Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NLRB FINDS MANDATORY ARBITRATION CLAUSE UNENFORCEABLE

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An administrative law judge for the National Labor Relations Board (“Board”) found in favor of Talina Torres (“Torres”) against Employers Resource (“Employers”) after determining that an arbitration clause within an employment contract was unenforceable. From September 2009 until June 2011, Torres was employed by Beth’s Kitchen, Inc., which was staffed by Employers. Torres filed a wage and hour putative class action lawsuit in California state court after being laid-off. Employers was named as a co-defendant. Employers then successfully moved to compel individual arbitration arguing that, under Stolt-Nielsen, class arbitration may not be inferred when a contract is silent on the issue. Following this ruling, Torres filed a complaint with the Board contending that Employers restricted her rights to engage in “protected concerted activities” as an employee under the National Labor Relations Act, citing recent Board decisions Murphy Oil and D.R. Horton.

In response to the Board complaint, Employers made various arguments, including that the Board lacked standing to hear the case as Torres was not an employee of Employers. Employers further contended that, contrary to the facts in Murphy Oil and D.R. Horton, the employment agreement in this case was not mandatory as a condition of employment with Beth’s Kitchen. The Board, however, found that while Torres did not interact with Employers, Employers did prepare the employment agreement for Beth’s Kitchen, Employers made itself a party to the agreement, and Employers then relied on the agreement in the litigation. Therefore, Employers was sufficiently implicated as violating Torres’s rights under the NLRA. The Board also noted that based on various representations made by Employers and Beth’s Kitchen, Torres was led to believe that the employment agreement was mandatory as a condition of employment. The Board ordered that Employers rescind or revise the mandatory arbitration provision and also that they not oppose Torres’ class action wage and hour suit on the basis of the employment agreement. Employers Resource and Talina Torres, Case 31-CA-097189 (N.L.R.B. May 18, 2015).

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

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COURT OF APPEALS AFFIRMS REJECTION OF CLAIMS RELATING TO CAT BOND

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We previously posted on a district court’s dismissal, with prejudice, of an Amended Complaint challenging the propriety of payments to the ceding insurer of the Mariah Re catastrophe bond which exhausted the cat bond’s trust account.  The Amended Complaint contended that the payment amount had not been calculated in accordance with the provisions of the cat bond’s documents, and that a lesser amount, which would not have exhausted the trust account, should have been paid instead.  The district court found that the documents clearly set forth the process for calculating the payment amount, and that the payment amount had been calculated in accordance with the contractual agreements.  It therefore dismissed the case with prejudice.  The Court of Appeal, after briefly describing the contractual relationships, simply stated that “[w]e AFFIRM the judgment of the district court for substantially the reasons stated by Judge Sullivan in his opinion of September 30, 2013.”  This result demonstrates the importance of clarity in the drafting of cat bond documents, and may help to reduce whatever uncertainty this lawsuit engendered in the cat bond market.  Mariah Re Limited v. American Family Mutual Insurance Company, No. 14-4062 (2nd Cir. June 30, 2015).

This post written by Rollie Goss.

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DISTRICT COURT DENIES PRELIMINARY RELIEF IN REINSURANCE DISPUTE OVER RELATED LITIGATION

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Plaintiff Excalibur Reinsurance Corporation (“Excalibur”) sought a preliminary injunction in the Eastern District of Pennsylvania to enjoin Defendants Select Insurance Company and the Travelers Indemnity Company from proceeding with litigation on the same issues in the District of Connecticut. Excalibur argued that without the injunction, it would need to post security in the Connecticut action, an action that would deplete its corporate assets and seriously affect its liquidity. The district court, however, denied Excalibur’s preliminary injunction because it found that Excalibur would not be “irreparably harmed” if the request were denied. The court found that Excalibur would recover posted funds in Connecticut if it prevailed. It also noted that a sworn statement by its Assistant Vice President was insufficient evidence to demonstrate the potential injury the company faced from posting security in two different matters.

Excalibur Reinsurance Corp. v. Select Ins. Comp., No. 15-2522 (USDC E.D. PA. June 2, 2015)

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

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DISTRICT COURT DISMISSES BREACH OF DUTY OF UTMOST GOOD FAITH CLAIMS UNRELATED TO BREACH OF CONTRACT IN REINSURANCE DISPUTE

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The Middle District of Florida recently granted in part and denied in part plaintiff Stewart Title Guaranty Company’s (“Stewart Title”) motion to dismiss defendant First American Title Insurance Company’s (“First American”) counterclaim for breach of the utmost duty of good faith. As noted in a prior post, this case involves disputes regarding reinsurance agreements that First American entered into with Old Republic National Title Insurance Company (“Old Republic”) and Stewart Title. In these agreements, Old Republic and Stewart Title agreed to assume part of First American’s contractual liability under a title insurance policy.

When mechanic’s liens were discovered on the property at issue, First American negotiated a $41 million settlement of the claim before turning to Old Republic and Stewart Title to pay their proportionate share of that sum. While Old Republic paid under its reservation of rights, Stewart Title chose not to pay, and instead, sued First American for rescission, reformation, declaratory judgment, and negligence. First American countersued Stewart Title for breach of contract, breach of the utmost duty of good faith, and declaratory judgment.

Stewart Title moved to dismiss First American’s counterclaim for breach of the utmost duty of good faith on the same bases as a prior dismissal granted in favor of Old Republic. First American contended that Stewart Title’s breach of the reinsurance agreement differed from Old Republic’s alleged breach in that Stewart Title did not pay under its reservation of rights. First American’s counterclaim alleged that Stewart Title breached the utmost duty of good faith in the following four ways: (1) failing to pay the claim as required under the insurance contract; (2) engaging in delay tactics; (3) using First American’s documents against it in support of its allegations and preemptively filing suit against First American; and (4) accusing First American of making misrepresentations and omissions. While the district court held that the first two claims necessarily could be tied to breach of the reinsurance contract, the latter two claims could not and, consequently, the latter two were dismissed.

Old Republic Nat. Title Ins. Co. v. First American Title Ins. Co., No. 8:15-cv-126-T-30EAJ, 2015 WL 1530611 (USDC M.D. Fla. June 8, 2015)

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

See our disclaimer.