Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

NINTH CIRCUIT FINDS REVISED CLASS ACTION BAN IN ARBITRATION AGREEMENT UNCONSCIONABLE

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The Ninth Circuit Court of Appeals held that a “new twist” on the previously addressed issue of when an arbitration provision barring aggregation of individual claims is unconscionable did not command a new result. Plaintiffs brought a class action suit in California federal court against AT&T Mobility, LLC, alleging that they were unfairly charged sales tax on the retail price of a new phone that had been offered as “free” with the sign-up of new service. AT&T demanded that the claims be submitted to individual arbitration, as per the arbitration provision of the provider agreement. The plaintiffs pointed to a previous Ninth Circuit decision, Shoyer v. Cingular Wireless Services, Inc., (9th Cir. 2007), which held that a similar arbitration provision was unconscionable in part because it tended to prevent plaintiffs from suing on individual claims due to the disproportionate legal expense of doing so vis-à-vis the small amount of damages at issue. The class action procedure, the Court held in Shoyer, is designed to avoid this problem. However, AT&T’s arbitration clause contained a provision requiring the company to pay $7,500 to any claimant who won an arbitration award in excess of AT&T’s last offer, in order to provide financial incentive for claimants to bring individual claims and to address the inequity identified by the Court in Shoyer. Nevertheless, the Ninth Circuit was not convinced that this new language cured the defect of tending to prevent individual claims from being vindicated, due to the small amount of damages. The Court additionally held that the FAA does not trump California contract law on unconscionability. Laster v. AT&T Mobility, LLC, No. 08-56394 (9th Cir. Oct. 27, 2009).

This post written by John Pitblado.

DISTRICT COURT DENIES SUMMARY JUDGMENT IN OLSON, FINDS REINSURER HAD RIGHT TO SEEK REVIEW

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In the latest development in the Olsen v. United States case, the US District Court for the Eastern District of Washington issued an Order denying Plaintiffs’ Motion for Partial Summary Judgment. Following a complicated procedural history involving a number of arbitration decisions which were ultimately vacated, Plaintiffs initiated the instant action challenging under the APA the National Appeals Division’s resolution of Plaintiffs’ claims for payment of their crop insurance. Plaintiffs asserted two primary arguments: (1) Reinsurer FCIC had no legal right to revise claim determinations made under a private contract of insurance that FCIC was not a party to; and (2) NAD lacked jurisdiction over the issue of whether Plaintiffs had been overpaid by AGIC. The District Court denied Plaintiffs’ Motion, finding that the insurance contract granted FCIC authority to revise the claim and that administrative review of Plaintiffs’ claims by the NAD was appropriate. Olson v. United States, Case No. 08-5012 (USDC E.D. Wash. Sept. 30, 2009).

This post written by John Black.

NO INTERLOCUTORY APPEALS IN REINSURANCE FRAUDULENT CONVEYANCE CASE

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In an ongoing fraudulent conveyance dispute, the district court denied cross-motions for certificates of interlocutory appeals of summary judgment orders against the plaintiff rehabilitator of an insurance company and one of the two defendants. We previously reported on the court’s denial of cross-motions for reconsideration of the summary judgment orders in a July 22, 2009 post. The rehabilitator sought to appeal the order finding there was no evidence that payments made to the reinsurer were “disproportionately small” or not the result of arms-length negotiations. The court denied this motion principally on the grounds that it would embroil the appellate court in a fact-intensive analysis. The defendant’s cross-motion also was denied. It sought an appeal of whether it was a direct or initial transferee under fraudulent conveyance law. Noting that courts usually do not allow interlocutory appeals of denials of summary judgment, the court found there were disputed issues of fact that would be better determined by a jury before proceeding to an appeal. Mills v. Everest Reinsurance Co., Case No. 05-8928 (USDC S.D.N.Y. October 28, 2009).

This post written by Brian Perryman.

CONTINENTAL CASUALTY AND SCOR AGREE TO DISMISS REINSURANCE CASE WITH PREJUDICE

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On October 14, the US District Court for the Northern District of Illinois entered an Agreed Order of Dismissal of a reinsurance dispute as to whether the commutation and release agreement between Continental Casualty and SCOR also covered reinsurance contracts purchased from non party insurers Unity Fire and General Ins. Co. and Allstate Ins. Co. Following an April 2009 Order denying SCOR’s motion for a stay pending arbitration, this matter came before the Court by agreement of the parties and the action was dismissed with prejudice. Continental Cas. Co. v. Commercial Risk Re-Insurance Co., Case No. 07-6912 (N.D. Ill. Oct. 14, 2009).

This post written by John Black.

FEDERAL LEGISLATIVE UPDATE

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The following are selected bills in the reinsurance area that were either recently introduced or adopted in the U.S. House of Representatives.

Global Reinsurance Report. Representative Barney Frank (D-Mass.) introduced H.R. 4173 on December 2, 2009. A key purpose of the bill is to enhance Federal understanding of insurance issues. The bill, as it relates to reinsurance, mandates that the Director of the Federal Insurance Office (to be established under another section of the bill) submit a report on the global reinsurance market and the critical role such market plays in supporting insurance in the United States to the House Committee on Financial Services and the Senate Committee on Banking, Housing and Urban Affairs by September 30, 2011. On the same day, the bill was referred to the Committee on Financial Services, and in addition to other Committees to the extent such provision fell within the jurisdiction of the Committee concerned.

Temporary Health Reinsurance Program. On November 7, 2009, the U.S. House of Representatives passed H.R. 3962, the Affordable Health Care for America Act by a vote of 220-215. On the same day, during House Floor consideration of H.R. 3962, Representative John A. Boehner (R-Ohio) had proposed an amendment (bill text and bill summary) in the nature of a substitute to H.R. 3962, which sought, among other things, to create Universal Access Programs that expand and reform high-risk pools and reinsurance programs to guarantee that all Americans, regardless of pre-existing conditions or past illnesses, have access to affordable care while lowering costs for all Americans. This amendment failed by a vote of 176-258.

The Act, as it relates to reinsurance, requires the Secretary of Health and Human Services (“HHS”) to establish a temporary reinsurance program to assist participating employment-based plans with the cost of providing health benefits to retirees and to eligible spouses, surviving spouses and dependents of such retirees. This provision would take effect 90-days after enactment of the Act. Among other things, the Act requires the Secretary of HHS to establish a temporary national high risk pool program to provide health benefits to certain uninsured individuals who have a medical condition. This program would begin on January 1, 2010 and would end when the Health Insurance Exchange is established pursuant to the Act.

H.R. 3962 was received by the Senate on November 9, 2009. It was placed on the Senate Legislative Calendar under general orders on November 16, 2009.

This post written by Karen Benson.