Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT FINDS COMMUNICATIONS WITH REINSURERS DISCOVERABLE IN COVERAGE DISPUTE

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A federal court in Minnesota determined that an umbrella insurer’s communications with its reinsurers are discoverable in a coverage dispute. The case is titled National Union v. Donaldson Co., and the focus is on the scope of coverage that National Union is required to provide to its insured under certain umbrella policies in connection with the insured’s liability in two underlying lawsuits. One of the issues in the case is whether a “batch clause” in the primary policy was applicable to the umbrella policies. The “batch clause” affects how many deductibles are applicable, i.e., whether it is possible to “batch claims” under the umbrella policies so that only one deductible should be applied or whether separate deductibles must be satisfied.

The insured filed a motion to compel production of, among other things, National Union’s communications with its reinsurers, arguing that the communications were relevant to its bad faith counterclaim because National Union had taken the position that only a certain amount of policy limits could be available under the primary policy and that it was not possible to “batch claims” under the umbrella policies. The insured contended that what National Union said to its reinsurers on the issue would shed light on the timing of National Union’s view of the batch clause and its application for the primary and the umbrella layers of coverage, as well as National Union’s understanding of the potential indemnity exposure under the various policies. The Magistrate Judge granted the motion without discussion, concluding only that the standard in Rule 26(b)(1) had been met. The District Court overruled National Union’s objections to the Magistrate Judge’s order, noting a split of authority on the discoverability of communications with reinsurers in bad faith cases, and concluding that the ruling was not contrary to law or clearly erroneous.

National Union Fire Ins. Co. of Pittsburgh, Pa. v. Donaldson Co., Inc., No. 10-4948 (USDC D. Minn. June 24, 2014).

This post written by Catherine Acree.

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ARBITRATORS, NOT COURTS, TO DECIDE AVAILABILITY OF CLASS ARBITRATION UNDER PARTIES’ AGREEMENT

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A federal court in New York has held that arbitrators, not courts, should decide whether class arbitration is available under an arbitration agreement entered into between private parties. The court had previously compelled the arbitration of plaintiffs’ claims against certain defendants and stayed the remainder of the action. The issue now presented was on defendants’ motion to preclude plaintiffs from pursuing class arbitration and to require individual arbitrations of those claims. In determining that the issue of class arbitration was one for the arbitrators, the court considered prior U.S. Supreme Court and lower court holdings, but found no binding precedent on the issue. Because the court had already ruled on the enforceability of the parties’ agreement to arbitrate, the interpretation of that agreement – to decide whether or not it allowed for class arbitration – was “a matter within the arbitrator’s competence.” Defendants’ request to order individual arbitrations was therefore denied. The court declined to reach the parties’ other arguments, including whether plaintiffs had waived or conceded the class arbitration issue, finding those matters also best left to the arbitrators. In Re A2P SMS Antitrust Litigation, Case No. 12-CV-2656 (USDC S.D.N.Y. May 29, 2014).

This post written by Renee Schimkat.

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FLORIDA JURY REJECTS FOREIGN INSURER’S CLAIMS

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A Florida jury rejected all claims made by Instituto Nacional de Seguros (“INS”), a Costa Rican insurer, against two reinsurance brokers, Hemispheric Reinsurance Group, LLC and Howden Insurance Brokers, Ltd. As previously reported, INS sued the reinsurance brokers following INS’ award of its reinsurance business under a “beauty contest” bid process which did not separately disclose the $2 million reinsurance brokers’ commissions and which only quoted a total bid price of $12 million. The jury rejected each of INS’ claims of breach of contract, breach of implied contract, and breach of fiduciary duty. The jury also found in favor of Hemispheric on its counterclaim for breach of contract, awarding that reinsurance broker $771,855.31. Instituto Nacional de Seguros v. Hemispheric Reinsurance Group, Case No. 10-33-653 CA 04 (Fla. Cir. Ct. Mar. 17, 2009).

This post written by Leonor Lagomasino.

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ELEVENTH CIRCUIT AFFIRMS DISTRICT COURT’S DECISION ALLOWING DISCOVERY FOR USE IN FOREGN PROCEEDING

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The Eleventh Circuit affirmed a decision permitting discovery for use in foreign proceedings which were contemplated but not yet pending. In this case, which arose from a billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. (“CONECEL”) and Jet Air Service Ecuador SA, CONECEL applied in the district court for an order under 28 U.S.C. § 1782 to obtain discovery for use in foreign proceedings in Ecuador. The foreign proceedings included both a pending arbitration brought by Jet Air against CONECEL and contemplated civil and private criminal suits CONECEL might bring against two of its former employees who, CONECEL claimed, may have colluded with Jet Air. The District Court granted CONECEL’s application and Jet Air appealed.

As we previously reported, on June 25, 2012, the Eleventh Circuit affirmed the lower court’s order, holding that the arbitral panel was a foreign tribunal for purposes of 28 U.S.C. § 1782. That decision did not address whether the contemplated civil and criminal proceedings constituted foreign proceedings within the meaning of § 1782. Recently, however, the Eleventh Circuit vacated its earlier decision sua sponte and instead analyzed whether the contemplated civil and criminal proceedings satisfied the “foreign tribunal” element of the statute. Noting § 1782 requires only that a proceeding be within reasonable contemplation, as supported by reliable indications that the proceedings will be instituted within a reasonable time, the Court found that CONECEL provided such reliable indications by proffering the results of its internal audits leading to its findings of collusion and by submitting sworn declarations of CONECEL’s intent to purse the civil and criminal actions. Application of Consorcio Ecuatoriano de Telecomunicaciones SA v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. Jan. 10, 2014), vacating 685 F.3d 987 (11th Cir. 2012).

This post written by Leonor Lagomasino.

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CALIFORNIA SUPREME COURT UPHOLDS VALIDITY OF CLASS ACTION WAIVERS IN EMPLOYMENT ARBITRATION AGREEMENTS; PROHIBITS WAIVERS FOR REPRESENTATIVE ACTIONS UNDER PAGA

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The California Supreme Court has upheld the validity of class action waivers in employment arbitration agreements, reversing its prior rule that California courts could refuse to enforce such waivers on grounds of public policy or unconscionability. At issue was an employee’s right to bring a class action against his employer after he had entered into an arbitration agreement and waived the right to class proceedings. The court had previously held that class action waivers in employment arbitration agreements were, in large part, invalid. In light of the U.S. Supreme Court’s decision in Concepcion, which reversed a California decision restricting consumer class action waivers in arbitration agreements, the California Supreme Court recognized that the Federal Arbitration Act preempts its rule against employment class waivers. The court also rejected arguments that class action waivers were unlawful under the National Labor Relations Act and that the employer in the case had waived its right to arbitrate by withdrawing its motion to compel and otherwise failing to diligently pursue arbitration.

The employee had also sought to bring a representative action under the state’s Labor Code Private Attorneys General Act of 2004 (PAGA). That action was not subject to FAA preemption. The court upheld California’s public policy prohibiting waivers of representative actions brought under PAGA, distinguishing them from private employment disputes, characterizing PAGA claims as “public enforcement actions.” The court further held that PAGA did not violate the principle of separation of powers under the California Constitution. Having concluded that the employer could not compel the waiver of the employee’s representative PAGA claim, but that the employee had waived his right to class proceedings and must therefore proceed to arbitration on his individual damage claims, the court remanded the case for further proceedings to determine forum and bifurcation issues. Iskanian v. CLS Transportation of Los Angeles, LLC, Case No. S204032 (Cal. June 23, 2014).

This post written by Renee Schimkat.

See our disclaimer.