedings.

Thus, even though the court granted MF Global’s motion to reconsider, it ultimately reached the same conclusion and granted Allied World’s motion to compel arbitration and denied MF Global’s motion to stay the arbitration.

In re: MF Global Holdings Ltd., Case No. 11-15059 (Bankr. S.D.N.Y. Sept. 6, 2017).

This post written by Thaddeus Ewald .

See our disclaimer.