Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Court Denies Motion to Reconsider Order Compelling Arbitration

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Plaintiffs Kevin Struss, Struss Farms LLC, and Struss & Cook Farms brought certain tort and breach of contract claims against Rural Community Insurance Co. (RCIC) and Scott Laaveg, RCIC’s claims representative. The claims arose from insurance contracts between the parties under which RCIC insured the plaintiffs’ crops.

After motions were made to compel arbitration, the court ordered briefing on the issue of the scope of the arbitration clause. The court compelled arbitration of all claims against RCIC and stayed all claims against Laaveg. The defendants moved to reconsider, arguing that only the contract claims should be arbitrated, not the tort claims.

The court explained that a motion to reconsider is based on: (1) an intervening change in controlling law; (2) the availability of new evidence; or (3) the need to correct clear error or prevent manifest injustice. It is generally not appropriate for a court to reconsider issues that it has already addressed. The court noted that the defendants never advanced any argument in their prior filings or supplemental briefing concerning the scope of the arbitration clause as between contract and tort claims, or otherwise. Therefore, the court declined to reconsider its prior ruling and referred all claims against RCIC to arbitration. Similarly, the court held that it was not appropriate to revisit its decision to stay the claims against Laaveg.

Struss v. Rural Community Ins. Servs., No. 2:18-cv-02187 (D. Kan. Oct. 11, 2019).

SDNY Compels Arbitration Based on Severability Doctrine, Finds Fee-Shifting Clause Not Unconscionable

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The Southern District of New York granted a motion to compel arbitration of an employment dispute between the petitioners and the respondent. The petitioners also filed a motion to dismiss or stay a concurrent proceeding that the respondent had filed in federal court in Colorado. The respondent did not dispute that the claims he asserted in the Colorado action fell within the scope of an arbitration clause in his employment agreement with the petitioners. Rather, he argued that the arbitration clause was invalid because: (1) the employment agreement limited the petitioners’ liability in certain respects; and (2) a fee-shifting clause in the arbitration provision was unconscionable. The court rejected both arguments. First, the court held that “validity” challenges under Section 2 of the Federal Arbitration Act are limited to the validity of the arbitration clause itself, which is severable from the remainder of the contract. The respondent’s “limitation of liability” argument was not premised on the validity of the arbitration provision, but on two sections of the agreement that had no bearing on the arbitration clause, including its validity. Second, the court held that the fee-shifting provision was not unconscionable, and noted that the respondent failed to identify a single federal or New York court that had invalidated an arbitration agreement based on a fee-shifting clause. As such, the court granted the petitioners’ motion to compel arbitration, but denied the petitioners’ motion to stay the Colorado action, finding it lacked jurisdiction to do so.

Crispin Porter & Bogusky LLC v. Watson, No. 1:18-mc-00384 (S.D.N.Y. Oct. 10, 2019).

Fifth Circuit Affirms Confirmation of Arbitration Ruling in Favor of Ameriprise Financial

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The Fifth Circuit affirmed the confirmation of an arbitration ruling in favor of Ameriprise Financial Services Inc. In 2015, Ameriprise sought a temporary restraining order against Jeremy Walker, a former employee of an Ameriprise franchisee, to prevent him from using confidential customer information. The matter was referred to a FINRA arbitration panel, which resulted in an award against Walker and in favor of Ameriprise for injunctive relief, compensatory damages, and attorneys’ fees.

In 2017, Walker filed a FINRA arbitration against Ameriprise, primarily alleging that he was improperly enjoined by the 2015 arbitration. Ameriprise moved to dismiss under FINRA Code of Arbitration Procedure for Industry Disputes Rule 13504(a)(6)(C), which provides that dismissal may be granted when the “non-moving party previously brought a claim regarding the same dispute against the same party that was fully and finally adjudicated on the merits and memorialized in an order, judgment, award, or decision.” The 2017 arbitration panel found the 2015 arbitration and award met the requirements of Rule 13504(a)(6)(C) and unanimously dismissed the arbitration. Walker filed a motion to vacate arguing that the 2017 panel was “guilty of misconduct” under 9 U.S.C. § 10(a)(3) and “exceeded its powers” under 9 U.S.C. § 10(a)(4). The district court disagreed, denied Walker’s motion to vacate, and granted Ameriprise’s motion to confirm.

On appeal, the Fifth Circuit affirmed. Walker grounded his argument for vacatur under § 10(a)(3) upon the panel’s supposed failure to allow him to present evidence and testimony. However, the Fifth Circuit found that Walker was not prevented from presenting either. With regard to Walker’s argument that the panel exceeded its powers under § 10(a)(4), Walker argued that the panel erred in determining that the elements of Rule 13504(a)(6) had been met. However, this argument was insufficient under the § 10(a)(4) standard for vacatur, which requires a finding that the arbitration panel “acts contrary to express contractual provisions.” Even if Walker were correct that the panel had made a legal error, such errors “lie far outside the category of conduct embraced by § 10(a)(4).”

Walker v. Ameriprise Fin. Servs., Inc., No. 18-11641 (5th Cir. Oct. 9, 2019).

Court Orders Stay of New Arbitration Over Disputed Reinsurance Billings and Compels Parties to Proceed Before a Predecessor Arbitration Panel

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The case involved a “second layer special casualty excess agreement of reinsurance” under which reinsurers General Reinsurance Corp. and SCOR Reinsurance Co. agreed to cover a certain amount in excess of Chicago Insurance Co.’s $1 million per occurrence retention. An arbitration ensued after the reinsurers disputed reinsurance billings from Chicago Insurance arising out of certain asbestos insurance liability. The arbitration panel rejected Chicago Insurance’s attempt to bill its losses on the basis that each site where the insured had operated constituted an “occurrence” under the reinsurance agreement, and issued an award for the reinsurers. The award expressly retained the panel’s jurisdiction to “resolve any dispute arising out of [the] Final Award.”

Subsequent to the award, Chicago Insurance submitted a new billing to the reinsurers, which stated that the “loss allocation was prepared in accordance with the Award’s protocols.” The reinsurers disputed the new billing and alerted the prior arbitration panel. The umpire confirmed that it had retained jurisdiction but noted that Chicago Insurance’s appointed arbitrator disagreed and would not participate in the new dispute. Chicago Insurance then initiated a new separate arbitration, in which the reinsurers refused to participate, and filed a petition to compel the reinsurers’ participation and to stay the original arbitration. The reinsurers responded by filing a cross-petition to stay the new arbitration and for a declaration that the prior panel had jurisdiction to resolve the dispute.

The court denied Chicago Insurance’s petition and granted the reinsurers’ cross-petition to stay the new arbitration. The court rejected Chicago Insurance’s argument that the prior panel was functus officio by fully exercising their authority to adjudicate the issue submitted to them. The court found that the prior panel retained jurisdiction to resolve any dispute arising out of the prior award and that Chicago Insurance had consented to that by failing to dispute the award. The court also found that Chicago Insurance “repeatedly claimed that the new bill that it sent to the Reinsurers was offered pursuant to the ‘protocols’ set forth by” the prior award, and therefore, consistent with what the majority of the original panel determined, the current dispute “clearly” fell within the original arbitration jurisdiction. The court, therefore, ruled that the prior panel retained jurisdiction to adjudicate whether the new bill comported with its prior award.

Chicago Ins. Co. v. Gen. Reinsurance Corp., No. 1:18-cv-10450 (S.D.N.Y. Oct. 22, 2019).

Oklahoma Supreme Court Reverses Course: Finds Arbitration Clause Printed on Shingles’ Wrapping Did Not Bind Homeowner to Arbitrate

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 A third-party contractor installed the defendant’s shingles on the plaintiffs’ roof. Subsequently, the plaintiffs filed suit for damages allegedly caused by the defendant’s faulty shingles and replacement of their roof. The defendant successfully moved to stay the proceeding and compel arbitration pursuant to an arbitration agreement found on the wrapping of each bundle of shingles.

The Oklahoma Supreme Court reversed the decision on appeal, finding that the plaintiffs were not bound to the arbitration agreement; the plaintiffs could not have had actual knowledge of the arbitration agreement and therefore could not consent to arbitration. Further, the contractors lacked the authority to enter into an arbitration agreement on the plaintiffs’ behalf without ratification, and there were no facts suggesting that the plaintiffs knew of the arbitration clause, so the plaintiffs “could not ratify the arbitration provision.”

The Supreme Court was not persuaded by the defendant’s argument that the plaintiffs sought to enforce their rights under the limited warranty provision, which contained the arbitration agreement, and could not now disclaim the arbitration agreement provision of that contract. The Supreme Court stated that the plaintiffs were “not seeking to enforce their rights under the limited warranty contract. Their claims arise in tort law not contract law.” Nor did the Supreme Court find that the plaintiffs could be estopped from challenging the arbitration agreement, lacking actual or constructive knowledge of the arbitration agreement until after they filed an initial warranty claim.

Williams v. TAMKO Bldg. Prods., Inc., No. 117190 (Okla. Oct. 1, 2019).