Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

TEXAS AND WISCONSIN JOIN LIST OF STATES PERMITTING DOMESTIC SURPLUS LINES INSURANCE

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On June 15 and 22, 2017, respectively, the Governors of Texas and Wisconsin approved new laws permitting domestic surplus lines insurers in those states (i.e., insurers domiciled in Texas and Wisconsin) to conduct business within those states. Texas and Wisconsin join a growing list of states, including Arizona, Arkansas, Delaware, Illinois, Louisiana, Missouri, North Dakota, New Hampshire, New Jersey, and Oklahoma, that have passed similar legislation. Previously, a surplus lines carrier would be admitted in one state and be eligible to sell surplus lines coverage only in the other 49 states. This model is gradually changing. Domestic surplus lines insurers in states with laws similar to Texas and Wisconsin are now authorized to issue domestic coverage provided that they satisfy certain eligibility requirements, including minimum capital and surplus requirements. Domestic surplus lines carriers may still not issue coverage in admitted markets. The Texas law is effective January 1, 2018, and the Wisconsin law was effective on June 22, 2017. Texas H.B. No. 2492; Wisconsin 2017 S.B. No. 77.

This post written by Michael Wolgin.

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COURT FINDS CALIFORNIA INSURANCE CODE SECTION 11658.5 REVERSE-PREEMPTS SECTION 4 OF THE FAA

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National Union Fire Insurance Company of Pittsburgh, PA provided Seneca Family of Agencies with workers’ compensation and employers’ liability insurance for Seneca’s operations in California from 2004 to 2013. The parties entered into a payment agreement that governed the parties’ financing and credit obligations with respect to the insurance policies. The agreement’s arbitration provision provided that, among other things, “any action or proceeding concerning arbitrability, including motions to compel or to stay arbitration, may be brought only in a court of competent jurisdiction in the City, County, and State of New York.” In 2013, the parties amended the arbitration provision to include: “any action or proceeding concerning arbitrability, including motions to compel or to stay arbitration, may be brought only in a court of competent jurisdiction in the City, County, and State of New York.”

Years later, a dispute over the amount of collateral to be paid under the payment agreement arose and National Union moved to compel arbitration. At issue before the court was Seneca’s objection based on the application of Cal. Ins. Code § 11658.5, which requires arbitration provisions in workers’ compensation policies to be disclosed to potential insureds. The court approached this issue in two parts— first, addressing claims related to policies issued on or after July 1, 2012, the effective date of § 11658.5, (the “Post-July 2012 policies”) and second, addressing claims related to policies issued prior to July 1, 2012 (the “Pre-July 2012 policies”).

With regard to claims related to the Post-July 2012 policies, the Court denied National Union’s motion to compel arbitration. The Court analyzed an issue not previously addressed in the case of Monarch Consulting (see blog post dated March 15, 2016)— that is, whether the McCarran-Ferguson Act reverse-preempts the FAA with respect to § 11658.5. Applying the three-prong test to determine if a state statute reverse-preempts a federal statute, the Court found all prongs to be met: (1) the FAA did not specifically relate to insurance; (2) § 11658.5 was enacted to regulate the business of insurance; and (3) the FAA would invalidate, impair, or supersede § 11658.5 because § 4 of the FAA directly conflicted with § 11658.5 in this case.

With regard to the Pre-July 2012 policies, the Court found that any claims related to those policies must be arbitrated, primarily because § 11658.5 did not apply to those policies, and any claims related to Pre-July 2012 policies plainly fell within the scope of the payment agreement’s arbitration provision. As such, the Court granted National Union’s motion to compel arbitration of claims related to the Pre-July 2012 policies. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Seneca Family of Agencies, Case No: 17-cv-01061 (USDC S.D.N.Y. June 12, 2017).

This post written by Gail Jankowski.

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UNITED STATES TO SIGN COVERED AGREEMENT WITH EUROPEAN UNION

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The U.S. Department of the Treasury and the U.S. Trade Representative have ended the speculation about the fate of the Covered Agreement negotiated by the Obama Administration with the European Union by announcing their intention to sign the agreement.  The Covered Agreement covers prudential measures regarding insurance and reinsurance, including the issue of the requirement for collateral for ceding insurers to claim financial statement credit for reinsurance provided by non-U.S. reinsurers and what may be a functional substitute for a declaration of equivalence of the U.S. insurance/reinsurance market for purposes of Solvency II.  The announcement states that “the Administration also plans to issue a U.S. policy statement on implementation.”  It will be interesting to see whether the implementation statement addresses the substance of any of the criticisms of the Covered Agreement.  The Covered Agreement has been approved by the E.U. Council, although the European Parliament may be asked to approve it as well.

This post written by Rollie Goss.
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FEDERAL CIRCUIT AFFIRMS FINDING OF NON-ARBITRABILITY UNDER “WHOLLY GROUNDLESS” STANDARD

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Stephen Evans, doing business as Roof n’ Box, Inc. (“RNB”), had a contract with Building Materials Corp. of America, (“BMCA”) to promote RNB’s “Roof N Box” product, a three-dimensional roofing model, to building-construction contractors affiliated with BMCA. The contract contained an arbitration provision. BMCA validly terminated the contract about a year after inception. RNB later sued BMCA, arguing that, post-termination, BMCA appropriated RNB’s intellectual property. BMCA moved to compel arbitration, citing the parties’ previous contract. A federal district court in Virginia denied the motion to compel arbitration, finding that the dispute did “arise from” the parties’ previous contract, and/or was beyond the scope of the arbitration agreement. BMCA appealed, but the Federal Circuit Court of Appeals affirmed, finding that the “wholly groundless” standard governing when courts may decide issues of arbitrability applied, thus allowing the district court to decide arbitrability, which it did, in favor of allowing the lawsuit to proceed. Evans v. Building Materials Corp. of America, No. 2016-2427 (Fed. Cir. June 5, 2017)

This post written by John Pitblado.

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FEDERAL COURT RETAINS JURISDICTION OVER ACTION STAYED FOR ARBITRATION, PRE-EMPTING STATE COURT

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Following Davis’s filing of a federal lawsuit alleging state malpractice and breach of contract claims, as well as federal Fair Housing Act and Civil Rights Act claims, the Court ordered the action be stayed pending arbitration, and the suit was “administratively dismissed without prejudice subject to full reinstatement upon the completion of the required arbitration” of the disputes arising from Fenton’s representation of Davis.

Davis was awarded damages for malpractice, but the arbitration panel denied her other claims. Fenton then sued Davis in state court, seeking to have the arbitration award vacated or at least reduced. Davis moved to reinstate her federal suit, and Fenton failed to attend the hearing, resulting in default and confirmation of the award. Fenton sought to vacate the default judgment and remand the case to state court “on the ground that the district court lacked jurisdiction because he (Fenton) had filed his state lawsuit challenging the arbitration award prior to Davis’s having moved the district court to re-open the case.”

The District Court refused, reminding the parties that “I was the one that enforced the defendants’ request for arbitration and I sent the case for arbitration. So it would seem to me, because I retained jurisdiction, that any request to vacate the arbitration award that the plaintiff won should have come to this Court and not to some [state court] judge.” Fenton appealed the ruling to the Seventh Circuit, which agreed with the trial court: “the judge had jurisdiction over the case at the time it was filed, as it raised questions of federal law, and the judge’s order staying the case (or equivalently, administratively dismissing it subject to reinstatement at the conclusion of arbitration) retained jurisdiction to confirm or vacate an arbitral award.”  Davis v. Fenton, et al., Nos. 16-2121, 16-2165 (USCA 7th Cir. May 26, 2017).

This post written by Nora A. Valenza-Frost.
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