Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT OF APPEALS AFFIRMS DISMISSAL OF “SHADOW INSURANCE” LAWSUITS

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In a summary order, the United States Court of Appeals for the Second Circuit has affirmed the dismissal of two “shadow insurance” putative class action lawsuits against Axa Equitable Life Insurance and Metropolitan Life Insurance on the basis that the plaintiffs lacked standing under Article III of the United States Constitution to sue them in United States District Court.  The Complaints alleged that the insurance companies misused captive reinsurers domiciled in foreign jurisdictions to avoid higher reserve requirements of U.S. jurisdictions, resulting in the misstatement of their financial information and increased risks for plaintiffs.  The District Court had dismissed the suits based on the failure of the plaintiffs to establish Article III standing.

The Court of Appeals found that the Complaints failed adequately to allege that the plaintiffs had suffered injury-in-fact, a necessary element of Article III standing.  First, the court rejected plaintiffs’ argument that allegations that the companies had violated New York Insurance Law section 4226 sufficiently alleged injury-in-fact because of injury “inherent in the statutory violation.”  The Court held that “[t]he mere fact that an insurer may make a misleading representation does not require or even lead to the necessary conclusion that the misleading representation is material or even likely to cause harm.”  Second, the Court held that to establish standing plaintiffs had to allege that the injury-in-fact was concrete, particularized, and “actual or imminent, not conjectural or hypothetical.”  (Citing Spokeo, Inc. v. Robbins, 136 S.Ct. 1540 (2016).  The Court found that the harm alleged in the Complaints was speculative and hypothetical, insufficient to establish standing.

For readers interested in a deeper reading of this appeal, following are links to the recording of the oral argument at the Second Circuit and some of the briefs of the parties in the consolidated appeal: Appellants’ principal brief; Axa’s brief; MetLife’s brief; and Appellants’ reply brief.

Appellate oral argument:


Ross v. Axa Equitable Life Insurance Company and Robainas v. Metropolitan Life Insurance Company, Nos. 15-2665, 15-3504, 15-3553 and 15-4189 (2d Cir. Feb. 23. 2017).

This post written by Rollie Goss.
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COURT UPHOLDS ATTORNEY-CLIENT PRIVILEGE IN REINSURANCE DISPUTE, REJECTING ASSERTION OF THE CRIME-FRAUD EXCEPTION AND QUESTIONS SURROUNDING THE SOURCE OF THE PRIVILEGED MATERIAL

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The case involves a dispute over Utica Mutual Insurance Company’s claims for reinsurance proceeds from Munich Re. One of Munich Re’s defenses in the litigation asserts that Utica “strategically orchestrated a settlement structure” with its insured “for the sole purpose of either creating reinsurance coverage which did not exist or maximizing a reinsurance recovery to which, in good faith, Utica is not entitled.” To support its defense, Munich Re sought to compel production from Utica of certain redacted handwritten notes that were written on a draft mediation statement that Utica claims were authored by an attorney from the law firm that represented it during the underlying insurance coverage dispute between Utica and its insured. Munich Re based its motion to compel the document on (1) the “crime fraud exception” to the attorney-client privilege, and (2) Utica’s inability to specifically identify the author of the handwritten notes.

The magistrate judge denied Munich Re’s motion to compel, and the district court affirmed the decision. Regarding the crime-fraud exception, the court found no clear error in the magistrate’s finding that Munich Re failed to establish that the handwritten notes were made in furtherance of Utica’s alleged attempt to defraud its reinsurers. And regarding the unknown identity of the notes, the court upheld the magistrate’s conclusion that the notes were authored by an attorney, notwithstanding that one of Utica’s outside attorneys testified that the notes were not in his handwriting or in the handwriting of one of his partners. The court upheld the magistrate’s ruling that “the identity of the attorney was irrelevant because the contents of the notes clearly establish that this was a notation by a lawyer for Utica relating to the reinsurance implications of [the] settlement.” Utica Mutual Insurance Co. v. Munich Reinsurance America, Inc., Case No. 6:12-CV-196 (USDC N.D.N.Y. Apr. 25, 2016; Jan. 13, 2017) (Magistrate Ruling & Order on Appeal).

This post written by Gail Jankowski.

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NINTH CIRCUIT AFFIRMS ORDERS DENYING ARBITRATION IN TWO CLASS ACTION LAWSUITS AGAINST SAMSUNG

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The Ninth Circuit issued two similar opinions arising out of Samsung’s appeals of orders denying arbitration in two putative class actions filed against it. The claims against Samsung allege that the smartphone maker misrepresented the performance of the Galaxy S3 and S4 smartphones. Samsung attempted to compel arbitration based on an arbitration clause in the “Product Safety and Warranty Brochure” included in the packaging of the phones. Applying California law, the Ninth Circuit found that the arbitration clause in the warranty brochures was not binding on the plaintiffs with respect to the claims here. The court further held that Samsung failed to establish an exception to the rule that an offeree’s silence cannot satisfy affirmative consent. Further, the court held that the brochure was not an “in-the-box” contract. The Ninth Circuit also rejected Samsung’s argument that it could rely on the arbitration provisions in the plaintiffs’ respective customer agreements with their cell phone carriers; Samsung was neither a signatory to, nor a third-party beneficiary of those agreements. Norcia v. Samsung Telecommunications America, LLC, Case No. 14-16994 (9th Cir. Jan. 19, 2017); Dang v. Samsung Electronics Co., Ltd., Case No. 15-16768 (9th Cir. Jan. 19, 2017).

This post written by Michael Wolgin.

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THIRD CIRCUIT AFFIRMS REJECTION OF CLASS ARBITRATION WHERE EMPLOYMENT AGREEMENT WAS SILENT ON WHETHER ARBITRATION COULD PROCEED ON A CLASS BASIS

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Plaintiffs, former staffing managers of defendants’ international staffing agency, alleged that defendants misclassified them as overtime-exempt employees in violation of the Fair Labor Standards Act. Following earlier rulings of the trial court permitting an arbitrator to determine the availability of class arbitration, the Third Circuit established precedent that it was the role of the court, not the arbitrator, to make this determination. The trial court then found that the relevant employment agreements did not specifically provide for class arbitration, and therefore no class arbitration could go forward. At issue on appeal were first, whether the availability of class arbitration was indeed for the court or the arbitrator to decide; and second, whether the trial court erred in determining that the parties’ agreements did not permit class arbitration.

Regarding the issue of availability of class arbitration, the Third Circuit reaffirmed its previous decision that the question of arbitrability of class claims is for the court, and not the arbitrator to decide. As to the issue of whether the employment agreements permitted class arbitration, the court held that silence regarding class arbitration generally indicates a prohibition against it. Moreover, the court stated that “[e]ven assuming arguendo that class arbitration may be permitted without express authorization in an arbitration clause, Plaintiffs ha[d] set forth nothing suggestive of any implicit intent to permit class arbitration here.” The court therefore affirmed the dismissal of the case due to the lack of authority to hold a class arbitration. Opalinski v. Robert Half Int’l Inc., Case No. 15-4001 (3d Cir. Jan. 30, 2017).

This post written by Gail Jankowski.
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SPECIAL FOCUS: THE COVERED AGREEMENT

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The United States and the European Union have agreed on the final wording of a Covered Agreement which covers several topics, including the provision of collateral by foreign reinsurers.  We discuss the Covered Agreement and the initial responses to the agreement in a Special Focus article.

This post written by Rollie Goss.
See our disclaimer.