Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SDNY DETERMINES COMMISSIONER OF INSURANCE’S REPORT ON CAPTIVE INSURER IS NOT PRIVILEGED UNDER MONTANA LAW

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In a case of first impression, the Southern District of New York determined Montana Code § 33-28-108(3) did not mandate the Montana Commissioner of Insurance’s report on a captive insurer was privileged. The Code provision stated:

[A]ll examination reports, preliminary examination reports or results, working papers, recorded information, documents, and their copies produced by, obtained by, or disclosed to the commissioner or any other person in the course of an examination made under this section are confidential, are not subject to subpoena, and may not be made public by the commissioner or an employee or agent of the commissioner without the written consent of the company or upon court order.

The Court required the subject documents be produced for three reasons. First, statutory interpretation did not support the privilege, as interpreting the statute so broadly would sweep in almost any company record – such as discoverable business records – that played a part in the Commissioner’s examination. Instead, the statute should be found to protect documents in the possession of the Commissioner, not the examined company. Furthermore, the statute noted the documents are “confidential,” and did not expressly create an evidentiary privilege.

Second, the Court looked at the interpretation of similarly worded statutes from other jurisdictions, as this was a case of first impression under Montana law. Statutes surveyed included Indiana, Rhode Island, New Hampshire, West Virginia and New Jersey – all of which prohibited the state insurance agency from disclosing company records but not information in the company’s control. Notably, California Insurance Code § 735.5, which was also analogous to the Montana statute yet interpreted very broadly to support the withholding of such documents, was not considered by the Court because of the “odd” result such a statutory interpretation would yield.

Finally, the Court looked at the Commissioner’s conduct: it declined to submit any formal administrative interpretation of the statute; it appeared at a deposition to discuss the company; and, it freely discussed the allegedly privileged documents over objections. The documents were thus subject to the case’s confidentiality order, but were not privileged.

Amtrust North America, Inc., et al. v. Safebuilt Insurance Services, Inc., et al., Nos. 16-MC-169 and 16-MC-170 (USDC S.D.N.Y. May 16, 2016)

This post written by Nora A. Valenza-Frost.
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CALIFORNIA DISTRICT COURT FINDS PETITIONER’S DEFENSES TO CONFIRMATION ARE BARRED BY THE STATUTE OF LIMITATIONS

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Since a motion to vacate, modify, or correct an award must be served within 3 months after the award is filed or delivered (9 U.S.C. § 12), and Plaintiff filed its opposition to confirmation nearly four months after the award was signed by the arbitrator, the Eastern District Court of California found Plaintiff’s defenses were barred by the statute of limitations, and the award was confirmed.

Plaintiff’s action in Federal Court was stayed as the parties were compelled to arbitrate. Although Plaintiff commenced AAA arbitration, the arbitrator ordered Plaintiff to add the corporation he owned as a party and secure counsel. Plaintiff did not meet the deadline, despite numerous extensions and as a result, the arbitrator issued an order dismissing the Complaint with prejudice if Plaintiff failed to provide AAA with a letter of representation within 20 days. When Plaintiff again failed to obtain counsel, Defendants moved to confirm the arbitration award.

Plaintiff opposed confirmation because: (1) the order of dismissal did not constitute an award under 9 U.S.C. § 11(b); and (2) the arbitrator exceeded her power because she refused to hear material evidence. The Court disagreed on statute of limitations grounds, and the award was confirmed.

Dinh Nguy v. Cinch Bakery Equipment, LLC, et al., 2:13-cv-02283 (USDC E.D. Cal. May 5, 2016)

This post written by Nora A. Valenza-Frost.

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NINTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION THAT BANKRUPTCY COURT DID NOT ABUSE ITS DISCRETION IN DENYING MOTION TO COMPEL ARBITRATION

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This appeal is from an order by a district court in California, affirming a bankruptcy court’s denial of a motion to compel arbitration in a Chapter 7 bankruptcy trustee’s adversary proceeding, in which the trustee sought avoidance of fraudulent transfers.

The trustee for EPD Investment Co. and Jerrold Pressman (collectively “EPD”) had filed an adversary proceeding against defendant John Kirkland, an attorney who acted as counsel for EPD, claiming that Kirkland transferred assets from EPD, a purported Ponzi scheme, to a family trust named the “Bright Conscience Trust.” Kirkland moved the bankruptcy court to compel arbitration of the bankruptcy proceeding, which was denied. Kirkland then appealed the bankruptcy court’s decision to the California district court, which affirmed the bankruptcy court’s decision, and an appeal followed to the Ninth Circuit.

The Ninth Circuit noted that the bankruptcy court has jurisdiction over “core proceedings,” and that in a core proceeding, “a bankruptcy court has discretion to decline to enforce an otherwise applicable arbitration provision only if arbitration would conflict with the underlying purposes of the Bankruptcy Code.” The Ninth Circuit agreed with the bankruptcy court that the trustee’s causes of action for fraudulent conveyance, subordination, and disallowance were core proceedings, “thereby giving the bankruptcy court discretion to weigh the competing bankruptcy and arbitration interests at stake.” The Ninth Circuit found that the bankruptcy court did not abuse its discretion by determining that the arbitration provisions in Kirkland’s agreements with EPD conflicted with the Bankruptcy Code’s purposes of having bankruptcy law issues decided by bankruptcy courts, of centralizing resolution of the dispute and protecting parties from piecemeal litigation, and thus affirmed the district court’s ruling.

In the Matter of EPD Investment Co., No. 14-56478 (9th Cir. May 9, 2016).

This post written by Jeanne Kohler.

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PENNSYLVANIA INSURANCE DEPARTMENT AMENDS REQUIREMENTS FOR QUALIFIED AND CERTIFIED REINSURERS TO CONFORM WITH NAIC’S MODEL LAW AND REGULATION

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On May 14, 2016, Pennsylvania issued Bulletin No. 16-819, advising that the Pennsylvania Insurance Department amended Chapter 161 of the Pennsylvania Insurance Code related to the requirements for qualified and certified reinsurers. The change made to the Chapter was deleting the requirement that a reinsurer be listed on the successor list to the Non-Admitted Insurance Listing (now known as the ”Quarterly Listing of Alien Insurers”) published by the National Association of Insurance Commissioners (NAIC) to be considered for qualification under Section 319.1 of the Code. This amendment conforms Pennsylvania’s regulation to the model law and regulation developed by the NAIC entitled ”Credit for Reinsurance Model Law” and ”Credit for Reinsurance Model Regulation.” The change to the Pennsylvania Insurance Code will take effect on June 13, 2016.

This post written by Jeanne Kohler.
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CIRCUIT SPLIT DEVELOPS OVER THE ENFORCEABILITY OF CLASS WAIVERS IN EMPLOYMENT AGREEMENTS

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Affirming a district court’s denial of a motion to compel arbitration, the United States Court of Appeals for the Seventh Circuit has held unenforceable a provision of an employment agreement mandating that wage-and-hour claims could be brought only through individual arbitration and that employees waived “the right to participate in or receive money or any other relief from any class, collective, or representative proceeding.”  The provision further provided that  if the waiver provision was unenforceable, “any claim brought on a class, collective, or representative action basis must be filed in a court of competent jurisdiction.”  Employees were not permitted to opt out of this provision; it was a requirement of continued employment.  The Court found the waiver of collective action prohibited by the National Labor Relations Act (“NLRA”), and rejected the contention that the case involved any conflict between the NLRA and the Federal Arbitration Act (“FAA”).  This decision appears to conflict with decisions of the Second, Fifth, Eighth and Ninth Circuits, laying the potential basis for the review of this issue by the Supreme Court.

The Court found that the contractual waiver of the right to proceed in a collective manner was an unlawful restriction of the exercise by the employee of the right to collective action protected by section 7 of the NLRA, a right it termed substantive and “at the heart” of the purpose of the NLRA rather than a procedural right.  Addressing the employer’s contrary interpretation of section 7, the Court found persuasive interpretations of the scope of the protections of section 7 by the National Labor Relations Board, which the Court found to be “a sensible way to understand the statutory language, and thus we must follow it.”

The Court then rejected the employer’s assertion that the case involved a conflict between the NLRA, as it interpreted it, and the FAA, as interpreted by the Supreme Court.  The Court reasoned that since the contractual provision at issue is unlawful under section 7 of the NLRA, “it is illegal, and meets the criteria of the FAA’s savings clause for nonenforcement.”  The FAA’s savings clause provides that agreements to arbitrate “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.”  Stating that finding the NLRA in conflict with the FAA “would render the FAA’s savings clause a nullity,” the Court rejected the contention that its decision created a Circuit split, contending that none of the opinions from the other four Circuits “has engaged substantively with the relevant arguments.”  Regardless of the analytical claim, the result of the Seventh Circuit’s opinion does conflict with the result of the decisions of the other Circuits on the same issue, and accords the FAA a different role and emphasis than do the opinions of other Circuits. Lewis v. Epic Systems Corp., No. 15-2997 (7th Cir. May 26, 2016).

This post written by Rollie Goss.
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