Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

SECOND CIRCUIT STICKS TO ITS DECISION THAT A CLASS ACTION WAIVER EFFECTIVELY PRECLUDING VINDICATION OF FEDERAL STATUTORY RIGHTS IS UNENFORCEABLE

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The Second Circuit Court of Appeals held that a class action waiver clause is not enforceable where plaintiffs can demonstrate that the practical effect of enforcing the clause would be to preclude plaintiffs from vindicating their federal statutory rights. The court further held that the Supreme Court’s decisions in Stolt-Nielsen and Concepcion do not alter this determination. Plaintiffs alleged that provisions in Amex’s contracts requiring businesses to “honor all cards” issued by Amex and its affiliates constitute an illegal tying arrangement in violation of the Sherman Antitrust Act. Plaintiffs submitted an economist’s report that, in the court’s view, demonstrated that it was not financially feasible for plaintiffs to assert their claims individually. Accordingly, the court held that the class action waiver could not be enforced because it effectively prohibited plaintiffs from pursuing protections provided by federal antitrust law. The parties had not agreed to class arbitration. Thus, in accordance with Stolt-Nielsen, the court held that the case could “proceed in a judicial class action or not at all.” The court remanded the matter to the district court with instruction to deny Amex’s motion to compel arbitration. In re Am. Express Merchants’ Litig., No. 06-1871 (2nd Cir. Feb. 1, 2012).

This post written by Ben Seessel.

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U.S. SUPREME COURT SENDS STERN MESSAGE ON ENFORCING CONCEPCION

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In a curt per curiam opinion, the U.S. Supreme Court sent a clear message to the Supreme Court of Appeals of West Virginia, vacating that Court’s decision that found state public policy superseded the Federal Arbitration Act, where personal injury claims against a nursing home were at issue. Pointing at the outset to the Supremacy Clause of the U.S. Constitution, the U.S. Supreme Court emphasized its holding in AT&T Mobility LLC v. Concepcion, 563 U.S. —- (2011) (slip op. at 6-7), that “[w]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: The conflicting rule is displaced by the FAA.” It vacated and remanded. Marmet Health Care Center, Inc. v. Brown, Nos. 11-391 and 11-394, 565 U.S. —- (Feb. 21, 2012).

This post written by John Pitblado.

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TRAVELERS CASUALTY SETTLES CLAIMS AGAINST TWO REINSURERS

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Travelers Casualty agreed to settle its claims against two of a series of reinsurer defendants – Factory Mutual and Arkwright Insurance. Travelers had filed suit against Nationwide, National Casualty, Argonaut Insurance, Factory Mutual, and Arkwright Mutual alleging breaches of contracts and seeking a declaratory judgment related to a series of reinsurance contracts covering Travelers’ blanket excess of loss program. Travelers alleged that the reinsurers failed and refused to pay valid claims due under the reinsurance contracts and sought damages arising out of the alleged breaches. The claims against these reinsurers were dismissed with prejudice pursuant to the settlement. Travelers Casualty and Surety Co. v. Nationwide Mut. Ins. Co., No. 11-00063 (S.D. Ohio Jan. 11, 2012).

This post written by John Black.

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COURT COMPELS PRODUCTION OF REINSURANCE TREATIES, BUT NOT RELATED COMMUNICATIONS

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In a discovery dispute involving requests for documents related to an insurer’s reinsurance treaties, a court compelled the production of the treaties, but reserved ruling on the production of related communications, subject to additional briefing on relevance. The court held that reinsurance policies themselves are discoverable without showing relevance. Communications regarding reinsurance, however, require a showing that the documents are relevant to alleged insurer bad faith. The assumption “that reinsurance decisions do not involve questions of policy interpretation is especially applicable when the reinsurance is treaty insurance.” Isilon Systems, Inc. v. Twin City Fire Insurance Co., Case No. 2:10-cv-01392 (USDC W.D. Wash. Feb. 15, 2012).

This post written by Michael Wolgin.

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MISSISSIPPI SUPREME COURT ISSUES “TRUE-UP” DECISION IN KATRINA LITIGATION

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As a result of Hurricane Katrina, the Mississippi Windstorm Underwriting Association sustained losses well in excess of its reinsurance. The Association assessed its members to cover the loss based on their percentages of wind and hail insurance premiums written in the previous calendar year. Several companies then complained that the Association had incorrectly reported the previous year’s figures and were given a one-time opportunity to submit correct data (a true-up). Some members, most of whom did not submit corrected data, appealed the assessment following the true-up. The Mississippi Supreme Court reviewed the lower court’s grant of relief to the members. The Court affirmed the lower court’s decision on two issues: finding that grouping was permitted and that reinsurance was allocated properly. The Court, however, reversed and remanded on the following issues: whether MWUA had authority to set and enforce a true-up deadline, the mandatory nature of voluntary credits and farm-property exclusions, whether assessments are akin to privilege taxes, and the mobile-home reporting issue. Further, because the lower court lacked authority to order the Association to adopt new rules, the Court reversed and rendered that part of the judgment below. Mississippi Windstorm Underwriting Assoc. v. Union Nat’l Fire Ins. Co., No 10-00076 (Miss. Jan. 26, 2012).

This post written by John Black.

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