Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

TWO RECENT DECISIONS HIGHLIGHT POTENTIAL IMPACT OF STATE LAW ON ENFORCEABILITY OF CLASS-WAIVER ARBITRATION AGREEMENTS UNDER CONCEPCION

by

In Carey v. 24 Hour Fitness, USA, Inc., the Fifth Circuit affirmed the denial of a motion to compel arbitration and permitted a class action employee-overtime lawsuit to go forward despite the parties’ putative agreement to arbitrate such disputes on a non-class basis. While the court cited Concepcion for the “fundamental principle that arbitration is a matter of contract,” it did not enforce the underlying class arbitration waiver agreement, finding that under state law, the underlying arbitration agreement was “illusory” and unenforceable because the employer reserved the right to change the agreement at any time. A similar approach (albeit, with a different outcome) was taken in another class action suit, Gore v. Alltell Communications, LLC. There, the Seventh Circuit reversed an order denying a motion to compel individual arbitration based on its interpretation of an arbitration agreement under state law. The court found that the arbitration agreement, which was contained in only the second of two contracts between the parties, applied to the parties’ dispute because it unambiguously provided that “any dispute arising out of” the agreement would “be settled by arbitration” on a non-class basis. The court held that based on the plaintiff’s allegations, all of the plaintiff’s causes of action could be deemed to arise from the second agreement, thus falling within the scope of the arbitration clause. The court further held that even the question of whether the agreement was unconscionable should be decided in arbitration because plaintiff challenged the entire agreement, not just the arbitration clause. Carey v. 24 Hour Fitness, USA, Inc., Case No. 10-20845 (5th Cir. Jan. 25, 2012); Gore v. Alltel Communications, LLC, Case No. 11-2089 (7th Cir. January 19, 2012).

This post written by Michael Wolgin.

See our disclaimer.

FLORIDA APPELLATE COURT RULES EXTRINSIC EVIDENCE APPROPRIATE TO CONSTRUE AMBIGUOUS REINSURANCE CONTRACT PROVISION

by

On an appeal arising out of a dispute regarding personal accident reinsurance for an aircraft, Florida’s 4th District Court of Appeals reversed and remanded the trial court’s grant of summary judgment finding that the court should have considered extrinsic evidence in interpreting the policy. The DCA concluded that although ambiguous policies are often construed against the insurer as drafter of the contract, the unique and highly specialized nature of the insurance justified the examination of extrinsic evidence. Accordingly, the case was sent back to the trial court to allow the parties to submit extrinsic evidence on what, if any, coverage is provided to unemployed passengers. Kiln PLC v. Advantage Gen. Ins. Co., Ltd., No. 4D10-2995 (Fl. Ct. App. Feb. 22, 2012).

This post written by John Black.

See our disclaimer.

STATE NONADMITTED AND REINSURANCE REFORM 2012 LEGISLATIVE UPDATE

by

In connection with the Nonadmitted and Reinsurance Reform Act of 2010 of the Dodd-Frank Act (the “NRRA”), the legislatures of Wisconsin (SB 378), Colorado (HB 1215), Wyoming (HB 15), and Hawaii (SB 2168) have introduced bills to establish requirements that are consistent with the federal law for surplus lines insurers doing business in each of these states. Although California has not yet enacted similar legislation, the California Senate has introduced a bill (SB 716) declaring “the intent of the Legislature to reconcile California surplus lines and reinsurance law with the recent changes to federal law to minimize any possibly adverse effects of preemption” by the NRRA.

While Wisconsin’s and Colorado’s bills do not reference the surplus lines proposals approved by the National Conference of Insurance Legislators and National Association of Insurance Commissioners (SLIMPACT and NIMA, respectively), Hawaii’s bill is expressly modeled after SLIMPACT, stating the legislature’s intent to become the tenth state to enact SLIMPACT legislation. Upon passage of SLIMPACT by ten states, the compact would be effectuated for tax clearinghouse and rulemaking purposes. Additionally, Wyoming and Hawaii already participate in multi-state cooperatives under NIMA for the purpose of collecting surplus lines insurance premium taxes and fees and distributing those taxes and fees to the proper states.

On a related note, the Oklahoma House (HB 2458) and Senate (SB 1617) have introduced bills amending Oklahoma’s surplus lines legislation enacted last year to, among other things, specify that the insurance commissioner “is not compelled” to join NIMA or any other multistate premium-tax sharing agreement. We will report on whether these bills are passed into law in a later post.

This post written by Michael Wolgin.

See our disclaimer.

NINTH CIRCUIT CONCLUDES AT&T v. CONCEPCION PREEMPTS CALIFORNIA STATE LAW

by

Plaintiffs brought a putative class action alleging violations of California’s Unfair Competition Law in connection with student loans. Each of the loan contracts contained an arbitration clause, which the district court declined to enforce. The Ninth Circuit granted review to consider whether the US Supreme Court’s recent decision in AT&T Mobility, Inc. v. Concepcion that the FAA preempts California’s state law rule prohibiting the arbitration of claims for broad injunctive relief. The District Court had denied the motion to compel arbitration largely in discretion to California’s policy prohibiting the arbitration of claims for public injunctive relief, despite the parties’ agreement to arbitrate. It is notable that the District Court’s decision was made nearly two years before the Supreme Court issued its Concepcion decision. The Ninth Circuit held that Concepcion does indeed preempt the California state law rule and that the arbitration clause in the parties’ contracts must be enforced because it was not unconscionable. The Ninth Circuit thus overruled the District Court’s denial of KeyBank’s motion to compel arbitration, vacated the judgment entered, and remanded to the District Court with instructions to stay the case and compel arbitration. Kilgore v. KeyBank, N.A., No. 09-16703 (9th Cir. Mar. 7, 2012).

This post written by John Black.

See our disclaimer.

NAIC REINSURANCE TASK FORCE PROCEEDS WITH IMPLEMENTATION OF REVISED CREDIT FOR REINSURANCE MODELS

by

At the recent NAIC Spring Meeting, the E Committee’s Reinsurance Task Force exposed for comment drafts of two documents relating to the implementation of the recently revised credit for reinsurance Model Act and Model Regulation: (1) a memorandum discussing implementation issues; and (2) a discussion of changes to the accreditation criteria.

This post written by Rollie Goss.

See our disclaimer.