Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

DISCOVERY RESTRICTION IN ARBITRATION CLAUSE HELD NOT UNCONSCIONABLE

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An arbitration provision in an employment contract provided that each party to the arbitration could take one fact deposition, depose experts, request documents, and take additional depositions if authorized by the arbitrator for good cause. A California trial court held the limit on depositions to be unconscionable, refused to sever the discovery limit provision and denied a motion to compel arbitration. The California Court of Appeals reversed, finding that such limits on discovery were permissible in arbitration, in that it provided the arbitrator with discretion to permit further depositions without setting an extraordinarily high standard for obtaining further depositions. The Court also held that a contractual provision that the arbitrator, rather than a court, should interpret and implement the arbitration provision was permissible, especially in light of court decisions at both the state and federal levels holding that arbitrators have the authority to resolve disputes over the meaning of specific terms of an arbitration agreement. Dotson v. Amgen, Inc., Civil No. B212965 (Cal Ct. App. Feb. 3, 2010).

This post written by Rollie Goss.

STATE LEGISLATIVE UPDATE

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Following are selected bills relevant to reinsurance in the Kansas and Mississippi Legislatures:

  • HB 2500, as introduced, would amend a provision in the Kansas Municipal Group-Funded Pool Act to allow municipal insurance pool applicants to submit a confirmation that reinsurance approved by the Insurance Commission is in effect or will be effective at the time the pool assumes risk. Confirmation of reinsurance approval would be in addition to the current statutory requirement that a municipal bond holds excess insurance provided by an insurance company holding a Kansas certificate of authority. The Senate Committee on Financial Institutions and Insurance amended the bill to add reinsurance to a notification requirement in the current law. The House nonconcurred with the amendment by the Senate and requested a Conference Committee on March 11, 2010. The Senate acceded to the request to conference on the same day.

  • Mississippi HB 173, signed by the Governor on March 9, 2010, amends Section 83-34-39 of the Mississippi Code to extend the date of the repealer on the requirement that a portion of the State insurance premium tax revenue be deposited into the Mississippi Windstorm Underwriting Association Reinsurance Assistance Fund for the purpose of reducing the premium rates charged for insuring property through the association. This section shall take effect on July 1, 2010 and shall stand repealed on July 1, 2013.
    This post written by Karen Benson.

STATUTORY REQUIREMENT OF NOTICE TO INSURED OF NONRENEWAL IS NOT EXCUSED IF THE INSURED OBTAINS REPLACEMENT COVERAGE

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In an unpublished disposition, a California appellate court reversed a summary judgment order as to a reinsured’s claims for breach of contract and insurance bad faith where the policy period was extended by statute (California Insurance Code section 678.1) because the underlying insured was not provided with the requisite notice of nonrenewal, but affirmed the summary judgment order as to the reinsured’s negligence claim. The defendants reinsured plaintiff Norcal Mutual Insurance Company for any liability Norcal might incur under a managed health care professional liability policy for the initial policy period of August 1999 through August 2000. Although the claim by Norcal’s insured that created Norcal’s liability fell outside the period of the 1999/2000 policy, Norcal contended the policy period was extended until June 2001 because its insured was not provided with notice of nonrenewal of the 1999/2000 policy, as required by section 678.1.

On appeal, the court held that notice of nonrenewal was not excused by a statutory provision that notice is not required where the insured “has obtained replacement coverage or has agreed, in writing, within 60 days of the termination of the policy, to obtain that coverage.” Norcal’s insured agreed in writing to obtain replacement coverage, but section 678.1 “taken as a whole” compelled the conclusion that a “replacement” policy “is not synonymous with renewal of existing coverage.” The court found that “replacement” coverage referred to in one subsection of the statute means insurance obtained from a different insurer, while renewal of coverage referred to elsewhere in the same statute means coverage obtained from the same insurer for a subsequent policy period. The court, however, rejected Norcal’s negligence claim because section 678.1 “clearly” places the duty to provide notice of nonrenewal on the insurer, not a reinsurer. Norcal Mutual Insurance Co. v. Certain Underwriters at Lloyd’s of London, No. B213122 (Cal. Ct. App. Feb. 22, 2010).

This post written by Brian Perryman.

WAIVER OF ALLEGEDLY UNCONSCIONABLE TERMS RENDERS ARBITRATION AGREEMENT, AS MODIFIED, ENFORCEABLE

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The United States Court of Appeals for the Second Circuit has affirmed a district court’s grant of defendants’ motion to dismiss a complaint for employment discrimination and motion to compel arbitration. The district court rejected the plaintiff’s assertion that an arbitration agreement between herself and co-defendant Atlantic Video was procedurally and substantially unconscionable. The district court further held the plaintiff could be compelled to arbitrate with co-defendant ESPN, although it was not a signatory to the arbitration agreement.

The Second Circuit affirmed. The arbitration agreement was not procedurally unconscionable under New York law simply because it was offered on a “take it or leave it” basis and, in any event, the plaintiff admitted she did not even read the agreement before signing it. The agreement also was not substantively unconscionable because, as plaintiff urged, “in its totality” it contained “numerous unconscionable and oppressive terms.” The defendants agreed to waive several of the challenged terms relating to the statutes of limitations and fee-shifting provisions, and further represented that a provision forbidding any appeal of the arbitrator’s decision would not prevent the plaintiff from later moving to vacate an arbitration award. New York law allowed for the enforcement of the arbitration agreement as modified by the defendants’ waivers, although the court cautioned that had “the defendants attempted to enforce the arbitration agreement as originally written it is not clear that we would hold in their favor.” Finally, the court found plaintiff was equitably estopped from avoiding arbitration with ESPN, which was not mentioned in the agreement but which the plaintiff understood to be her co-employer. Ragone v. Atlantic Video, No. 08-4666 (2d Cir. Feb. 17, 2010).

This post written by Brian Perryman.

COURT COMPELS ARBITRATION OF FEE DISPUTE ARISING FROM EARLIER ARBITRATION

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A federal judge in Indiana referred the parties to arbitration of the latest piece of a long running employment dispute between Masco Corporation and Peter Prostyakov, its former Director of operations in Moscow, Russia. After an arbitration award on the principal claims, which was confirmed in federal court, and affirmed by the Seventh Circuit, a further dispute erupted pertaining to payment of fees and costs in connection with the arbitration and subsequent litigation. Masco filed a petition in court, seeking a ruling that the fee dispute had been subsumed in and decided in the prior arbitration, and that Prostyakov was unfairly seeking a “second bite” at the apple. The court disagreed, finding it improper to decide this and other issues raised by the parties, citing their original agreement to arbitrate, and the pending second arbitration initiated by Prostyakov relating to the fee dispute. Masco Corp. v. Prostyakov, No. 1:09-cv-0500 (USDC S.D. Ind. Feb. 5, 2010).

This post written by John Pitblado.