Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

COURT ENFORCES FORUM SELECTION CLAUSE IN REINSURANCE AGREEMENTS AND TRANSFERS ARBITRATION DISPUTE UNDER 28 U.S.C. § 1404

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In an arbitration dispute brought in the Western District of Wisconsin over the inability of the parties to choose an arbitrator for reinsurance disputes, the court found that venue was improper and transferred the case to the Southern District of New York under 28 U.S.C. § 1404. Petitioners sought an order compelling the respondent to comply with the method for choosing arbitrators provided for in the arbitration agreement and respondent counterclaimed asking the court to choose an arbitrator since the parties could not agree on one. Respondent also argued that venue was not proper as to petitioners claims because the arbitration agreements included an agreement to hold arbitrations in New York, but argued at the same time that it should be allowed to assert its counterclaim in Wisconsin because it related to appointing an umpire under 9 U.S.C. § 5, which does not include a venue limitation, rather than enforcing an arbitration agreement under 9 U.S.C. §4, which includes a venue limitation. The court determined that the transfer of all claims was appropriate because the Seventh Circuit held in Haber v. Biomet that § 4 requires district courts to enforce forum selection clauses in arbitration agreements and that the counterclaim could not be tried separately from petitioners’ claims because the claims were too intertwined. Employers Ins. Co. of Wausau v. Arrowood Indemnity Co., Case No. 12-283 (USDC W.D. Wis. Oct. 26, 2012).

This post written by Abigail Kortz.

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COURT REFUSES TO COMPEL ARBITRATION PENDING DISCOVERY AS TO SCOPE OF TWO POTENTIALLY APPLICABLE CONTRACTS

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In a putative class action, a court denied the defendant’s motion to compel individual arbitration, pending discovery as to the appropriate law governing the dispute and the scope of two potentially applicable agreements between the parties. The dispute surrounded the appropriate charges for propane delivery. Plaintiff, a propane customer, contended that an oral contract existed between him and the company which set the price at a “market rate” and did not include an agreement to arbitrate. The company, on the other hand, contended that the parties’ relationship was governed by a written agreement sent to the customer following the initial propane services, and that the agreement contained a class-waiver arbitration clause. The court found that it lacked sufficient facts to determine both which state laws and which of the two purported contracts applied. The court denied the motion to compel arbitration and ordered “limited discovery as to the appropriate choice-of-law as well as the scope of the oral and Master Agreements.” Howard v. Ferrellgas Partners, L.P., Case No. 10-02555 (USDC D. Kan. Aug. 27, 2012).

This post written by Michael Wolgin.

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NO MUTUAL ASSENT TO ARBITRATE WHEN ONE PARTY EMAILS ARBITRATION PROVISION AFTER CONTRACT FORMATION

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In a class action suit against a company that sells online programs offering discounts on goods and services, the Second Circuit affirmed the district court’s denial of defendant’s motion to compel arbitration. Defendants argued that they provided plaintiffs with notice about the arbitration provision through a hyperlink on a webpage plaintiffs would have seen before enrolling in defendants’ service and in an email sent to plaintiffs after enrollment. The court held that an unsolicited email from an online consumer business sent after enrollment does not put recipients on inquiry notice of its terms and that failure to cancel the membership does not, by itself, constitute assent. The court declined to decide the issue of whether the hyperlink on the enrollment screen provided notice of the arbitration provision because defendants failed to raise the issue in the district court. However, the court hinted that the hyperlink “might have created a substantial question as to whether the [arbitration] provision was part of a contract between the parties.” Schnabel v. Trilegiant Corp., No. 11-1311 (2d Cir. Sept. 7, 2012).

This post written by Abigail Kortz.

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COURT REVERSED FOR STRAYING FROM ARBITRATION AGREEMENT DESPITE “LAPSE” IN ARBITRATOR SELECTION PROCESS

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In a three-way dispute between Exxon, BP, and a provider of drilling services over the alleged breach of an assignment agreement, a federal appeals court reversed based on the lower court’s improper resolution of a “lapse” in the parties’ ineffective two-party arbitrator selection procedures. The agreement provided that the dispute would be arbitrated before three arbitrators appointed in accordance with the rules of the Arbitration and Conciliation Act of 1990. ACA’s procedures, however, address a two-party dispute, in which each party selects an arbitrator, with the third selected by the arbitrators themselves.

When the three-way dispute arose in this case, and the parties could not agree on how the two-party arbitration selection process could be implemented, suit was filed in federal court under the New York Convention and the FAA. The court found that the arbitration agreement procedure reached a “mechanical breakdown” or “lapse,” and that it would order the appointment of five arbitrators. While the appellate court agreed with the district court’s determination that it was entitled to intervene under the FAA, it reversed the process that the district court instituted, holding that the FAA limited the court to enforce the underlying arbitration agreement, which in this case provided for only three arbitrators. On remand, the appellate court recommended a procedure for the district court to “consider” to achieve the equitable appointment of three arbitrators in a three-party dispute context. BP Exploration Libya Ltd. v. Exxonmobil Libya Ltd., No. 11-20547 (5th Cir. July 30, 2012).

This post written by Michael Wolgin.

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NAIC PUBLISHES EXPOSURE DRAFT OF CAPTIVES WHITE PAPER

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We previously reported on the NAIC’s inquiry into the potentially abusive use of captives to avoid certain accounting rules. As part of that inquiry, the NAIC’s Financial Condition (E) Committee’s Captives and Special Purpose Vehicle Use Subgroup has called for comments on its white paper titled Captives and Special Purpose Vehicles. Comments are due by the close of business on November 16, 2012. The white paper describes some disagreement among different states on issues relating to captives. The end of the comment period is shortly before the NAIC’s scheduled fall meeting.

This post written by Rollie Goss.

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