Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NINTH CIRCUIT REMANDS PAGA CASES TO LOWER COURTS TO DETERMINE THE PROPER FORUMS FOR ARBITRATION OR LITIGATION

by

We previously reported on California courts refusing to enforce waivers contained in arbitration agreements of representative claims under California’s Private Attorneys General Act of 2004 (“PAGA”). These cases have generally held that rights provided under PAGA were not waivable (the “Ishkanian rule”) and not preempted by the Federal Arbitration Act (“FAA”). Two recent cases within the Ninth Circuit upheld these rulings, but held that arbitration agreements containing provisions purporting to waive representative claims do not automatically render the whole agreement unconscionable; the purported waivers may be severed, if possible. Hopkins v. BCI Coca-Cola Bottling Co. of Los Angeles, Case No. 13-56126 (C.D.Ca. Feb. 19, 2016); Sierra v. Oakley Sales Corp., Case No. 13-55891 (9th Cir. Feb. 18, 2016).

This post written by Joshua S. Wirth.

See our disclaimer.

FEDERAL COURT WEIGHS PERSONAL JURISDICTION IN RETROCESSION DISPUTE

by

A New Jersey federal district court recently weighed whether it had personal jurisdiction over a foreign corporation in a reinsurance and retrocession dispute. The case involved insurance coverage for Companhia Siderurgica Nacional, S.A. (“CSN”), one of the largest conglomerates in Brazil with interests in steel, iron ore, mining, and various other operations. The direct coverage was provided by Brazilian insurance corporations, which reinsured through IRB Brasil Resseguros S.A. (“IRB”); in turn, IRB sought retrocessional coverage from National Indemnity Company (“NICO”) through a reinsurance broker in New Jersey, Catalyst Re Consulting, LLC (“Catalyst Re”).

The dispute involved nearly $200 million in retrocessional coverage provided to IRB by NICO. When IRB indicated that it may not be able to make a $9 million premium payment on time, NICO issued an extension on the premium payment based on a personal guarantee by CSN. Then, CSN filed a claim for coverage under the direct policies and initiated a lawsuit against IRB for failure to acknowledge that it was the reinsurer of that direct coverage. CSN and IRB settled this dispute, with IRB agreeing to “help CSN retrieve the $9 million premium that CSN paid to NICO” to secure the retrocessional agreement.

As a result, NICO filed suit in New Jersey seeking a declaration that the retrocessional agreement was binding and enforceable, and that CSN had no right to the premium. NICO further alleged tortious interference with a contractual relationship, unjust enrichment, injurious falsehood, and civil conspiracy against CSN. CSN, a Brazilian corporation, moved to dismiss for lack of personal jurisdiction. The court explained that “specific jurisdiction analysis is claim-specific,” and it must therefore “consider whether the defendant’s contacts with the forum arise under or relate to each claim alleged.” The court found that it had jurisdiction over CSN on the declaratory actions because it had acted through a New Jersey reinsurance broker to secure coverage and guarantee payment to NICO. However, the court found that it did not have jurisdiction over CSN related to the actions for damages because those involved actions between two Brazilian corporations and lawsuits and settlement agreements effectuated in Brazil. Thus, NICO will only be able to pursue the declaratory action against CSN in the United States, and will likely have to file any suit for damages against CSN in Brazil. National Indem. Co. v. Companhia Siderurgica Nacional, S.A., Case No. 15-cv-00752-JLL (D.N.J. Feb. 8, 2016).

This post written by Zach Ludens.

See our disclaimer.

ELEVENTH CIRCUIT UPHOLDS REFUSAL TO COMPEL ARBITRATION DUE TO UNAVAILABLE FORUM

by

A borrower had previously entered into a pay day loan agreement in August of 2012, which contained an arbitration provision mandating that all claims be arbitrated in the National Arbitration Forum (NAF), and under the Code of Procedure of the NAF. However, as of 2009, NAF did not accept consumer arbitrations. Under Section 5 of the Federal Arbitration Act, where a forum chosen is unavailable, the court may substitute another arbitrator. An agreement to arbitrate is only enforceable if the choice of forum provision was not integral to the agreement as a whole. The Eleventh Circuit affirmed the trial court’s ruling that the arbitration agreement’s choice of forum of the NAF was not an “ancillary logistical concern,” but was central to the arbitration agreement. Accordingly, the lender could not enforce the arbitration agreement, and the borrower’s lawsuit was permitted to proceed in court. Flagg v. First Premier Bank, Case No. 14-14052 (11th Cir. Feb. 23, 2016).

This post written by Joshua S. Wirth.

See our disclaimer.

COURT PUNTS DECISION ON HOW A PREVIOUS ARBITRATION AWARD AFFECTS A CURRENT DISPUTE TO ARBITRATOR

by

A Wisconsin federal district court determined, pursuant to the parties’ arbitration clause, it is the job of an arbitrator, not the court, to decide whether a present billing issue was resolved in a prior arbitration. The broad arbitration clause at issue stated “if any dispute shall arise . . . with reference to the interpretation of this Agreement . . . [it] shall be submitted to three arbitrators.” Previously, the parties had disagreed as to whether certain reinsurance treaties covered billings relating to a claim, which was resolved in a final order confirmed by the Court in 2004. In 2015, CNA demanded arbitration from Wausau for unpaid billings with respect to the same insured party, arguing the billings are part of a new and different dispute and subject to arbitration. Wausau disagreed, insisting they were improper “rebillings” already resolved in the 2004 arbitration.

The Court held under either party’s characterization, the dispute was subject to arbitration because whether or not CNA is, or is not, in compliance with the 2004 order is itself a dispute arising “with reference to the interpretation” of the party’s agreement. Essentially, Wausau was asking the Court to determine how the 2004 order should be treated in future arbitration disputes. The Court declined to do so, holding the “law is clear that arbitrators must determine in the first instance how a previous arbitration award affects a current dispute.” The parties were ordered to submit to arbitration and the action was dismissed.

Employers Ins. of Wausau, f/d/a Employers Ins. of Wausau a Mut. Co. v. Cont’l. Cas. Co., Case No. 15-cv-226 (USDC W.D. Wis. Feb. 17, 2016)

This post written by Nora A. Valenza-Frost.

See our disclaimer.

NINTH CIRCUIT REVERSES DISTRICT COURT’S ORDER VACATING ARBITRATION AWARD BASED ON EVIDENT PARTIALITY

by

This appeal is from an order from a district court in California, vacating an arbitration award against Masimo Corporation in favor of two former employees for $5.3 million because the court found that the arbitrator exhibited “evident partiality” because his brother litigated cases against Masimo. The employees appealed to the Ninth Circuit, which reversed the district court’s ruling, finding that Masimo provided “no coherent explanation” as to how the arbitrator’s brother’s litigation practice “would cause a person to doubt [the arbitrator’s] impartiality” and that Masimo failed to establish facts indicating actual bias. Although the Ninth Circuit found that the arbitrator committed an error in applying the wrong law as to punitive damages, it found that it did not rise to the level of affirmative misconduct. Finally, finding that Masimo’s remaining challenges to the award were unavailing, the Court noted that the arbitrator’s findings, even if erroneous, did not “exceed his powers” or rise to the level of manifest disregard of the law. Thus, the Ninth Circuit remanded to the district court to issue an order confirming the award in its entirety.

Ruhe, et al. v. Masimo Corporation, Nos. 14-55556 and 14-55725 (9th Cir. Feb. 19, 2016).

This post written by Jeanne Kohler.

See our disclaimer.