Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT APPROVES ARBITRATOR’S ALLOWANCE OF CLASS ARBITRATION BY ESTOPPEL

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In Hill v. Wackenhut Services International, an employment-related dispute involving alleged unpaid compensation for employees’ work on American military bases overseas, the U.S. District Court for the District of Columbia upheld an arbitral award authorizing class arbitration, basing its decision on the extremely limited availability of judicial review of arbitral awards and two Supreme Court cases. Stolt-Nielsen S.A. v. Animal Feeds International Corp. (2010) held that a court may not uphold an arbitrator’s decision to permit class arbitration if it reflects the arbitrator’s personal policy preferences rather than an interpretation of the parties’ agreement. Consistent with Stolt-Nielsen, Oxford Health Plans, LLC v. Sutter (2013) teaches that a court must uphold an arbitrator’s decision to permit class arbitration so long as that decision was “arguably construing” the parties’ agreement, even if the interpretation is mistaken. The Hill court found that the arbitrator had authorized class arbitration based upon the doctrines of collateral and judicial estoppel, which stemmed from the Hill defendants’ acceptance of a class arbitration award in an earlier related class proceeding. Because the Hill employment agreement’s choice-of-law clause incorporated federal and Florida law, both of which recognize the principles of estoppel on which the arbitrator relied, the arbitrator’s decision to invoke those doctrines “drew its essence from the contract,” consistent with the mandate of Oxford Health. Hill v. Wackenhut Services International, Case No. 11-2158 (JEB) (D.D.C. Sept. 18, 2013).

This post written by Kyle Whitehead.

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ARBITRATION ROUND-UP

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Scope of Arbitration

Citigroup, Inc. v. Abu Dhabi Investment Authority, Case No. 1:13-cv-06073 (USDC S.D.N.Y. Nov. 25, 2013) (dismissing action to enjoin arbitration; granting motion to compel arbitration; defense of res judicata based on prior confirmation of arbitration award is an issue for arbitration panel)

Unconscionability

Lombardi v. Kahaly, Case No. 11-56752 (9th Cir. Dec. 2, 2013) (reversing denial of motion to compel arbitration of claims for injunctive relief under California Unfair Competition Law and Consumer Legal Remedies Act; following precedent holding that FAA preempts California unconscionability law and that “effective vindication” exception does not apply to state statutes; arbitration agreement not unconscionable for nonmutuality)

Lombardi v. Twyman, Case No. 10-56602 (9th Cir. Dec, 2, 2013) (reversing order that denied motion to compel arbitration based on unconscionability of class waiver arbitration provision; following Concepcion and American Express; arbitration agreement not substantively unconscionable for nonmutuality, nor procedurally unconscionable for alleged penalty for rejecting arbitration agreement)

Due Process

Staples v. Morgan Stanley Smith Barney, Case No. 6:13-cv-00013 (USDC D. Mont. Oct. 28, 2013) (confirming FINRA award; finding proper service of process by FINRA; no corruption, fraud, undue means, or arbitrator bias, misconduct, or exceeding of powers)

Labor Disputes

Northern New England Telephone Operations LLC v. Local 2327, International Brotherhood of Electrical Workers, AFL-CIO, Case Nos. 13-1167, 13-1186 (1st Cir. Nov. 12, 2013) (affirming confirmation of award and denial of Rule 11 costs and fees; panel did not exceed authority in LMRA arbitration by wrongfully adding/subtracting terms in interpreting the relevant collective bargaining agreement)

Reyco Granning LLC v. International Brotherhood of Teamsters, Local Union No. 245, Case No. 13-1002 (8th Cir. Nov. 15, 2013) (reversing district court’s order granting summary judgment in favor of union and confirming award on collective bargaining agreement; directing court to grant employer’s motion for summary judgment and vacate arbitration award; arbitrator exceeded authority by looking to contract negotiations to discern intent with respect to unambiguous contract language)

Concurrent Proceedings

Alstom Chile S.A. v. Mapfre Compania de Seguros Generales Chile S.A., Case No. 1:13-cv-02416 (USDC S.D.N.Y. Oct. 31, 2013) (compelling arbitration and permanently enjoining defendant from prosecuting related tort proceedings in Chile; holding that broad arbitration clause for all disputes “arising out of or relating to” agreement covered both breach of contract and tort claims; finding that failure to comply with requirement to negotiate dispute did not bar enforcement of arbitration provision)

This post written by Michael Wolgin.

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SECOND CIRCUIT VACATES DENIAL OF CITIBANK’S MOTION TO COMPEL ARBITRATION

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On appeal from the S.D.N.Y., Citibank challenged the district court’s denial of Citibank’s motion to compel arbitration and decision that the agreement to arbitrate was not binding on the parties. The S.D.N.Y. concluded that Signature Cards signed by appellees when opening their accounts with Citibank did not incorporate by reference the Client Manual, which contains the arbitration agreement. The Second Circuit vacated the district court judgment and remanded for further proceedings because several issues of fact existed as to the making of the arbitration agreement, therefore requiring a trial. The issues of fact identified are (1) whether Citibank provided the Client Manual to appellees; (2) whether the Client Manual appears to be a contract on its face; and (3) whether appellees are estopped from arguing they did not agree to arbitrate because they “knowingly exploited” the benefits of the agreement. Hirsch v. Citibank, N.A., No. 12-1172-cv (2d Cir. Oct. 22, 2013).

This post written by Abigail Kortz.

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CREDIT FOR REINSURANCE ISSUES TAKING NEW TURNS?

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We have posted many times on the slowly developing changes in the area of credit for reinsurance and reinsurance collateral requirements. The recent report on insurance regulation from the Federal Insurance Office contained a recommendation in this area: “To afford nationally uniform treatment of reinsurers, FIO recommends that Treasury and the United States Trade Representative (USTR) pursue a covered agreement for reinsurance collateral requirements based on the National Association of Insurance Commissioners Credit for Reinsurance Model Law and Regulation.” FIO Report, page 37. Such an agreement likely would be an international agreement which, pursuant to the Dodd-Frank Act, would preempt and supersede state laws in this area.

At the same time, the NAIC has been monitoring the adoption by the states of the Credit for Reinsurance Model, and has pursued a process of certifying foreign jurisdictions as “qualified jurisdictions” for purposes of of permitting reinsurers licensed or domiciled in such jurisdictions to seek certification by states for reduced collateral requirements under the Credit for Reinsurance Model. The NAIC has announced the addition of four international supervisory authorities as Conditional Qualified Jurisdictions: the Bermuda Monetary Authority; the German Federal Financial Supervisory Authority; the Swiss Financial Market Supervisory Authority; and the United Kingdom Prudential Regulation Authority of the Bank of England. According to the NAIC article, this approval permits states to begin certifying reinsurers licensed or domiciled in those jurisdictions for collateral reduction purposes, with the full review of these four jurisdictions by the NAIC continuing during 2014. Individual states have the authority to approve jurisdictions not on the NAIC’s list of qualified jurisdictions. Since the NAIC/Model approach depends upon action by individual states, this route is unlikely to achieve the uniformity advocated by the FIO Report, at least in the short term.

This post written by Rollie Goss.

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AFFORDABLE CARE ACT IMPLEMENTATION THAT WILL AFFECT REINSURERS

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The Department of Health and Human Services (“HHS”) has published a Notice of Proposed Rulemaking proposing the reinsurance payment parameters and uniform contribution rate for the 2015 benefit year and certain oversight/audit provisions for the transitional reinsurance programs required to be established in each state pursuant to the Patient Protection and Affordable Care Act to help pay the cost of treating high-cost enrollees in the individual market from 2014 through 2016. In addition to explaining both the operation of the HHS’s Affordable Care Act Health Insurance Model for estimating market enrollment and expenditure distributions, as well as the composition of the uniform contribution rate formula (which includes an annually decreasing reinsurance payment pool, contributions to the U.S. Treasury, administrative expenses, and an estimation of enrollees in plans required to make reinsurance contributions), the Notice also proposes for the 2015 benefit year (1) a uniform reinsurance contribution rate of $44 annually per enrollee in plans required to make required reinsurance contributions (versus $63 in 2014), (2) a $70,000 attachment point (versus $60,000 in 2014), (3) a $250,000 reinsurance cap (same as in 2014), and (4) a 50% coinsurance rate (versus 80% in 2014). Moreover, the Notice proposes to decrease the attachment point for 2014 from $60,000 to $45,000 to account for the HHS’s prior overestimation of the total covered claims costs of individuals enrolled in reinsurance-eligible plans in 2014. Lastly, the HHS proposes that if reinsurance contributions collected for a benefit year exceed the requests for reinsurance payments for the benefit year, the HHS would increase the coinsurance rate on its reinsurance payments, ensuring that all of the contributions collected for a benefit year are expended for claims for that benefit year.

This post written by Kyle Whitehead.

See our disclaimer.