Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

ARBITRATION PROVISION ENFORCED AGAINST NON-SIGNATORY INSURER

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The court confirmed an award in favor of two affiliated power supplier companies (“Alstom”), against the subrogated insurer of one of their corporate customers damaged in an accident involving Alstom’s equipment. Alstom and the customer had entered into a mutual compromise and release agreement absolving each other of any liability for the accident. But the customer then made a claim with its insurer, Mitsui, which paid the customer in excess of $24 million for damages sustained in the accident. When Mitsui sought to recover this insurance payment from Alstom in court in Brazil, Alstom invoked the arbitration agreement in its supply contract with Mitsui’s insured (the customer), to which Mitsui was not a party. Alstom then compelled arbitration in New York, and prevailed both on the issue of the proper jurisdiction, and on the merits of the dispute. And the court here has confirmed the award, holding that Mitsui “stands in the shoes” of its insured, and is bound to the arbitration agreement reached with Alstom. Alstom Brasil Energia E Transporte Ltda et al. v. Mitsui Sumitomo Seguros S.A., No. 1:15-cv-08221 (USDC S.D.N.Y. June 20, 2016).

This post written by Joshua S. Wirth.

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COURT UPHOLDS ANNULMENT OF FOREIGN ARBITRATION AWARD BASED ON FOREIGN COURT’S FINDING THAT TRIBUNAL VIOLATED RULE ON FEES

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A U.S. District Court refused to confirm the award that had been entered by an arbitration tribunal in favor of Getma International against the Republic of Guinea. The award had been annulled by the Common Court of Justice and Arbitration (CCJA) when Guinea complained that the tribunal violated the CCJA Arbitration rules in repeatedly seeking increased arbitrators’ fees from the parties. The CCJA granted the annulment, despite the fact that it had previously advised the tribunal on one occasion to consult with the parties regarding increased fees, because only the CCJA had the ultimate authority to order increased fees, not the parties or the tribunal themselves. Undeterred, Getma attempted to confirm the award in the U.S. District Court, contending that the annulment ran contrary to public policy, citing the New York Convention. The court, however, rejected Getma’s argument, finding that the CCJA was within its authority to annul the award and that the annulment was within the CCJA’s discretion. Getma Int’l v. Republic of Guinea, No. 1:14-cv-01616 (USDC D.D.C. June 9, 2016).

This post written by Joshua S. Wirth.

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EIGHTH CIRCUIT RULES THAT NLRB ERRED BY INVALIDATING EMPLOYMENT AGREEMENTS REQUIRING INDIVIDUAL ARBITRATION

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We previously reported on a federal circuit split that has developed over the enforceability of arbitration provisions waiving class actions in employment agreements. Compare December 19, 2013 (D. R. Horton) and November 9, 2015 (Murphy Oil) with June 6, 2016 (Lewis). The Eighth Circuit recently fortified its position on the side of holding that such class waivers are enforceable. Specifically, the Eighth Circuit analyzed whether the NLRB erred by finding that a mandatory individual arbitration clause in an employment agreement violated sections 7 and 8(a)(1) of the National Labor Relations Act by (1) requiring the employee to arbitrate “[a]ll claims, disputes, or controversies” related to employment; (2) waiving the employee’s right to maintain a class action; and (3) allegedly leading employees to believe that they could not file a grievance with the National Labor Relations Board.

Following a prior ruling of the Eighth Circuit as well as rulings by the Fifth Circuit in D.R. Horton and Murphy Oil, the court held that the employer “did not violate section 8(a)(1) by requiring its employees to enter into an arbitration agreement that included a waiver of class or collective actions in all forums to resolve employment-related disputes.” The Court did find, however, that NLRB properly ruled that the language of the arbitration clause, which included a broad requirement that “[a]ll claims, disputes, or controversies arising out of, or in relation to” employment with the company “shall be decided by arbitration,” was overly broad and should have contained language informing the employee that they retained the rights to file charges with the NLRB. Cellular Sales of Missouri, LLC v. National Labor Relations Board, No. 15-1620 (8th Cir. June 2, 2016).

This post written by Barry Weissman.
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COURT GRANTS MOTION TO STAY ACTION PENDING ARBITRATION, AND FOUND THAT ISSUE OF WHETHER ARBITRATION CLAUSE ALLOWS FOR CLASS ARBITRATION IS QUESTION FOR ARBITRATOR, NOT COURT

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In this case, Jeffrey Hedrick brought an action in Kansas federal court on behalf of himself and others similarly situated under the Fair Labor Standards Act (“FLSA”) against BNC National Bank, Hedrick’s employer. The bank filed a motion to stay, or dismiss, the action pending arbitration, under the Federal Arbitration Act, or in the alternative, to dismiss under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Given that his employment agreement contained an arbitration clause, Hedrick did not dispute his claim is subject to arbitration and did not oppose staying the case pending arbitration. However he argued that the arbitrator, rather than the court, should decide whether the arbitration can proceed as a class claim under the FLSA. The bank argued that the court should decide the class arbitration issue, and that the claim should proceed to arbitration as an individual claim.

Given that the bank’s motion to stay the action pending arbitration was unopposed, the Kansas federal court granted the motion. The court also noted that the Tenth Circuit has not directly addressed the question of who determines the availability of class arbitration. However, the court noted that that there are “fundamental differences” between bilateral and class-wide arbitration that “presumably create gateway issues of arbitrability that should be resolved by the court, rather than the arbitrator”. However, the court went on to hold that “even assuming that the availability of class arbitration is a ‘question of arbitrability’, … the arbitrator [in this case] must determine this question as the Employment Agreement provides ‘clear and unmistakable evidence’ that the parties intended the arbitrator to determine questions of arbitrability.” In this regard, the court noted that the arbitration clause provided that the arbitration would be administered by the American Arbitration Association under its National Rules for the Resolution of Employment Disputes, which state that “[t]he Arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope or validity of the arbitration agreement.” Thus, the court found that the parties’ incorporation of these rules into their arbitration clause constitutes “clear and unmistakable” delegation of questions of arbitrability to the arbitrator, and thus, that the class arbitration issue must be determined by the arbitrator.

Hedrick v. BNC National Bank, No. 15-9358 (D. Kan. May 16, 2016).

This post written by Jeanne Kohler.

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SOUTH CAROLINA DISTRICT COURT FINDS THERE IS NO SEPARATE CAUSE OF ACTION FOR APPORTIONMENT UNDER SOUTH CAROLINA’S CONTRIBUTION AMONG TORTFEASORS ACT

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Plaintiff Companion Property and Casualty Insurance Company (“Companion”) participated in a fronted insurance program with Redwood and Freestone. Reinsurance collateral trusts were established for Companion’s benefit and maintained by defendant U.S. Bank as trustee. Companion authorized Redwood and Freestone to administer the trusts’ assets by giving direction to U.S. Bank. One such direction was to authorize certain third-parties who could act for Redwood and Freestone with regard to each trust account. Through the direction of Redwood, Freestone and their authorized third-parties, U.S. Bank made certain investments which were ultimately to the detriment of the trusts. U.S. Bank then made claims against the third-parties for apportionment, contribution and indemnification for its liability to Companion. The third-party defendants moved to dismiss all of U.S. Bank’s claims.

U.S. Bank asserted that third-party defendants are responsible for damages alleged by Plaintiff Companion pursuant to South Carolina Code § 15-38-15 which addresses apportionment of percentages of liability among tortfeasors responsible for less than fifty percent of total fault.

Analyzing South Carolina’s Contribution Among Tortfeasors Act (“SCCATA”), the Court noted that “apportionment” as it appeared in the statute occurred only after the jury “(a) has awarded damages to a plaintiff, (b) has determined any comparative negligence by the plaintiff, and then (c) only after motion by the defendant.” Unlike SCCATA’s statutory language for other causes of action – for example contribution – which described the relief as an action or right to contribution, such verbiage was not present in the provision of SCCATA concerning apportionment. The Court also noted SCCATA referred to “the total percentages of fault attributed to the plaintiff and the defendants must be one hundred percent” – but there was no mention of any fault allocation to third-party defendants. U.S. Bank’s claim for contribution was therefore dismissed.

Companion Property and Casualty Insurance Company v. U.S. Bank National Association, 3:15-cv-01300 (USDC D.S.C. May 27, 2016)

This post written by Nora A. Valenza-Frost.

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