Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

CALIFORNIA APPELLATE COURT REFUSES TO ENFORCE “UNCONSCIONABLE” ARBITRATION CLAUSE WHICH WAS NEVER AGREED TO

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Perry Sparks sued his former employer for wrongful termination in California state court. The defendant employer moved to compel arbitration, relying on an arbitration clause in its 2006 employee handbook. The trial court held, and the appellate court affirmed, that the motion to compel should be denied for several reasons: (1) the arbitration clause was included within a lengthy employee handbook and there was no specific acknowledgement or agreement by plaintiff to be bound by the clause; (2) the handbook did not constitute a contract, and any “agreement” found therein was rendered illusory by the defendant’s unilateral authority to alter the terms; (3) the specific rules referred to in the arbitration clause were not provided to plaintiff; and (4) the arbitration clause was unconscionable. The court side-stepped the Supreme Court’s decision in AT&T Mobility LLC v. Concepcion by basing its holding alternatively on the non-existence of an agreement, which it held remains a gatekeeper inquiry properly addressed by the Court. Sparks v. Vista Del Mar Child and Family Services, B234988 (Cal. App. Ct. July 30, 2012).

This post written by John Pitblado.

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AWARD UPHELD AGAINST FOOTBALL PLAYER’S WORKERS’ COMPENSATION CLAIM FOR FAILURE TO SUPPORT APPLICATION OF STATE LAW

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A former professional football player, whose National Football League employment contract waived application of California workers’ compensation law, sought to vacate an arbitration award that denied the player’s pursuit of California workers’ compensation benefits for injuries that allegedly occurred over the course of the player’s football career. The court rejected the player’s arguments that the award constituted a violation of California and federal labor policy, and that the award reflected a manifest disregard of California law. The player’s injuries, the court explained, could not be sufficiently tied to events occurring in California. Without a “clear” indication that a California court would apply that state’s law, the award could not be deemed to violate California and federal labor policy, which in turn precluded the player’s contention that the award violated the Constitution’s Full Faith and Credit Clause. Matthews v. National Football League Management Council, Case No. 11-5186 (9th Cir. Aug. 6, 2012).

This post written by Michael Wolgin.

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COURT REFUSES TO COMPEL PRODUCTION OF RELEVANT BUT NON-RESPONSIVE REINSURANCE COMMUNICATIONS

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In a coverage dispute involving an insurance policy covering a limestone quarry, a court reviewed the insurer’s documents related to reinsurance coverage, and denied the insured’s motion to compel. While the court agreed with the insured that the insurer’s reinsurance coverage was “clearly relevant” to the dispute, the specific discovery requests sought only “information relating to communications and documents exchanged between [the insurer] and any reinsurer.” Because the documents that the insurer had withheld from production to the insured were “internal documents” between the insurer and its underwriter, and not materials “exchanged” with a reinsurer, the documents were “not responsive” and the court denied the motion to compel. Continental Material Corp. v. Affiliated FM Insurance Co., Case No. 10-cv-02900 (USDC D. Colo. July 30, 2012).

This post written by Michael Wolgin.

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SEEK REINSURANCE WITH CARE: THE REINSURED BEARS THE BURDEN OF PROVING COVERAGE

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Reiterating that Massachusetts law requires the insured to bear the burden of demonstrating that a claim falls within a policy’s affirmative grant of coverage, the First Circuit affirmed an award of summary judgment to a Canadian reinsurer in an action in diversity brought by an American insurer seeking indemnification of amounts incurred in defending its insured against asbestos-related claims. The court parsed through three years of insurance and reinsurance policies, endorsements thereto, as well as the flow of premium payments, to find corroborative of the parties’ intents both the plain language of the documents and extrinsic evidence, including premium payments and the existence of only an initial-year facultative certificate. The court held that the reinsurance arrangement that existed in the first policy year terminated at the end of that year. OneBeacon Am. Ins. Co. v. Commercial Union Assurance Co. of Canada, No. 11-2072 (1st Cir. July 11, 2012).

This post written by Brian Perryman.

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COURT CONFIRMS ARBITRATION AWARD DESPITE MANIFEST DISREGARD CLAIMS AND ARGUMENT THAT PANEL EXCEEDED ITS AUTHORITY

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This petition for vacatur followed the last of three arbitrations between American Centennial Insurance Company, a company with its principal place of business in Delaware, and Global International Reinsurance Company, a Barbados company, pursuant to a reinsurance agreement between the parties. While in runoff, ACIC changed its ownership structure through a series of reorganizations and acquisitions. In response, Global sought a reduction of its reinsurance obligations as provided for by their agreement. In the third arbitration, an award was issued in favor of Global. The losing party filed a petition to vacate the award, but the United States District Court for the Southern District of New York confirmed the arbitration panel’s order. Despite the losing party’s argument that the arbitrators had exceeded their authority and displayed manifest disregard for the law and the parties’ agreement (which had an honorable engagement clause and also required the panel to provide reasons for its order), the court held that the panel had acted within its “wide discretion.” Furthermore, the court found that, in discussing the terms of the agreement, the parties’ dispute, the findings of the earlier arbitration panels, and the rationale for awarding less than was sought, the panel went further than necessary in explaining its award since the agreement did not request detailed factual findings and conclusions of law. Thus, the petition to vacate the award was denied and the award was confirmed. American Centennial Insurance Co. v. Global International Reinsurance Co., Case No. 12 Civ. 1400 (USDC S.D.N.Y. July 9, 2012).

This post written by Brian Perryman.

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