Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

APPLIED UNDERWRITERS, INC., LOSES ARGUMENT TO ENFORCE MANDATORY FORUM SELECTION CLAUSE IN REINSURANCE CONTRACT

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On September 12, the District Court for Connecticut denied a motion to transfer predicated on a mandatory forum selection clause in a reinsurance contract. The contract was one of several entered into by Applied Underwriters, Inc., and its affiliates (collectively “Applied”) with Aiello Home Services (“Aiello”) for a “novel [workers’ compensation] insurance product known as ‘EquityComp,’ which required participation by the insured in a reinsurance facility. Applied’s relations with Aiello broke down when Applied sent Aiello a statement “assessing an additional premium charge of $195,786.52, and reporting total estimated costs nearly $200,000 higher than the previous month’s total cost estimate.” Aiello filed suit alleging violations of the Connecticut Unfair Trade Practices Act and other statutory violations. Applied removed the case to federal court and sought to transfer to the District of Nebraska based on the forum selection clause.

The court denied the motion to transfer. The court found that the bulk of Aiello’s claims arose from statutory violations, not the contract, and therefore were not within the scope of the forum selection clause. The fact that Applied’s defenses relied primarily on the contract was insufficient to bring the statutory claims within the scope of the clause.

The court also analyzed whether the clause would be enforceable under the law of the chosen forum state (Nebraska). As part of that analysis, the court had to determine if Aiello had sufficient minimum contacts to establish personal jurisdiction in Nebraska. “[T]here is a clear distinction between conventional commercial contracts and those that arise in the business of insurance.” While an insurance company that markets policies to residents of a given state establishes sufficient minimum contacts within that state, the insureds do not simultaneously establish sufficient contacts with the insurer’s home state. As a result, the court refused to enforce the clause.

Charter Oak Oil Co., Inc. v. Applied Underwriters, Inc., No. 3:17-cv-00689 (SRU) (USDC D. Conn. Sept. 12, 2017).

This post written by Benjamin E. Stearns.

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NINTH CIRCUIT ALLOWS CLASS ARBITRATION TO PROCEED DESPITE ABSENCE OF EXPRESS REFERENCE TO CLASS ARBITRATION

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Lamps Plus appealed an order permitting class arbitration of claims related to a data breach of personal identifying information of its employees, alleging negligence, breach of contract, invasion of privacy, and other claims. The district court previously found that the arbitration agreement was ambiguous as to class arbitration and denied Lamps Plus’s motion to compel bilateral arbitration, allowing class-wide arbitration to proceed.

On appeal, the Ninth Circuit affirmed, all the while acknowledging the Supreme Court’s finding in Stolt-Nielsen that under the Federal Arbitration Act, a party may not be compelled to submit to class arbitration unless “there is a contractual basis for concluding that the party agreed to do so.” However, the Court went on to find that the lack of an express reference to class arbitration was “not the ‘silence’ contemplated in Stolt-Nielsen.” As such, the Court construed the language “arbitration shall be in lieu of any and all lawsuits or other civil legal proceedings relating to my employment” as to authorize class arbitration and further found that its interpretation of that clause “require[d] no act of interpretive acrobatics” and was “the most reasonable” interpretation possible.

Varela v. Lamps Plus, Inc., No. 16-56085 (9th Cir. Aug. 3, 2017).

This post written by Gail Jankowski.

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DELAWARE GOVERNOR SIGNS LAW CREATING STREAMLINED AND INEXPENSIVE REGULATORY REGIME FOR DORMANT CAPTIVE INSURANCE COMPANIES

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The bill defines a dormant captive insurance company as one that (1) did not contract for any direct premium or reinsurance premium for a full calendar year, (2) is not obligated as an insurance company under any contract of insurance or reinsurance during any year it is a dormant captive, and (3) has provided written notice to the Commissioner of its intent to be a dormant captive. Among various provisions, the bill requires a dormant captive to possess and maintain $25,000 in unimpaired capital and surplus (or such other amount determined by the Commissioner), and exempts a dormant captive from the payment of premium tax, the filing of annual statements, the preparing of audited financial statements, and obtaining statements of actuarial opinion. Del. HB 87 (eff. Aug. 31, 2017).

This post written by Nora A. Valenza-Frost.

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ALABAMA FEDERAL COURT FINDS CEDENT DID NOT WAIVE ARBITRATION, AND ORDERS REINSURANCE DISPUTE TO BE ARBITRATED

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Alabama Municipal Insurance Corp. (“AMIC”), an Alabama non-profit public insurer, brought suit in Alabama federal court against Munich Reinsurance America Inc. (“Munich Re”), alleging breach of a reinsurance contract for failing to fully reimburse a settlement of flood claims asserted against an insured city. Munich Re answered, denying liability under the reinsurance contract alleged in the complaint, and stated that another reinsurance contract (Agreement No. 1236-0009, endorsed by Agreement No. 1236-0009-E003) applied to the claims. After the parties submitted their Rule 26(f) report and a Scheduling Order was entered by the court, AMIC amended its complaint without opposition from Munich Re, asserting a claim under another reinsurance contract, Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Munich Re answered the Amended Complaint and AMIC noticed the depositions of two Munich Re employees. AMIC then filed a Motion to Stay Pending Arbitration under Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003. Thereafter, the depositions of the two Munich re employees took place.

Both parties agreed that Agreement No. 1236-0013, endorsed by Agreement No. 1236-0009-E003 referenced in the Amended Complaint contains an arbitration clause. However, Munich Re contended that AMIC’s claim in the case is not subject to arbitration because that agreement is not applicable to the claims. The Alabama federal court found that the only claim brought in the case was under a contract which contains an arbitration clause, and thus is subject to arbitration. Munich Re, however, claimed that AMIC had waived its right to arbitrate. In response, the court held that AMIC had not waived the right to arbitrate. The court found that the actions taken toward litigation prior to filing the Amended Complaint should not be considered a waiver of the right to arbitrate, as the Amended Complaint was the first time that AMIC had alleged a breach of a reinsurance contract which contained an arbitration clause. Thus, the Alabama federal court granted the motion to stay pending arbitration. Alabama Municipal Ins. Corp. v. Munich Reinsurance America Inc., Case No. 2:16-CV-948-WHA-SRW (USDC M.D. Ala. Sept. 7, 2017).

This post written by Jeanne Kohler.

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EIGHTH CIRCUIT HOLDS THAT A MOTION TO DISMISS BASED ON AN ARBITRATION CLAUSE IS NOT A CHALLENGE TO THE COURT’S JURISDICTION

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A municipality sued the company that constructed its water treatment facility, in connection with contaminants found in the water supply. The parties had entered into a series of agreements which contained choice of law and arbitration clauses governing the resolution of any disputes. The company filed a motion to dismiss for lack of jurisdiction based on the contracts’ forum selection and arbitration clauses, and the court construed the motion as falling under Rule 12(b)(1). The court then found that the contracts were inconsistent and ambiguous, and considered extrinsic evidence. The court ultimately granted the motion to dismiss and directed the parties to proceed to arbitration.

On appeal, the Eighth Circuit found that the district court erred by analyzing the motion to dismiss as a 12(b)(1) challenge to its jurisdiction. The court explained that the U.S. Supreme Court has held that “federal venue laws, not forum-selection clauses, govern the propriety of venue under Rule 12(b)(3). The same logic applies where, as here, a party seeks to enforce an arbitration agreement under Rule 12(b)(1). Just as a forum-selection clause has no bearing on the issue of whether venue is ‘wrong’ or ‘improper,’ an arbitration agreement has no relevance to the question of whether a given case satisfies constitutional or statutory definitions of jurisdiction.” The Eighth Circuit found that summary judgment standards should apply on remand because the parties submitted, and the district court considered, matters outside the pleadings. City of Benkelman, Nebraska v. Baseline Engineering Corp., et al., Case No. 16-1949 (8th Cir. Aug. 11, 2017).

This post written by Nora A. Valenza-Frost.

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