Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT SANCTIONS PARTY FOR IMPROPER REMOVAL OF ACTION SEEKING CONFIRMATION OF ARBITRATION AWARD

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The facts in Jackson v. Sleek Audio, LLC, et. al., Case No. 13-80725-CIV-Marra (S.D. Fla. March 17, 2014) stemmed from an arbitrators award against Curtis Jackson (“Jackson”) in his action against former business associates, Sleek Audio and others (“Sleek”). The arbitrator’s award included an award of attorney’s fees for which, Jackson contended, he lacked authority to award under the Federal Arbitration Act, 9 U.S.C. §1, et. seq. (“FAA”) and under Florida law.

Following the award by the arbitrator, Jackson brought an action in the Southern District of Florida seeking to vacate the arbitration award and also removed Sleek’s petition in the State Court seeking confirmation of the award. Jackson argued the arbitrator relied on the FAA’s preemption of Florida law in finding authority to award attorney’s fees and, thus, the issue of the FAA’s preemption formed the basis of the federal question jurisdiction. Sleek then moved to dismiss the action to vacate the award and to remand its own action seeking confirmation of the award. The parties agreed there was no diversity of citizenship and the federal court did not have jurisdiction under the FAA.

In its analysis of federal question jurisdiction, the Court first restated the principle that only complete preemption can convert state law claims into federal statutory claim in order to serve as a basis for federal question jurisdiction. In this case, the FAA did not completely preempt state law and thus could not form an independent basis for jurisdiction. The Jackson Court concluded that Jackson therefore did not have “an objectively reasonable basis for removal” and ordered Jackson to pay Sleek’s costs, including attorney’s fee, incurred in connection the removal proceedings.

This post written by Leonor Lagomasino.

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ARBITRATION CLAUSE IN AGREEMENT BETWEEN INSURED AND REINSURER HELD INVALID UNDER NEBRASKA LAW

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A federal district court has held an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer invalid and unenforceable under governing state law. The RPA complemented a standing Quota Share Reinsurance Agreement between reinsurer Applied Underwriters Captive Risk Assurance (AUCRA) and the insured’s insurers whereby AUCRA was ceded a portion of the insured’s premiums paid under a Workers Compensation Profit Sharing Plan. When the insured failed to pay its premiums, it received notice that its workers’ compensation policies and the RPA were being terminated for nonpayment. After attempts to resolve the dispute with AUCRA failed, the insured filed a lawsuit seeking declaratory and other relief, including reformation of the RPA. AUCRA moved to compel arbitration pursuant to the RPA’s arbitration clause.

The court analyzed the arbitration clause under Nebraska law, which the parties agreed controlled, and found the clause fell within the purview of a Nebraska statute prohibiting arbitration clauses in insurance contracts. The court rejected AUCRA’s arguments that (a) the statute did not apply to the RPA because the statute is aimed only at traditional insurance contracts between an insurance company and its insured, and (b) even if applicable, the RPA fell within the reinsurance exception contained within that statute. The court noted that the reinsurance exception applied to “contract[s] between insurance companies including a reinsurance contract” and the insured was not an insurance company. The court also rejected AUCRA’s argument that the insured had waived or was otherwise estopped from contesting the validity of the arbitration clause by virtue of its pre-suit settlement attempts. The court thereby denied AUCRA’s motion to compel arbitration and granted the insured’s motion to stop arbitration. On a final issue, the court denied AUCRA’s motion to transfer venue to Nebraska per the RPA’s forum selection clause, finding the interests of justice weighed in favor of retaining the case in Tennessee. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Jan. 23, 2014).

This post written by Renee Schimkat.

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NINTH CIRCUIT ADOPTS REBUTTABLE PRESUMPTION THAT ORDER WHICH DOES NOT EXPLICITLY DISMISS ARBITRABLE CLAIMS STAYS THE ACTION AS TO THOSE CLAIMS

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Under the Federal Arbitration Act, only “a final decision with respect to an arbitration” is appealable. 9 U.S.C. §16(a)(3). The issue facing the Ninth Circuit was whether an order compelling arbitration which neither explicitly dismissed nor explicitly stayed the action was such “a final decision.” The Court concluded it was not a final decision and therefore was not appealable.  In MediVas, the district court’s order on appeal (“Order”) ruled that many of the plaintiff’s claims were subject to the arbitration clause, and ordered arbitration for those claims. As to the remaining claims, the district court remanded them to state court. Neither the Order nor any other order in that case explicitly dismissed nor explicitly stayed the arbitrable claims, and no judgment was entered in the action.

In its analysis, the Court reasoned that a final decision is one which “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Thus, an order compelling arbitration may be appealed if it dismisses all the underlying claims, but may not be appealed if the court stays the action pending arbitration. Consistent with its earlier rulings and with the procedural history of the case before it, the Ninth Circuit held the Order implicitly stayed the arbitrable claims pending the outcome of the arbitration. Because those claims were not dismissed, the Order was therefore interlocutory and not appealable.

Significantly, although the Medivas Court declined to follow the Second Circuit’s requirement of an official dismissal of all claims before reviewing an order compelling arbitration, the Court adopted a rebuttable presumption that an order compelling arbitration which did not explicitly dismiss the underlying claims stays the action as to those claims pending the completion of the arbitration. The Court did so in order to simplify the analysis in future cases where the order compelling arbitration is not clear. Along those lines, the MediVas Court also urged the district courts make their orders as clear as possible as to whether they intend to dismiss or stay a case, and noted that the appeal before it could have been avoided had the parties requested a clarification of the Order.  MediVas, LLC, et. al. v. Marubeni Corporation, Case No. 12-55375 D.C. No. 3:10-cv-01001-W-RBB (9th Cir. Jan. 27, 2014).

This post written by Leonor Lagomasino.

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COURT ALLOWS THIRD PARTY DISCOVERY OF BROKER MATERIALS CLAIMED TO BE PRIVILEGED

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Defendant liability insurers sought discovery from Third Party Aon relating to a dispute between defendants and plaintiff regarding an umbrella coverage program. Aon provided some, but not all responsive documents, citing instructions from Plaintiff Black & Veatch, which asserted privilege objections on behalf of Aon, and provided a privilege log for 41 withheld documents. The defendants moved to compel production of all but two of those documents. In response, Black & Veatch claimed that Aon was acting as a representative of Black & Veatch, that they were made in anticipation of litigation, were subject to attorney-client privilege, and that the documents were thus protected from disclosure. The Court held that the privilege log did not adequately disclose the bases for the assertions of privilege or work product, that it was not evident that Aon acted as Black & Veatch’s agent, that the documents listed were prepared in anticipation of litigation, or that they were confidential communications reflecting a primary purpose of providing legal advice. The Court also held that the plaintiff failed to demonstrate a basis for in camera review, and thus ordered it to produce the documents. Black & Veatch v. Aspen Insurance (UK) Ltd., No. 12-2350-SAC (USDC D. Kan. Feb. 28, 2014).

This post written by John Pitblado.

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COURT COMPELS PRODUCTION OF INFORMATION EXCHANGED BETWEEN INSURER AND REINSURER AS RELEVANT TO CONSTRUCTION OF POLICY

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In a declaratory relief action brought against the FDIC by the liability insurer for the directors and officers of a bank in receivership, the court resolved a discovery dispute that included a contested request for information exchanged between the insurer and its reinsurer. In compelling the production of the reinsurance information, the court adopted a prior case’s articulation of seven reasons why reinsurance information might be relevant to assist with the construction of policy language: to determine (1) how the insurer has interpreted the provisions in the current lawsuit; (2) whether the insurer’s interpretation has been consistent with the positions taken with insureds; (3) whether the insurer and reinsurer discussed whether the type of claims in dispute would be covered; (4) whether the insurer and reinsurer discussed the insureds’ expectations on the scope of coverage; (5) when the insurer received notice of claims; (6) if the insureds’ claims were untimely, whether the insurer claimed it was prejudiced as a result; and (7) whether the reinsurer was involved in the sales and marketing of the policies in dispute, and if so, what those efforts reflect in terms of the reasonable expectations of the insureds concerning the scope of coverage. Progressive Casualty Insurance Co. v. FDIC, Case No. 5:12-cv-04041 (USDC N.D. Iowa Mar. 10, 2014).

This post written by Michael Wolgin.

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