Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

UPDATE ON LIQUIDATION OF THE HOME INSURANCE COMPANY

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The New Hampshire liquidation court approved the commutation, settlement, and release agreement between The Home Insurance Company (liquidating) and Pennsylvania Manufacturers Association Insurance Company (PMAIC). The commutation agreement was approved February 10, 2017 and provides for the commutation of all of Home’s ceded and assumed business to or from PMAIC, as well as the resolution of all of PMAIC’s contribution claims against Home. A redacted copy of the commutation agreement, with economic terms removed, was filed with Home’s motion for approval. Additionally, in New York, in a contested claim between the liquidator and a Danish non-admitted reinsurer, the court approved the reinsurer’s posting of a security bond in the stipulated amount of $259,886.13. In re Liquidation of The Home Insurance Co., 217-2003-EQ-00106 (N.H. Sup. Ct. Feb. 10, 2017) (order approving commutation); Motion for Approval (Dec. 15, 2016); Sevigny v. Trygvesta Forsikring A/S, Case No. 16 Civ. 4874 (USDC S.D.N.Y. Jan. 30, 2017) (stipulation and bond); (Feb. 14, 2017) (bond).

This post written by Gail Jankowski.

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NINTH CIRCUIT REAFFIRMS ISKANIAN RULE, REJECTS WAIVER OF REPRESENTATIVE ACTION UNDER PAGA

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Defendants appealed an order from a California federal district court that denied their motion to compel individual arbitration of a former employee’s representative claim under California’s Private Attorney General Act (PAGA). On appeal, the defendants argued that the plaintiff’s arbitration agreement, wherein she agreed to arbitrate all disputes regarding her employment on an individual basis, applied to her PAGA claim as well. The Ninth Circuit affirmed the district court’s order denying defendants’ motion to compel arbitration. The panel reaffirmed the Iskanian rule, which holds that under California law, an employment agreement that compels the waiver of representative claims under the PAGA, is contrary to public policy and therefore unenforceable. Hernandez v. DMSI Staffing, LLC, Case No. 15-15366 (9th Cir. Feb. 16, 2017).

This post written by Gail Jankowski.

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FLORIDA DEPARTMENT OF REVENUE ISSUES ADVISEMENT DETERMINING THAT A REINSURER AND ITS CEDENTS DID NOT HAVE NEXUS IN FLORIDA FOR TAX PURPOSES

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On January 13, 2017, the Florida Department of Revenue issued a Technical Assistance Advisement regarding whether a reinsurer had nexus with the state of Florida that would require it to file a corporate income tax return and whether the Florida activities of the reinsurer’s ceding companies made Florida the location of the reinsurer’s and cedents’ regional home office. As to both questions, the DOR answered in the negative.

First, the DOR concluded that the reinsurer did not have nexus with the state because the reinsurer was not an approved reinsurer registered with the Florida Office of Insurance Regulation, and the reinsurer did not reinsure policies of insurers that were domiciled or commercially domiciled in Florida. Next, the DOR found that the ceding companies did not have a regional home office in Florida because – even though the ceding companies performed in Florida many activities traditionally carried out in a regional home office, such as selling insurance or approving or rejecting coverage, Florida was not the domicile or nerve center of the ceding companies.

Recognizing the term “regional home office” to have no definition, the DOR looked to the Department’s previous definition of the residence of a corporation as (1) a corporation’s domicile, or (2) with respect to diversity jurisdiction, “as the nerve center of the corporation”. The DOR then found that this standard was not met. The ceding companies’ “activities are not performed entirely for three states, or two states and one or more foreign countries … less than 5% of the ceding insurer’s underwriters are located in Florida … all national advertising [ ] is handled outside Florida … [and] the Florida office location only performs activities authorized by the home office.” In reaching this conclusion, the DOR further recognized as important the strict construction of taxing statutes in favor of the taxpayer. Florida Dept. of Revenue Technical Assistance Advisement – 17C1-001 (Jan. 13, 2017).

This post written by Brooke L. French.

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NINTH CIRCUIT CONFIRMS ARBITRATION AWARD CHALLENGED FOR LACK OF “REASONED OPINION”

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Petitioner Daniel Olson brought an action in federal court seeking vacatur of an award against him in arbitration of an employment dispute. He challenged the arbitration award for lack of a “reasoned opinion” and failure of the arbitrator to rule on all of the evidentiary issues and claims submitted. The district court denied the motion to vacate and Olson appealed.

In the Ninth Circuit’s opinion, the Court reminded Plaintiff that “Arbitrators have no obligation to give their reasons for an award” and that here, “the arbitration award included two bases for the arbitrator’s determination that [Defendant] was the prevailing party, which provides enough of the arbitrator’s reasoning to facilitate the limited review available under the FAA.”

The Court further rejected Plaintiff’s claims that the arbitrator did not rule on all of the evidentiary issues, stating “arbitrators’ awards are not judicial opinions. The proceedings the arbitrator conducts are generally informal, lacking most of the fixed rules of procedure and evidence.” As to Plaintiff’s contention that the arbitrator failed to rule on all the claims submitted for arbitration, that too was rejected as “the award states that all claims not expressly granted herein are hereby, denied.”

Olson v. Harland Clarke Corp.a>, 14-35586 (9th Cir. Feb. 10, 2017)

This post written by Nora A. Valenza-Frost.

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KENTUCKY FEDERAL COURT ORDERS FURTHER BRIEFING ON WHETHER THE FEDERAL ARBITRATION ACT OR KENTUCKY LAW APPLIES IN DISPUTE INVOLVING AN INSOLVENT INSURER

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The background of this case is as follows. State Insurance Commissioner Brian Maynard, acting as liquidator of the failed Kentucky Health Cooperative (“KYHC”), filed suit in Kentucky state court against CGI Technologies and Solutions, Inc. (“CGI”), KYHC’s administrator pursuant to an Administrative Services Agreement (the “Agreement”), which contained an arbitration clause. The suit alleged that CGI was “grossly negligent” in processing and paying claims and thus breached the Agreement. The state court action was removed to federal court. CGI commenced a separate federal action to compel arbitration, which was consolidated with the first action. The Liquidator made a motion to remand, challenging the Kentucky federal court’s power to decide the case.

In seeking to remand, the Liquidator claimed that Kentucky’s Insurers Rehabilitation and Liquidation Law (“IRLL”) vests exclusive jurisdiction in Kentucky state court, thus “reverse preempting” federal diversity jurisdiction, and in the alternative, argued that the federal court should abstain from exercising jurisdiction. The Kentucky federal court first found that the application of the IRLL’s exclusive jurisdiction directly conflicts with federal law, and thus that the IRLL’s jurisdiction provision was preempted by the federal removal and diversity subject matter jurisdiction statutes and the court had the subject matter jurisdiction required to decide the case. Next, the court found that because the case is really a contract action for damages and the court has subject matter jurisdiction, it should exercise the authority granted to it and refuse to exercise the discretion to abstain.

Finally, turning to the merits, the Kentucky federal court noted that the threshold issue was not whether there was a breach of the Agreement or whether the liquidation of KYHC was due to CGI’s actions or inactions, but rather what substantive law applies. CGI argued that the Agreement contains a “Dispute Resolution” clause which provided for all disputes to be resolved by mediation or arbitration, and that the Federal Arbitration Act (“FAA”) compels the court to enforce the binding arbitration clause. The Liquidator, on the other hand, argued that the IRLL provides for exclusive jurisdiction in state court, and thus under McCarran Ferguson, “reverse preempts” the FAA. The Liquidator also noted that the Agreement contained a “Governing Law” clause which provides that the Agreement is governed by Kentucky law. The Kentucky federal court denied the Liquidator’s motion to remand, but held that it required further briefing on which law shall apply. Thus, the court ordered the parties to submit briefing on the limited issues of : 1) Whether the IRLL allows enforcement of the Agreement’s “Dispute Resolution” clause; 2) Whether the FAA can apply in light of the parties “Governing Law” clause in the Agreement; and 3) Any other relevant argument which addresses choice of law.

Maynard v. CGI Technologies and Solutions, Inc., 16-cv-0037 (USDC E.D. KY Jan. 3, 2017).

This post written by Jeanne Kohler.

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