Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT DENIES MOTION FOR INTERLOCUTORY APPEAL IN ALLEGED INSURANCE KICKBACK SCHEME

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We have previously reported on a case styled Munoz v. PHH Corp., one of similar suits alleging putative class actions under the Real Estate Settlement Procedures Act arising from purported “sham” reinsurance transfers covering private mortgage insurance. Here, the California district court had granted PHH’s partial motion to dismiss and certified the remainder of the class. Plaintiffs subsequently filed for interlocutory appeal concerning whether a prior decision in the Ninth Circuit concerning equitable tolling and equitable estoppel disturbed the holdings in other California district court opinions. The court found that plaintiffs failed to satisfy the second of three prongs for certification—that there is substantial ground for difference of opinion among the courts. A “party’s strong disagreement with the court’s ruling is not sufficient for there to be a substantial ground for difference.” The court found that the appellate and district court opinions were not inconsistent, instead, “all assume that there are situations in which equitable tolling or equitable estoppel can apply to RESPA violations.” Even divergent application of settled law is not sufficient to show substantial ground for difference. Munoz v. PHH Corp., No 1:08-cv-00759-AWI-BAM (E.D. Cal. Oct. 1, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

FIO ISSUES 2015 ANNUAL REPORT

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Last month, the Federal Insurance Office (“FIO”) issued its Annual Report for 2015. The Report discusses many financial consumer protection and regulatory issues, both domestic and international, relating to the business of insurance. The Report has relatively little discussion of reinsurance, largely tracking the topics discussed in the FIO’s December 2014 report on the global reinsurance market. The 2015 Annual Report discusses three topics of interest to the reinsurance sector:

  • Regulation of captives: Regulation of captives is discussed mainly in terms of the NAIC’s work on a captive framework and the adoption of principal-based reserves. The Report is critical of the limitation of the captive framework to cessions of reserves for term life insurance and universal life insurance with secondary guarantees, and the “uncertain timeframe for its implementation ….” See Report at 59. The FIO previously identified the regulation of captives as a topic in which it is interested and may take action, although it has not exposed any proposal relating to captives.
  • Credit for reinsurance: The Report is critical of the slow progress on credit for reinsurance reform and notes that the United States and the European Union are in the preliminary stages of discussions of what the Dodd-Frank Act referred to as a covered agreement on that topic. The Report states that “[b]y statute [the Dodd-Frank Act], USTR [United States Trade Representative] and FIO must give notice to Congress of the intent to commence negotiations. That notice is expected in the coming weeks.” See Report at 81 and Recommendation at Appendix, page vii.
  • Alternative risk transfers: The Report contains a brief discussion of the abundance of capital in the reinsurance sector and the rapid growth of alternative risk transfers such as insurance-linked securities (including cat bonds), industry-loss warranties, collateralized reinsurance and sidecars. The Report does not contain any opinions or recommendations with respect to this topic. See Report at page 42.

This post written by Rollie Goss.
See our disclaimer.

FEDERAL CIRCUIT COURT UPHOLDS ENFORCEMENT OF FOREIGN ARBITRATION AWARD

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The U.S. Court of Appeals for the Eighth Circuit upheld a federal district court’s enforcement of an arbitration award after finding that the Appellant’s claims were precluded by foreign proceedings. American Hearing Systems, doing business as Interton, appealed the enforcement of the foreign arbitration award, arguing that the district court did not have subject-matter jurisdiction under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the Convention”). Additionally, Interton argued, even if the court had subject matter jurisdiction, the written arbitration agreement did not apply to the current dispute between the parties.

AVR Communication, Ltd., an Israeli company, sought arbitration in Israel asserting a number of claims governed by a previous arbitration agreement. Interton argued that the disputes giving rise to the claims were outside of the scope of the contract containing the arbitration provision. Interton failed to prevail on this argument in both the Israeli arbitration and later in the enforcement of the award by AVR in federal district court.

On appeal, Interton interpreted the language of the Convention to impose a subject matter jurisdiction requirement to include presentment of a written contract. The Eighth Circuit summarily dismissed this argument. The court found that the issue was not whether there was a written agreement, but whether the disputes in question were covered by the agreement to arbitrate. The court held that this question was precluded by the foreign arbitration proceeding and upheld the award. AVR Communications, Ltd. v. American Hearing Systems, Inc., Case No. 14-2313 (8th Cir. July 14, 2015)

This post written by Joshua S. Wirth, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

CALIFORNIA APPELLATE COURT DENIES MANDAMUS PETITION: ARBITRATOR WILL DECIDE WHETHER ARBITRATION AGREEMENT PERMITS CLASS ACTION CLAIMS

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An appellate court in California denied Universal Protection Service, LP (“Universal”) and their affiliate’s mandamus petition, seeking to overturn a lower court ruling compelling arbitration. The court found that whether an arbitration agreement permitted class-wide arbitration is a question for an arbitrator, and not the court.

Plaintiffs, a group of security officers formerly in the employ of Universal, sought arbitration following their employment termination—allegedly—after filing an administrative complaint. The issue before the court centered on whether an arbitration agreement within plaintiff’s employment contract gave an arbitrator the power to determine whether an arbitration agreement allowed for class action arbitration. The court looked to whether there was “clear and unmistakable evidence” that Universal and the plaintiffs planned for an arbitrator to handle such disputes.

Universal argued that because the arbitration agreement did not reference class actions specifically, this was concrete evidence that the parties did not intend the question of class action arbitration to be within the purview of an arbitrator. The court disagreed, finding that mere silence within an arbitration agreement is not sufficient. Instead, the court noted that the parties incorporated the American Arbitration Association’s (“AAA”) rules pertaining to employment disputes including the AAA’s Supplementary Rules for Class Arbitrations. Despite noting that some federal cases have rejected similar conclusions, the court held that because the parties intentionally made the AAA apart of their employment contract, this inclusion authorizes an arbitrator to decide whether the arbitration agreement permits class actions.

Universal Prot. Serv., LP v. Superior Ct. of Yolo Cnty., No. C078557 (Cal. Ct. App. Aug. 18, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

See our disclaimer.

REINSURANCE DISPUTE VOLUNTARILY DISMISSED AFTER CEDENT FAILED TO ESTABLISH GOOD CAUSE TO SEAL

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A reinsurance dispute we have covered previously was voluntarily dismissed shortly after the Western District of Michigan ordered that cedent’s amended motion for partial stay and accompanying memorandum, affidavits, and exhibits be unsealed. Plaintiff/counter-defendant Michigan Millers Mutual Insurance Company (MMMIC), the cedent, had filed its amended motion for partial stay and accompanying documents under seal. When the district court discovered this fact, the court directed MMMIC to “either file with the Court a notice informing the Court of the order authorizing the sealing of it’s [sic] motion and accompanying materials, or file a motion consistent with the provisions of Rule 10.6(b) establishing ‘good cause’ for sealing them.”

In response, MMMIC filed a motion to maintain under seal certain redacted passages in its motion for partial stay and accompanying exhibits. The court denied that motion and ordered the motion for partial stay and accompanying documents to be unsealed because MMMIC failed to establish either a need or good cause to seal these documents. Soon thereafter, the parties voluntarily dismissed the suit.

Michigan Millers Mut’l Ins. Co. v. Westport Ins. Corp., No. 1:14-cv-00151-PLM (USDC W.D. Mich.) (Aug. 21, 2015, denying motion to seal); (Sept. 18, 2015, stipulation of dismissal).

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

See our disclaimer.