Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Southern District Concludes That Invocation of AAA’s Rules Subjects Arbitrability Questions to Arbitrator, Rejects Waiver Claim

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The Southern District of New York declined to decide arbitrability questions after the arbitration agreement at issue incorporated the rules of the American Arbitration Association, which include a rule that arbitrators determine their own jurisdiction. The court also rejected a claim that the defendant waived its right to seek arbitration. It therefore compelled arbitration.

Policy Administration Solutions Inc. (PAS) licensed underwriting software for use by insurers. The software was licensed to a subsidiary eventually acquired by QBE Holdings Inc. That subsidiary, Clarendon Insurance Group Inc., entered into a license agreement with PAS to use the software. The license agreement contained an arbitration clause. Clarendon and PAS subsequently entered into a confidentiality agreement. The confidentiality agreement did not contain an arbitration clause and provided that it superseded any prior agreements regarding confidential information received under the confidentiality agreement. PAS claimed that QBE’s subsidiaries made unauthorized changes to its software. PAS ultimately brought suit alleging, among other things, violations of the Copyright Act. PAS moved for a preliminary injunction and a temporary restraining order, and the defendants moved to dismiss PAS’ claims. The district court denied both parties’ motions (it denied the motion to dismiss without prejudice) and stayed proceedings pending the resolution of state court proceedings regarding an arbitration award related to other agreements between the parties. QBE sought to initiate arbitration after the stay was lifted.

PAS opposed arbitration. The court concluded, however, that the license agreement’s arbitration clause left the question of arbitrability to the arbitrator. The arbitration clause incorporated the rules of the American Arbitration Association, one of which provided that the arbitrator had “the power to rule on his or her own jurisdiction.” PAS argued, however, that the license agreement’s arbitration agreement was not operative because the confidentiality agreement superseded the license agreement. The court explained that this presented a question of arbitrability, which, as the court had already noted, was a question for the arbitrator. The court also rejected PAS’ contention that its claims did not relate at all to the license agreement and were instead solely related to the confidentiality agreement. PAS’ reading of the license agreement’s arbitration clause was too narrow and was yet another arbitrability question for the arbitrator to address in any event.

The court also rejected PAS’ argument that QBE had waived its right to seek arbitration by litigating the dispute in federal court. The parties had been in active litigation for 14 months, which the court found to be “well within the range of delays that have not resulted in waiver.” Merely filing a motion to dismiss did not waive the right to seek arbitration, and after the stay had been lifted QBE promptly announced its intention to seek to compel arbitration. Although PAS had asserted that it spent $70,000 litigating the federal action, it was not clear how much of that was due to PAS’ own decision to seek a preliminary injunction.

The court therefore granted QBE’s motion to compel arbitration.

Policy Admin. Sols., Inc. v. QBE Holdings, Inc., No. 7:15-cv-02473 (S.D.N.Y. Aug. 30, 2019).

Intervenor-Defendant Obtains Stay of SDNY Action in Favor of Arbitration 14 Months After Complaint Filed

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The plaintiff and intervenor-defendant entered into a contract wherein they agreed to arbitrate claims arising out of the contract. Following a dispute, the plaintiff asserted that the intervenor-defendant had waived its right to arbitration. To determine whether arbitration was waived, the district court considered: “(1) the time elapsed from when litigation was commenced until the request for arbitration; (2) the amount of limitation to date, including motion practice and discovery; and (3) proof of prejudice.” The court concluded that, in light of the strong presumption in favor of arbitration, and despite the 14-month delay in applying for a stay, the plaintiff “failed to show that it has suffered prejudice as a result of the delay, or will suffer prejudice by proceeding to arbitration.” The case was stayed pending the conclusion of arbitration pursuant to the terms of the parties’ contract.

United States ex rel. Preferred Masonry Restoration, Inc. v. Int’l Fidelity Ins. Co., No. 7:17-cv-01358 (S.D.N.Y. Aug. 30, 2019).

Court Concludes That Bankruptcy Discharge Does Not Affect Arbitration Clause

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The Eastern District of Pennsylvania recently granted a creditor’s request to compel arbitration over a plaintiff’s argument that the arbitration agreement he had signed was void as a result of a bankruptcy court discharging the loan that was governed by the agreement. The court held that the bankruptcy ruling discharged the plaintiff’s debt obligations, not his other obligations under the agreement such as his obligation to arbitrate claims related to the agreement.

Soldon Winton entered into a loan agreement with OneMain Financial Group LLC. That agreement contained an arbitration clause. Winton subsequently filed for bankruptcy, and the bankruptcy court discharged Winton’s debt to OneMain. Winton allegedly discovered that his credit report still included an outstanding debt to OneMain. He therefore brought suit against OneMain, Trans Union LLC, and other defendants for violations of the Fair Credit Reporting Act.

OneMain responded by moving to compel arbitration under the agreement. Winton opposed OneMain’s motion. Although there was no dispute that Winton’s claim was within the scope of the arbitration agreement, Winton claimed that the bankruptcy ruling discharged all of his obligations under the agreement. Winton also sought to avoid arbitration on several other grounds or, in the alternative, to require OneMain to cover all of the costs of the arbitration.

The district court rejected Winton’s arguments. It held that the bankruptcy court had discharged Winton’s debt obligations, not his other obligations, including his obligation to arbitrate disputes related to the loan agreement. The court also rejected Winton’s arguments that it would be unfair to require him to pursue his claims in two different forums (in arbitration against OneMain and in court against the other defendants). Finally, the court denied without prejudice Winton’s request that OneMain bear the costs of arbitration. Among other issues, the arbitration agreement allowed Winton to request that OneMain bear Winton’s costs. Winton had apparently not done so, and the court determined that he should do so before seeking judicial relief.

Winton v. Trans Union, LLC, No. 2:18-cv-05587 (E.D. Pa. Aug. 27, 2019).

District of Connecticut Enforces Amex Arbitration Clause Where Cardmember Did Not “Opt Out”

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In a dispute involving fraudulent charges, the District of Connecticut required American Express and the cardmember to resolve their issue in arbitration, pursuant to the cardmember agreement, as amended. AmEx provided notice of the arbitration provision in a document titled “Important Changes to Your Account Terms,” which explained the changes to the arbitration provision and stated that cardmembers have the opportunity to reject the provision, which the cardmember here did not. The cardmember “claimed to have no recollection of any Arbitration Provision contained in his Cardmember Agreement nor any recollection of receiving any particular amendment to his Cardmember Agreement which imposed an Arbitration provision, or which required him to opt out of an Arbitration participation.” Nonetheless, the cardmember admitted that, at all times relevant, “he and his accounts were subject to the terms of a Cardmember Agreement.”

The cardmember did not deny receipt of the amendment or refute any evidence provided by AmEx “that he was, in fact, mailed the various amendments to his Cardmember Agreements.” Accordingly, the court determined that the cardmember’s use of his credit card after receiving the various amendments to his cardholder agreement constituted acceptance of their terms, including the arbitration provisions contained therein.

Errato v. Am. Express Co., No. 3:18-cv-01634 (D. Conn. Aug. 23, 2019).

UK High Court Declines to Sanction Transfer of Annuity Portfolio

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The High Court of Justice Business and Property Courts of England & Wales refused to sanction a scheme proposed by Prudential Assurance Co. and Rothesay Life PLC to transfer approximately 370,000 annuity policies from Prudential to Rothesay. The scheme was proposed under Part VII of the Financial Services and Markets Act 2000. As part of the scheme, Prudential and Rothesay entered into a reinsurance agreement to transfer the majority of the economic risk and reward of Prudential’s annuity business covered by the agreement from Prudential to Rothesay. Although the scheme would not change any terms of any policies, the court found that the scheme offered no benefits to the transferred policyholders, who would no longer be entitled to look to Prudential to pay or service their annuities and instead would need to look solely to Rothesay in these respects. The court noted that the scheme was “strenuously opposed” by a number of policyholders, who contended that they selected Prudential as their annuity provider based specifically on its long history as a leading UK insurer, its size, reputation, and financial strength and resources.

On balance, the court concluded that a number of factors weighed heavily against exercising its discretion to sanction the scheme. It emphasized, among other things, the overall fairness of the scheme as between all affected persons, the annuity policyholders in particular. The court found that it was entirely reasonable for policyholders to have chosen Prudential based on its history and reputation, among other factors, and for policyholders to have assumed that Prudential would not seek to transfer their policies to another provider. The court rejected Rothesay’s contention that it would be prejudiced by any decision not to sanction the scheme by refusing it the benefits of the reinsurance agreement with Prudential referenced above, finding that Rothesay entered into the reinsurance agreement knowing the scheme was subject to the court’s sanction and thus was not guaranteed to be approved.

In re Prudential Assurance Co. Ltd. [2019] EWHC (Ch) 2245 (Eng.).