Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CALIFORNIA COURT OF APPEAL HOLDS GENTRY IS STILL GOOD LAW WHERE FAA DOES NOT APPLY

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A California appellate court recently held in Garrido v. Air Liquide Industrial U.S. L.P that the rule set forth in Gentry v. Superior Court, 42 Cal.4th 443 (2007) remains valid so long as the Federal Arbitration Act (“FAA”) does not govern the dispute at issue. Gentry addresses class waivers contained within arbitration agreements that would “interfere with employees’ ability to vindicate unwaivable rights” and sets forth four factors a court should consider when deciding whether to uphold a class waiver.

In Garrido, a former employee filed a class action complaint against Air Liquide, alleging various Labor Code violations and unfair business practices. The trial court denied a motion to compel arbitration brought by Air Liquide, finding that the agreement’s class waiver provision was improper under Gentry’s four factors. Following the trial court’s ruling, the California Supreme Court held in Iskanian v. CLS Transportation Los Angeles, LLC, 59 Cal.4th 348, 364 (2014) that Gentry’s rule against employment class waivers was preempted by the FAA.

The Garrido appellate court found that the dispute was not subject to the FAA because Section 1 of the FAA exempts from coverage transportation workers. Further, it found that Gentry’s holding has not been overturned under California law in situations where the FAA does not apply. Accordingly, the appellate court affirmed the trial court, finding that the agreement’s class waiver provision was unenforceable.

Garrido v. Air Liquide Industrial U.S. LP, 246 Cal.App.4th 833 (2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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COURT GRANTS MOTION TO COMPEL ARBITRATION, FINDING THAT ISSUE OF CONSOLIDATION IS QUESTION FOR ARBITRATOR, NOT COURT

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An Illinois federal court recently granted an insurer’s motion to compel arbitration of a dispute with its insureds and denied the insureds’ motion to dismiss and transfer venue.

This dispute arose under four written program agreements, each containing an arbitration clause. The insurer filed a single demand for arbitration with the American Arbitration Association (the “AAA”), alleging that the insureds failed to pay amounts due under the four program agreements. The insureds raised various objections to the arbitration demand, including that they were entitled to four separate arbitrations. The AAA ruled that the arbitration would continue as one arbitration, and the insureds appointed the sole arbitrator. Shortly thereafter, the insureds filed an action in Texas state court, seeking a Temporary Restraining Order (“TRO”) to stay the arbitration because it had been improperly consolidated. The Texas court granted the TRO, stating that the AAA had failed to follow the arbitration agreements by administering one proceeding, not four, and enjoined the AAA from administering the arbitration. The AAA removed the Texas action to federal court, and filed a motion to dismiss, to which the insureds did not file a response. After the TRO expired, the AAA attempted to resume administration of the arbitration, but the insureds would not participate in the arbitration and informed the AAA that their counsel could not communicate with the AAA given the pending Texas action. Thus, the insurer filed this action in Illinois, where the arbitration was pending, seeking to compel arbitration.

The Illinois federal court denied the insureds’ motion to dismiss and transfer venue, finding that the court had jurisdiction over the insureds as they agreed to arbitrate their disputes related to the program agreements in Illinois and that the venue for the motion to compel was also proper. As for the motion to compel arbitration, the court noted that under the Federal Arbitration Act, the question of whether a given dispute is arbitrable is decided by the courts, but all other disputes concerning the application of the arbitration agreement are for the arbitrators to decide. Thus, the court held that the propriety of consolidated arbitration proceedings is an issue of procedure for the arbitrator to decide, not the court. Thus, the court granted the insurer’s motion to compel arbitration, noting that the insureds’ only means of judicial review on the issue of consolidation is a motion to vacate the arbitration award after the final award is issued.

Zurich American Insurance Company, et al. v. Trendsetter HR, LLC, et al., No. 1:15-cv-08696 (USDC N.D. Ill. Nov. 16, 2015).

This post written by Jeanne Kohler.

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MISSOURI FINANCE DEPARTMENT ADOPTS NEW RULE REGARDING CERTIFICATES OF AUTHORITY FOR SURPLUS LINES INSURERS

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On December 1, the Missouri Department of Insurance, Financial Institutions and Professional Registration adopted a new rule pertaining to certificates of authority for domestic surplus lines insurers. The rule was proposed earlier this fall and sets out the procedures that an insurer looking for domesticated authority in Missouri must follow in order to have a certificate of authority issued. The rule provides that the company must redomesticate to Missouri or form a Missouri domestic insurance company, as well as meet a series of other requirements, including proof that the insurer possesses policyholder surplus of at least $20,000,000 and is approved in at least one other jurisdiction than Missouri. Mo. Code Regs. tit. 20 § 200-6.700 (2015).

This post written by Zach Ludens.

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EXCESS WORKERS’ COMPENSATION AND EMPLOYERS’ LIABILITY POLICY HELD NOT TO BE REINSURANCE

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The United States District Court for the Middle District of Louisiana recently granted an insurer’s motion for summary judgment, finding that an excess workers’ compensation and employers’ liability policy was not reinsurance and that the limit of liability of an underlying insurance policy was not relevant to the amount owed. Louisiana Commerce and Trade Association Self Insurers Fund sued National Union Fire Insurance Company of Louisiana for breach of contract. The district court to which the case was removed described the case as “a dispute between two insurance companies over the limits of liability resulting from the settlement of an intentional tort case.” LCTA provided indemnity for workers’ compensation benefits and employers liability and issued coverage to Gee Cee Group Inc. and Gee Cee Enterprises. An employee of Gee Cee was injured and filed a workers’ compensation claim and claim for intentional tort damages against Gee Cee. Gee Cee settled the intentional tort action and LCTA filed a proof of claim with National Union for $1 million, the policy limits of the National Union/LCTA policy. Of that amount, National Union paid $800,000 and then asserted that it had overpaid by $300,000 because the policy limit was actually only $500,000. Both parties moved for summary judgment. LCTA asserted that it was entitled to judgment in its favor for $200,000, and National Union asserted that it is a reinsurer that has no greater liability to LCTA than LCTA has to Gee Cee, which is $500,000. Finding the terms of the National Union/LCTA policy to be clear and unambiguous, and not reinsurance, the district court held for LCTA. Louisiana Commerce and Trade Association Self Insurers Fund v. Nat’l Union Fire Insurance Co. of Pittsburgh, No. 13-773-JJB-RLB (USDC M.D. La. Nov. 3, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

NEW YORK APPELLATE COURT AFFIRMS DENIAL OF COMPETING SUMMARY JUDGMENT MOTIONS IN REINSURANCE DISPUTE

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In a short, unanimous opinion, the New York Appellate Division, First Department, affirmed a trial court’s ruling that genuine issues of fact precluded it from granting summary judgment to a reinsurer or the plaintiff-cedents in a long-running dispute between them. The case involves Everest Reinsurance Company’s obligation to reimburse various cedents for a settlement entered into under certain facultatively reinsured policies. Everest Re asserted various defenses, including whether the loss is covered by the certificate at issue and whether the settlement entered into was reasonable and made in good faith. The cedents argued that Everest Re is bound to honor the billings under the follow the settlements doctrine. The Appellate Division held that the record before it presented “numerous issues of fact” regarding the settlement entered into by the cedents, and, specifically, the issue of good faith, “none of which are susceptible to resolution on summary judgment.” National Union of Fire Insurance Co. of Pittsburgh v. Everest Reinsurance Co., Index No. 602485/06 (N.Y. App Div., 1st Dep’t, Nov. 5, 2015).

This post written by Rob DiUbaldo.

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