Reinsurance Focus

Affirming the Central District of California’s order compelling arbitration, the Ninth Circuit Court of Appeals held that the Washington anti-arbitration statute, RCW § 48.18.200(1)(b), which has been held to prohibit binding arbitration agreements in insurance contracts in Washington, was preempted by the federal Liability Risk Retention Act of 1986 (LRRA) as it applied to risk retention groups chartered in another state. The LRRA broadly preempts the authority of nonchartering states to regulate the operation of risk retention groups within their borders.

Plaintiff Allied Professionals Insurance Co. is a risk retention group, a liability insurance company owned by its insured members, chartered in Arizona and doing business in Washington. Allied previously insured Dr. Michael Anglesey, a chiropractor in Washington. In December 2012, Dr. Anglesey provided chiropractic treatment to Eliseo Gutierrez, which allegedly resulted in Gutierrez suffering a stroke. A few months later, Dr. Anglesey renewed his coverage with Allied but, in doing so, did not inform the company of the potential malpractice claim against him by Gutierrez and his wife. When Dr. Anglesey later notified Allied of this potential claim, the company advised him that it was denying coverage and rescinding his 2012 and 2013 insurance policies.

A year later, Dr. Anglesey informed Allied that he was planning to execute a consent judgment in favor of the Gutierrezes and to assign his rights against Allied to them. They had agreed to seek satisfaction on the judgment from Allied and not from Dr. Anglesey. Allied responded by demanding that all claims against Allied be sent to arbitration, pursuant to the arbitration clause in the underlying policies. Dr. Anglesey refused, and Allied filed suit against both Dr. Anglesey and the Gutierrezes, moving to compel arbitration.

The district court initially held that Allied did not have standing to bring the underlying action to compel the defendants to arbitrate. Allied appealed that decision to the Ninth Circuit. The Ninth Circuit ruled that Allied had standing to bring the action against Dr. Anglesey to seek rescission of the policy and declaratory relief and had standing against all defendants to compel arbitration of those claims. On remand, the district court granted Allied’s motion to compel arbitration, granted the motion to stay proceedings pending arbitration, denied the defendants’ motion to transfer venue to the Eastern District of Washington, and certified a controlling interlocutory question of law to the Ninth Circuit. The Ninth Circuit granted permission to appeal.

The question certified by the district court was “whether the Liability Risk Retention Act preempts Wash. Rev. Code. § 48.18.200(1)(b) as applied to risk retention groups.” The Ninth Circuit held that the LRRA does preempt Washington’s anti-arbitration statute, RCW § 48.18.200(1)(b), as it applies to risk retention groups chartered in other states. In reaching that conclusion, the court found that the federal McCarran-Ferguson Act, which generally protects state regulation of insurance, did not reverse preempt the LRRA. The court also found that Washington’s anti-arbitration statute offended the LRRA’s preemption language and that no exception applied to save the law. The court therefore concluded that the Washington statute was preempted by the LRRA as it applied to a risk retention group charted in Arizona but doing business in Washington.

Allied Professionals Insurance Co. v. Anglesey, No. 18-56513 (9th Cir. Mar. 12, 2020).

Plaintiffs, former shareholders of a holding company for two New Jersey-based insurance companies, sued various affiliates of Aon Risk Services Companies alleging that Aon was negligent in failing to secure insurance coverage after the plaintiffs became obligated to indemnify the insurance companies for losses arising from a reinsurance program gone wrong. Aon moved to dismiss for lack of personal jurisdiction. In opposition, the plaintiffs argued that there was general jurisdiction over one of the Aon entities based on a “consent” theory. The court disagreed, finding that the U.S. Supreme Court’s decision in Daimler “precludes the exercise of personal jurisdiction over a corporation simply because the corporation is registered to do business in New Jersey.”

The plaintiffs also argued that there was specific jurisdiction over each of the defendants, including because Aon allegedly “agreed to notice claims under an insurance policy that primarily insured against a New Jersey risk.” Again, the court disagreed, finding that none of the Aon entities had sufficient contacts with New Jersey to confer jurisdiction. The court emphasized that any contact Aon had with New Jersey was “fortuitous” and did not stem from a “deliberate targeting” of the state but rather from the “unilateral activity” of a third party. The court therefore granted Aon’s motion to dismiss without prejudice.

Ferguson v. Aon Risk Services Companies, Inc., No. 3:19-cv-09303 (D.N.J. Feb. 26, 2020).

Big Port Service DMCC and China Shipping Container Lines Co. Ltd. (CSCL) litigated in Singapore a dispute regarding a supply of marine fuel oil for a CSCL vessel. CSCL subsequently filed suit in the Southern District of New York seeking a permanent injunction against arbitration. The Singapore litigation decided issues related to damages alleged by Big Port Service as well as whether the parties had entered into an arbitration agreement. The Singaporean court determined that CSCL could not be forced to arbitrate because there was no binding arbitration agreement between the parties. The Southern District of New York accorded that decision preclusive effect and entered a permanent injunction against arbitration.

On appeal, Big Port Service first argued that the district court lacked subject-matter jurisdiction, but the court rejected that argument. The court next held that it was proper to recognize the Singaporean judgment under principles of international comity. The Singapore judgment “was a full decision addressing the existence of the arbitration agreement,” which was the relevant issue before the Southern District of New York, and the liberal federal policy favoring arbitration did not require Big Port Service to get a “second hearing” regarding whether an agreement to arbitrate existed.

The court also held that it was proper to give preclusive effect to the Singaporean court’s determination regarding the existence of an arbitration agreement. To accord a foreign court’s determination preclusive effect, the American court must find that there is an “identity of issues” addressed by both courts, meaning that “the legal standards … must … be identical.” The foreign court need not consider or apply American law, in particular, to be accorded preclusive effect. Here, the legal standards applied to the dispute were “substantively the same” and the agency principles applied were “in accord with New York agency law.” As such, the court found there was a sufficient “identity of issues.” The court determined that Big Port Service had an opportunity to “fully and fairly litigate” the question of arbitrability in the Singapore action and that this issue was “necessary to the judgment,” which also supported the grant of preclusive effect.

Lastly, the court found that it was proper to enter a permanent injunction against arbitration, as “[f]ederal courts generally have remedial power to stay arbitration,” including in situations in which the court determines “that the parties have not entered into a valid and binding arbitration agreement.” As such, the district court had the authority to issue the permanent injunction and it was proper to do so.

China Shipping Container Lines Co. Ltd. v. Big Port Service DMCC, No. 19-1111 (2d Cir. Mar. 5, 2020).

In a dispute centering on the preclusive effect of an arbitration award, the defendant sought to enjoin the plaintiff’s arbitration demand as it was an attempt to collaterally attack the confirmed award. The plaintiff argued that it was not seeking to challenge the validity of the award but that the award did not address the manner of new reinsurance billings. The plaintiff further argued that the defendant was improperly asking the court to determine the preclusive effect of the arbitration award on their arbitration demand. The court denied the defendant’s request to enjoin the arbitration.

The issue before the court was not whether the plaintiff was seeking to attack the prior arbitration proceeding, but whether the award precluded arbitration regarding the new reinsurance billings. The court distinguished the cases cited by the defendant regarding impermissible collateral attacks on arbitration awards because the subsequent action challenged the arbitration proceeding. Ultimately, the preclusive effect of an arbitration award remains an arbitral issue, not for the court to resolve.

Century Indemnity Co. v. Certain Underwriters at Lloyd’s, London, No. 1:19-cv-11056 (D. Mass. Mar. 6, 2020).