Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Supreme Court Torpedoes Class Arbitration Where Parties Reached No Agreement on the Issue

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A party may not be compelled under the Federal Arbitration Act to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so, according to a recent decision from the United States Supreme Court. The parties in the case stipulated that the arbitration provision was silent on the issue of whether an arbitration could be brought on a class-wide basis, and they had reached “no agreement” on that issue. On this basis, the Court concluded that the parties could not be compelled to submit their dispute to class arbitration. The decision is based on the long-standing principle that arbitration is a matter of consent, not coercion, that private agreements to arbitrate are enforced according to their terms, and that arbitrators must give effect to the contractual rights and expectations of the parties. The Court noted that class arbitration “changes the nature of arbitration to such a degree that it cannot be presumed the parties consented to it by simply agreeing to submit their disputes to an arbitrator.”

The decision also clarifies the Supreme Court’s decision in Green Tree Financial Corp. v. Bazzle (2003). The Court confirmed that “Bazzle did not yield a majority decision,” and that the parties wrongly believed “the judgment in Bazzle requires an arbitrator, not a court, to decide whether a contract permits class arbitration.” In fact, Bazzle did not establish the rule to be applied in deciding whether class arbitration is permitted. Stolt-Nielsen S.A. v. AnimalFeeds International Corp., No. 08-1198 (U.S. Apr. 27, 2010).

This post written by Brian Perryman.

Continued Employment Suffices as Adequate Consideration for an Arbitration Agreement

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The plaintiff’s employer adopted a dispute resolution program containing language stating that by continuing or accepting employment each employee agreed to submit all covered claims to the dispute resolution program and to accept the resulting arbitration award. The employer later amended the dispute resolution program, clarifying, among other things, that the employer was equally bound to submit all claims to arbitration. When a dispute arose between the parties, the plaintiff filed suit in federal district court, arguing that the amended dispute resolution program was not supported by any consideration and, consequently, was not a valid contract. The court disagreed and found that by continuing his employment the plaintiff’s conduct manifested intent to be bound by, and constituted acceptance of and consideration for, the amended dispute resolution program. The court alternatively found that mutual promises to submit claims to binding arbitration constituted adequate consideration. Rangel v. Hallmark Cards, Inc., Case No. 10-04003 (USDC D. Kan. Mar. 4, 2010).

This post written by Dan Crisp.

No McCarran-Ferguson Reverse Pre-Emption Under State Insurance Insolvency Statutes

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Acting as Rehabilitator of Centaur Insurance Company, the Director of the Illinois Department of Insurance, Michael McRaith, brought suit against two reinsurers, seeking a declaration that they are obligated to reimburse Centaur for portions of a $32 million settlement it agreed to in resolving underlying asbestos litigation. The reinsurers had removed the case to federal court, but McRaith sought a remand based on the doctrines of McCarran-Ferguson reverse preemption and Burford abstention. The court denied the motion to remand under both theories, finding that none of the McCarran-Ferguson reverse preemption criteria had been met, as the state law issues pertaining to the rehabilitation proceedings did not specifically relate to the business of insurance, and there was not a clear conflict with federal law vis-à-vis state insurance solvency rehabilitation procedure. Burford abstention was also inappropriate because the dispute pertained less to the “complex [state] regulations pertaining to insolvent insurers” than to a simple breach of contract dispute between the parties under certain reinsurance certificates. McRaith v. American Re-Insurance Co., No. 09-C-4027 (USDC N.D. Ill. Feb. 17, 2010).

This post written by John Pitblado.

Court Rules That Professional Service as a Party-Appointed Arbitrator Does Not Constitute Evident Partiality

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After the federal district court granted a motion for reconsideration by Arrowood Indemnity Co. (“Arrowood”) and remanded three questions to the arbitration panel, Trustmark Insurance Co. (“Trustmark”) moved to stay the remand and for discovery into the Umpire’s relationship with Arrowood and its counsel. Trustmark argued that, since the outset of the present arbitration in 2003, Arrowood had selected the Umpire as its party-appointed arbitrator in at least six unrelated arbitrations and the Umpire is therefore biased. The court noted that the Umpire’s relationship with Arrowood and its counsel was disclosed and grew out of the Umpire’s professional service as an arbitrator, and ruled that, under the Federal Arbitration Act, this sort of relationship does not constitute evident partiality. In addition to denying the motion to stay the remand and for discovery, the court also denied Trustmark’s motion to vacate an order admitting Arrowood’s counsel pro hac vice and an emergency motion to stay the remand. Arrowood Indem. Co. v. Trustmark Ins. Co., Case No. 03-1000 (USDC D. Conn. Feb. 2, 2010).

This post written by Dan Crisp.

New York Appellate Court: Claims Against Reinsurance Brokers Survive Dismissal

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New York’s Appellate Court affirmed a ruling denying the defendant reinsurance brokers’ motion to dismiss claims alleged by the plaintiff, the putative cedent. American Home procured, through the defendants, certain reinsurance contracts. After dispute arose between American Home and its reinsurers in connection with approximately $23 million in claims, the insurer and reinsurers arbitrated, and the reinsurers successfully rescinded the contracts, based on misrepresentations by the brokers in the procurement thereof (the arbitrators held that the insurer and its agents were held to the uberrima fides, or utmost good faith standard, so it did not matter if the misrepresentations were negligent or intentional). American Home then filed suit against the brokers alleging breach of fiduciary duty, negligence, common law indemnification, contribution and unjust enrichment. The brokers moved to dismiss claims based in part on the plaintiff’s involvement in the misrepresentations, but the court denied the motion, and the appellate court affirmed. American Home Assurance Co. v. Naush, Hogan & Murray, Inc., No. 602858/08 (N.Y. Sup. Ct. App. Div. March 23, 2010).

This post written by John Pitblado.