Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

THIRD CIRCUIT REVERSES ORDER DENYING ARBITRATION, RULING THAT STATE LAW PROHIBITING ARBITRATION OF INSURANCE MATTERS CHALLENGED REINSURANCE CONTRACT AS A WHOLE

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Applied Underwriters Captive Risk Assurance Company appealed from the denial of its motion to compel arbitration in a dispute related to a reinsurance participation contract with South Jersey Sanitation Company. The trial court denied the motion because it held that Nebraska law: (1) governed the dispute, (2) prohibits arbitration provisions that relate to insurance policies, as the relevant provision here purportedly does (according to South Jersey), and (3) preempted the FAA under the McCarran-Ferguson Act. The Third Circuit reversed, holding that it was for the arbitrator to determine the precise nature of the reinsurance participation contract, and whether it fell under an exception to the Nebraska law. Similarly, the Third Circuit held that South Jersey’s contention that the contract was procured based on fraud, implicated the contract “as a whole,” rather than specifically the arbitration provisions. “Therefore,” the court ruled, “the question of whether the [contract’s] arbitration provision is enforceable under Nebraska law is a question for the arbitrator,” and not the court. The court vacated the judgment and remanded to the trial court. Because the default location set forth in the contract was not within the district in which the petition to compel arbitration was filed, as is required by the FAA, the trial court was directed to determine the proper forum for arbitration, and “how to proceed” if the trial court is not able “to compel arbitration in the default location provided for in the contract.” South Jersey Sanitation Co. v. Applied Underwriters Captive Risk Assurance Co., Case No. 14-4010 (3d Cir. Oct. 25, 2016).

This post written by Michael Wolgin.

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APPLYING KENTUCKY LAW, SIXTH CIRCUIT FINDS CONTINUED EMPLOYMENT CONSTITUTES ASSENT TO ARBITRATION AGREEMENT

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During the time Plaintiffs Aldrich and Nolan worked as recruiters for the University of Phoenix, they allegedly signed an electronic form acknowledging their understanding of updated terms to the employee handbook. The acknowledgment form included an arbitration clause, and the updated employee handbook contained a class action waiver. Thereafter, both Aldrich and Nolan continued to work for the University of Phoenix for almost two years and were eventually let go. They later brought claims for wrongful termination on account of their refusal to engage in allegedly unfair, deceptive, and fraudulent practices related to recruiting veterans and service members. The trial court granted the University of Phoenix’s motion to dismiss and compel arbitration. Although Aldrich and Nolan asserted that they never received or signed the acknowledgement form, the court reasoned that under Kentucky law, continued employment constituted assent to the terms of the agreement. Moreover, the court held that there was no dispute of material fact entitling plaintiffs to a jury trial on the issue of whether they in fact signed, and because the arbitration agreement was valid, the waiver provision was valid as well.

On appeal, Sixth Circuit affirmed, reiterating Kentucky law holding that “an employee can be bound by an arbitration agreement, even without a signature, when he or she demonstrates acceptance of the agreement by continuing to work for the employer.” Aldrich v. University of Phoenix, Inc., Case No. 16-5276 (6th Cir. Oct. 24, 2016).

This post written by Gail Jankowski, a law clerk at Carlton Fields in Washington, DC.

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SDNY CONFIRMS ARBITRATION AWARD FOLLOWING RESPONDENT’S DEFAULT

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On an unopposed petition to confirm an arbitration award, a New York federal court treated the petition and accompanying record as a motion for summary judgment. “Thus, like unopposed summary judgment motions, unopposed confirmation petitions must fail where the undisputed facts fail to show that the moving party is entitled to judgment as a matter of law.”

As the parties’ were in diversity and the amount in controversy was met for jurisdiction, the Court, pursuant to the Federal Arbitration Act (“FAA”), 9 U.S.C. § 9, reviewed the parties’ broad arbitration clause and, finding no grounds for vacatur or modification of the award, granted petitioner’s request.

McGroarty v. U.S. Rare Earths, Inc., 1:16-cv-02687 (USDC S.D.N.Y. Sept. 23, 2016)

This post written by Nora A. Valenza-Frost.

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OKLAHOMA DISTRICT COURT DENIES MOTION TO STAY ACTION DURING DEFENDANT’S INSURER’S CALIFORNIA CONSERVATION PROCEEDINGS

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This case involved a personal injury negligence action brought by plaintiffs Cameron David and Shelby Gladd against defendants Satnam Singh and his employer Landmark Logistics, Inc. (“Landmark”) in Oklahoma federal court. Landmark was insured by CastlePoint National Insurance Company(“CastlePoint”), which is currently the subject of a California conservatorship proceeding. Defendant Singh made a motion to stay, asking the Oklahoma federal court to exercise its inherent discretion to stay the case pending the resolution of the California conservatorship proceeding. Singh’s motion was based on Burford abstention, a federal abstention doctrine to prevent interference with state insurance receivership matters. Landmark did not move for a stay or join the motion.

The Oklahoma district court denied defendant Singh’s motion for a stay, finding that the appropriate circumstances warranting Burford abstention were not present in the case. Notably, the court noted that Burford abstention requires the remand or dismissal of the action, and not merely a stay. In its analysis, the Oklahoma district court found that there was no basis to determine whether defendants’ insurance claims against CastlePoint are likely to be satisfied in the California conservatorship or any ancillary proceeding. The court noted that defendant Singh did not assert or attempt to show any irreparable harm that he would suffer if plaintiffs’ negligence case was allowed to proceed, and that his reasons for staying the case related solely to who was responsible for paying the cost to defend the case and, if plaintiffs were to prevail, for satisfying an award of damages. The court also noted that because CastlePoint had already retained counsel to represent the defendants in the action, Singh had not shown any specific injury to his defense of the case. On the other hand, the court noted that a stay would cause substantial harm to plaintiffs, whose personal injury claims against defendants would be delayed while CastlePoint’s conservator receives and processes insured claims. Thus, the court held that it would be fundamentally unfair to prevent plaintiffs’ timely pursuit of their claims, for reasons having nothing to do with the merit of the claims. Thus, the court held that defendant Singh had failed to justify a stay of the case at this juncture.

Gladd v. Landmark Logistics, Inc., No. 16-894 (D) (USDC W.D. OK. Oct. 28, 2016).

This post written by Jeanne Kohler.

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ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S CONFIRMATION OF ARBITRATION AWARD, FINDING THAT ARBITRATOR’S REFUSAL TO POSTPONE HEARING DOES NOT WARRANT VACATUR UNDER THE FEDERAL ARBITRATION ACT

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The background of this case is as follows. CM South East Texas Houston LLC and South East Texas KCH Co. LLC (collectively, “CM South”) asserted breach of contract claims against CareMinders Home Care Inc. (“CareMinders”) and demanded arbitration. After months of initial proceedings, a five day hearing was scheduled for December 2014. A scheduling conflict arose and both sides requested new hearing dates, and the hearing was rescheduled for February 2015. Yet another conflict arose, and both sides requested a new date, and this time the hearing was rescheduled for March 9-13, 2015. One of CareMinders’ key witnesses then had a family emergency. CareMinders asked the arbitrator to reschedule the hearing for some time between May and September, 2015, advising that CM South agreed to the rescheduling. After conferring with the parties and discussing available dates, the arbitrator rescheduled the hearing to March 18-21, 2015, reducing it from five to four days. The hearing took place and CareMinders’ witness attended the hearing. The arbitrator then issued an award in favor of plaintiff CM South, awarding it damages. CM South filed a motion to confirm the award in Georgia federal court, and CareMinders filed a motion to vacate the award, contending that the arbitrator engaged in misconduct by refusing to postpone the hearing when both parties agreed to the rescheduling. The district court denied the motion to vacate, finding that CareMinders failed to show that the arbitrator’s refusal to postpone the hearing amounted to misconduct or that it prejudiced CareMinders’ ability to defend the case. The court also confirmed the arbitration award, which CareMinders appealed.

The Eleventh Circuit affirmed the Georgia district court’s order confirming the arbitration award. In doing so, the Court held that an arbitrator’s refusal to postpone a hearing after it had been already rescheduled twice does not warrant vacatur of the award under the Federal Arbitration Act. The Court also noted that CareMinders’ witness attended and provided testimony at the hearing. As such, the Court further ruled that the parties were not prejudiced or deprived of a fair hearing and vacatur was not warranted.

CM South East Texas Houston v. CareMinders Home Care Inc., No. 16-11054 (11th Cir. Oct. 7, 2016).

This post written by Jeanne Kohler.
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