Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

FIFTH CIRCUIT AGAIN REJECTS NLRB RULING THAT EMPLOYMENT AGREEMENTS REQUIRING INDIVIDUAL ARBITRATION ARE UNLAWFUL

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On December 16, 2014, we reported on the National Labor Relations Board’s ruling that Murphy Oil violated the National Labor Relations Act by requiring its employees to sign arbitration agreements which “requir[ed] . . . employees to resolve all employment-related claims through individual arbitration.” The NLRB’s decision reaffirmed its prior D.R. Horton ruling (which we reported on February 16, 2012), but which was reversed by the Fifth Circuit Court of Appeals (which we reported on December 19, 2013). On October 26, 2015, the Fifth Circuit, adhering to its previous decision in D.R. Horton, rejected the NLRB’s ruling in Murphy Oil, holding that the arbitration agreements are not unlawful and that Murphy Oil committed no unfair labor practice by requiring its employees to arbitrate claims on an individual basis, waiving their rights to pursue a class arbitration. The Court upheld the NLRB’s determination that Murphy Oil must take corrective action as to any employees subject to one of its arbitration agreements, which provided that “any and all disputes or claims [employees] may have . . . which relate in any manner . . . to . . . employment” must be resolved by individual arbitration, so that those employees understand that such language did not eliminate their right to pursue claims of unfair labor practices with the NLRB.

Murphy Oil USA, Inc. v. National Labor Relations Board, No. 14-60800 (5th Cir. Oct. 26, 2015).

This post written by Jeanne Kohler.

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NEW YORK APPELLATE COURT LEAVES OPEN QUESTION OF WHETHER A LOSS PORTFOLIO TRANSFER CONSTITUTES “TREATY REINSURANCE”

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A New York state appellate court recently affirmed a decision denying a cedents motion to dismiss certain affirmative defenses asserted by a reinsurer, but found it could not rule as a matter of law whether a loss portfolio transfer (“LPT”) entered into by the cedents constituted “treaty reinsurance”.

A prior discussion of this case can be found here. The cedents sued the reinsurer for breach of certain facultative certificates. One of the affirmative defenses asserted by the reinsurer was that the cedents’ entry into the LPT breached warranty retention provisions in the certificates. In opposing this defense, the cedents have argued that the LPT fell within the “treaty reinsurance” exception in the warranties. The trial court ruled that because the LPT was retroactive in nature, it did not constitute “treaty reinsurance”, relying upon dicta from prior reinsurance cases in New York for the proposition that such reinsurance can only be prospective. The Appellate Division disagreed, noting that the authority cited by the parties was inconclusive or failed to squarely address the issue, thus finding premature this prong of the trial court’s ruling. As many LPT transactions have been entered into by cedents in recent years, a final ruling by the court on the “treaty reinsurance” question will be noteworthy. Granite State Ins. Co. v. Transatlantic Reinsurance Co., No. 652506/12 (App. Div., 1st Dep’t Oct. 15, 2015).

This post written by Rob DiUbaldo.

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NEW HAMPSHIRE FEDERAL COURT RULES THAT ENGLAND’S STATUTE OF LIMITATIONS APPLIES TO A CEDENT’S BREACH OF CONTRACT CLAIM

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In a diversity action based upon breach of a facultative reinsurance certificate, a New Hampshire federal court recently held that England’s six-year statute of limitations governed a cedent’s contract claim, rejecting the foreign reinsurer’s argument that the claim was time-barred under the shorter period afforded by New Hampshire law.

The lawsuit arose from a loss paid by the cedent in 2009 under a property insurance policy. The reinsurer rejected the cedent’s billing on, among other grounds, that the reinsurer’s share had not been allocated properly. After the cedent brought suit, the reinsurer moved for judgment on the pleadings, arguing that New Hampshire’s three-year statute of limitations for breach of contract claims barred the cedent’s recovery. The cedent opposed the motion on the basis that England’s limitations period governed. Applying New Hampshire choice of law rules, the court first found that the statute of limitations issue was substantive, and not procedural, because neither party is a “resident” of the state as defined by New Hampshire law, and the cause of action arose outside the forum. Thus, instead of simply applying New Hampshire’s limitations period for contract claims – which occurs when statute of limitations is deemed procedural in nature – the court found it was required to address the substantive conflict between English and New Hampshire law. Applying factors articulated by the New Hampshire Supreme Court, the court held that England’s six-year statute of limitations controlled because the certificate was negotiated and entered into in London, governed by English law, and the application of England’s statute of limitations would not complicate the dispute or extinguish a statutory cause of action under New Hampshire law. As both parties conceded that the subject claim would be timely under English law, the court ruled in the cedent’s favor, denying the reinsurer’s motion for judgment on the pleadings or, in the alternative, summary judgment. TIG Insurance Company v. EIFlow Insurance Limited, No. 1:14-cv-00459 (USDC D.N.H. Sept. 29, 2015).

This post written by Rob DiUbaldo.

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ELEVENTH CIRCUIT HOLDS THAT STATUTE TO AID DISCOVERY FOR FOREIGN LITIGATION DOES NOT BAR MATERIAL’S SUBSEQUENT USE IN DOMESTIC LITIGATION

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The Eleventh Circuit Court of Appeals has addressed what it deemed an issue of first impression for any circuit court: Whether documents obtained under 28 U.S.C. § 1782 can be used in a subsequent domestic litigation. The case pitted the former wife of Gaston Glock, founder of the Glock handgun company, against the Glock corporation. The former wife desired to use documents obtained through § 1782 for her Austrian divorce in a RICO action against Glock, Inc. Glock argued that § 1782 did not envision documents being used for such a purpose. The Eleventh Circuit agreed, but in so doing applied the rationale that allowing parties to use, “for purposes of litigation, documents they have lawfully obtained, regardless of whether they could have obtained them through discovery in the case in which they use them,” furthers the goals of the Federal Rules of Civil Procedure. Distinguishing between the former wife using the documents as part of the proceeding and whether the documents would be ultimately admissible, the court reasoned that a blanket rule precluding such use could create a procedural nightmare for lower courts. Such determinations should be committed to the discretion of the district courts to determine if the documents were solely obtained to abuse § 1782. Glock v. Glock, Inc., No. 14-15701 (11th Cir. Aug. 17, 2015).

This post written by Zach Ludens.
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PUTATIVE CLASS REPRESENTATIVE ACCUSING LIFE INSURER OF “HOLLOW ASSET” REINSURANCE LACKS ARTICLE III STANDING

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We previously reported on putative class actions pending against life insurers for allegedly misleading customers by engaging in “shadow” or “hollow” reinsurance transactions, doing so most recently on August 3, 2015. In early October, another judge in the Southern District of New York faced the same arguments and ultimately reached the same conclusion that Article III standing was lacking. Plaintiffs alleged that Metropolitan Life Insurance Company and MetLife, Inc. had not properly disclosed their reinsurance agreements to customers as part of their transaction purchasing life insurance. According to plaintiffs, MetLife engaged in such conduct as obtaining a reserve credit of over $1 billion based upon letters of credit that were backed by contractual parent guarantees. In particular, plaintiffs pointed to a $315 million letter of credit that the New York Department of Financial Services determined was a “hollow asset” even though MetLife reported it as an admitted asset.

Plaintiffs filed a putative class action seeking damages against MetLife for failure to disclose these transactions and for violating sections of the New York Insurance Law. Plaintiffs, however, could not prove an injury-in-fact and, therefore, lacked Article III standing. Plaintiffs lacked Article III standing, the court found, because they could not show a concrete injury as a result of this conduct. In fact, rather than resulting in higher premiums, as Plaintiffs alleged, “according to an economic study annexed as an exhibit to the complaint, using shadow insurance actually reduces the cost of life insurance policies and, if companies discontinued using shadow insurance, premiums might rise by as much as 10–21%.” Finding that the alleged risk of harm was in the future and not concrete, the court dismissed the case for lack of Article III standing. Robainas v. Metropolitan Life Insurance Co., No. 14-cv-09926-DLC (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Zach Ludens.

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