Reinsurance Focus

The plaintiff commenced an arbitration proceeding with the Financial Industry Regulatory Authority (FINRA) against two of his former investment brokers and their former employers — Concorde and Westminster. The plaintiff claimed that the brokers falsely inflated his account balance, ultimately causing him to unknowingly deplete his entire retirement account. After a four-day hearing, the panel issued an award against the brokers, but it denied the plaintiff’s claims against the former employers, finding that they were not liable under a respondeat superior theory.

The plaintiff moved in district court to confirm the award against the brokers, which was confirmed. The plaintiff also moved to vacate the award in favor of the former employers, arguing that it was based on a manifest disregard of the law. The court denied the motion to vacate in both respects but found the question to be more complex as to Concorde, which is where the brokers worked for a significant portion of the relevant events. While concluding that the panel’s decision not to hold Concorde vicariously liable constituted “plain error,” the court held that the plaintiff failed to meet the “extremely high” burden of proving manifest disregard of the law. The court explained that such a finding would require a showing that the award was “based on reasoning so palpably faulty that no judge … ever could conceivably have made such a ruling.” Noting that the First Circuit has cautioned district courts not to correct even “painfully clear” arbitrator error, and that the panel here appeared to have acted more so out of a failure to appreciate the significance of the issue — it not being made a focal point of the hearing — the court found no evidence that the panel consciously ignored applicable law regarding Concorde’s vicarious liability.

Separately, the court refused to vacate the award against one of the individual brokers who did not participate in the arbitration hearing or even learn about the award until after it was issued. Instead, the court granted the plaintiff’s motion to confirm the award as against her, finding that she was properly served with the statement of claim and received adequate notice of the hearing.

Ebbe v. Concorde Inv. Servs., LLC, No. 1:19-cv-10289 (D. Mass. July 18, 2019).

On second rehearing and after submitting a question to the Louisiana Supreme Court, the Fifth Circuit determined that the Louisiana nonresident attachment statute allows for attachment in aid of arbitration. The underlying case involved competing claims from creditors for the pig iron on board a ship anchored in New Orleans. The Louisiana Supreme Court answered the certified question by stating that the statute “allows for attachment in aid of arbitration if the origin of the underlying arbitration claim is one pursuing money damages and the arbitral party has satisfied the statutory requirements necessary to obtain a writ of attachment.”

Louisiana’s attachment statute permits a writ of attachment to be obtained “in any action for a money judgment, whether against a resident or a nonresident, regardless of the nature, character, or origin of the claim, whether it is for a certain or uncertain amount, and whether it is liquidated or unliquidated.” The Fifth Circuit found the underlying action seeking to compel arbitration to be an “action for a money judgment” as the plaintiff had “made it clear from the outset” that it was pursuing a money judgment. “The ‘nature, character, or origin of the claim’ just happens to be arbitration.” Since the plaintiff had brought an action for a money judgment (in this case, an arbitration), the statute permitted the issuance of a writ of attachment, and therefore the requirements of the nonresident attachment statute had also been met, per the Louisiana Supreme Court’s guidance.

Stemcor USA Inc. v. Cia Siderurgica do Para Cosipar, No. 16-30984 (5th Cir. June 25, 2019).

We have been tracking certain class actions filed against Applied Underwriters Inc. and Applied Risk Services Inc. alleging that the companies fraudulently marketed and sold workers’ compensation insurance programs to California employers in violation of state and federal law. The case involves a disputed reinsurance participation agreement used to control workers’ compensation rates. As we previously reported, on January 29, 2019, the court denied class certification, holding that the plaintiffs failed to demonstrate that a class action would be “superior” to individual actions, as required by Federal Rule of Civil Procedure 23(b)(3).

Subsequent to that ruling, the plaintiffs requested a status conference, which the court granted. The conference addressed a number of issues, including whether one of the plaintiffs could file a renewed motion for class certification based on a more limited proposed class, whether plaintiffs could communicate with putative class members, and whether the court would set a settlement conference. The new proposed class “would consist of all California participants in defendants’ insurance programs that paid more under defendants’ Reinsurance Participation Agreement than they would have under guaranteed cost workers’ compensation insurance policies issued by California Insurance Company.” Class certification would be sought only on the plaintiff’s claim “under the unlawful prong of California’s Unfair Competition Law.”

The court denied the requests for a renewed motion for class certification and for leave to communicate with putative class members. The court noted that the relevant plaintiff failed to provide “the court with any explanation for why it could not have pursued this narrowed class definition in the initial motion for class certification.” The court observed that the plaintiffs were seeking certification of essentially the same class in a separate New York proceeding. The court also held that the proposed narrower class still would “not resolve the court’s concerns identified in the prior order denying class certification.” The court did decide to consolidate for trial the related cases before the court, and further ordered the cases to the court’s Voluntary Dispute Resolution Program.

Shasta Linen Supply, Inc. v. Applied Underwriters, Inc., No. 2:16-cv-01211 (E.D. Cal. Apr. 17, 2019).

The Southern District of New York found that New York Insurance Law section 1213(c)(1), requiring that foreign insurers post sufficient security, applied to the defendant, a foreign reinsurer in liquidation, in order for the defendant to file its motion to dismiss and compel arbitration. The court rejected the defendant’s reliance on non-binding precedent in In re Laitasalo, “in which the court held that a group of foreign bankrupt insurance companies was not required to post security to defend against the claim of a state insurance commissioner … explain[ing] that the security would transform the commissioner’s unsecured claim into a secured claim to the detriment of the other U.S. creditors who are solvent or insolvent insurance companies.” 193 B.R. 187 (Bankr. S.D.N.Y. 1996).

The subject reinsurance agreements contained “broad arbitration clauses providing for arbitration for all disputes or differences between the Parties arising under or relating to” the reinsurance agreements. As the panel in a prior arbitration concerning these reinsurance agreements previously required the defendant to post an interim security, the court held that “the arbitration panel must decide in the first instance whether its prior orders — which were confirmed by this Court on April 24 — preclude” the instant motion for security.

In re Platinum-Beechwood Litig., No. 1:18-cv-06658 (S.D.N.Y. July 10, 2019).