Claims and Bad Faith Law Blog

AN ADDENDUM TO INSURANCE ARBITRATION.

In In re Westbank Holdings, LLC v. Interstate Fire & Cas. Co., No: 22-10082ADV & NO. 23-1010, 2024 WL 670755 (Bankr. E.D. La. Feb. 17, 2024), the insurers under a commercial insurance policy filed a motion for arbitration of the insurance claims at issue in a bankruptcy, or alternatively, to dismiss them.  The claims had been filed in State Court initially.  "The Insurers removed the case to the United States District Court for the Eastern District of Louisiana pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, 9 U.S.C. §§ 201–208 (the “Convention”)."   In re Westbank Holdings, 2024 WL 670755, at *2.  Some of the insurers on the risk were part of a Lloyd's of London Syndicate in the U.K.

            The insurance claims against them resulted from damage caused by Hurricane Ida and included claims for insurer bad faith.  "The parties here agree that the arbitration clause in the Policy is enforceable under the Convention because Westbank Holdings and the Foreign Insurers reside in different countries (the United States and England and Wales) which are signatories to the Convention."  In re Westbank Holdings, 2024 WL 670755, at *5.

          The Bankruptcy Judge in Louisiana granted the motion and compelled arbitration of the insurance claims.

A Professional Reminder:  In a forthcoming article in New Appleman on Insurance:  Current Critical Issues in Insurance Law, the author examines significant potential, external legal constraints to arbitration of insurance bad faith claims.  Whether you represent insurance carriers or policyholders, be on the lookout for the article and for significant potential constraints that might be raised to insurance arbitration.

 

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved. 

ARBITRATION, INSURANCE POLICIES, AND INSURANCE BAD FAITH CLAIMS.

In Crescent City Brewhouse, Inc. v. Indep. Spec. Ins. Co., NO. 23-7366, 2024 WL 640005 (E.D. La. Feb. 15, 2024), a Senior District Judge ruled on an insurance company's unopposed motion to compel arbitration of insurer bad faith claims and alleged violations of Louisiana Statutes, among other claims.  Following the Federal Arbitration Act and prevailing Fifth Circuit case law, the Federal Court noted that "[n]either party has asserted an external legal constraint that forecloses arbitration[.]"

          Parenthetically, of course the carrier that filed the motion to compel arbitration did not assert an external legal constraint to arbitration.  What a wonder it would have been if it had.

          That leaves the policyholder which filed the bad faith claims and the policyholder did not assert an external legal constraint to arbitration of those claims, either.

          In a forthcoming article in New Appleman on Insurance:  Current Critical Issues in Insurance Law, the author examines significant potential, external legal constraints to arbitration of insurance bad faith claims.  Whether you represent insurance carriers or policyholders, be on the lookout for the article and for significant potential constraints that might be raised to insurance arbitration.

Please read the disclaimer.  ©2024 Dennis J. Wall.  All rights reserved.

ARBITRATION AND PREEMPTION OF FIRST-PARTY BAD FAITH CLAIMS.

Effective December 16, 2022 the Florida Legislature added new Fla. Stat. § 627.70154.  It is titled Mandatory binding arbitration.  It is applicable by its terms only to property insurers, and it provides in full as follows:

A property insurance policy issued in this state may not require that a policyholder participate in mandatory binding arbitration unless all of the following apply:

(1) The mandatory binding arbitration requirements are contained in a separate endorsement attached to the property insurance policy.

(2) The premium that a policyholder is charged for the policy includes an actuarially sound credit or premium discount for the mandatory binding arbitration endorsement.

(3) The policyholder signs a form electing to accept mandatory binding arbitration. The form must notify the policyholder of the rights given up in exchange for the credit or premium discount, including, but not limited to, the right to a trial by jury.

(4) The endorsement establishes that an insurer will comply with the mediation provisions set forth in s. 627.7015 before the initiation of arbitration.

(5) The insurer also offers the policyholder a policy that does not require that the policyholder participate in mandatory binding arbitration.^[1]

    Property insurers in Florida are likely to avail themselves of mandatory arbitration provisions in their property insurance policies, if the boxes set out in the new statute are checked.  Other than the obvious reasons why property insurers in Florida would do this, there is another reason provided so far by the laws of other jurisdictions.

    Under various statutes across the United States, it has been held that a first-party insured's claims for extracontractual damages, i.e., for damages outside the provisions of the insurance policy, may be preempted as to "any claim that is resolved or confirmed by arbitration or appraisal."[2]

 

[1] Fla. Stat. § 627.70154 (emphasis supplied), added by 2022 Fla. Sess. Law Serv. Ch. 2022-271, §18 (S.B. 2-A) (WEST), effective December 16, 2022.

[2] See Minn. Stat. Ann. § 604.18 Subd. 4(c) (West; Westlaw current with legislation effective through April 19, 2023 from the 2023 Regular Session):  "An award of taxable costs under this section is not available in any claim that is resolved or confirmed by arbitration or appraisal."  

The effects of mandatory binding arbitration on extracontractual, "bad faith" claims are examined at length in 2 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH § 11:18, Arbitration Provisions (West Publishing Company 3d Edition, 2023 Supplements in process).

Please read the disclaimer.  ©2023 Dennis J. Wall.  All rights reserved.

CLASS ACTION ARBITRATION, MASS ARBITRATION?

Interested in exploring the prospects of mass arbitration of your clients' claims, in a class action arbitration?  Explore the possibilities in your practice by consulting first with two informed and informative professors of law, Hila Keren, Divided and Conquered:  The Neoliberal Roots and Emotional Consequences of the Arbitration Revolution, 72 Fla. L. Rev. 575 (2020), and a Reply which Professor Keren invited, by David Horton, All Alone in Arbitration, 72 Fl. L. Rev. F. 75 (2021).

Please read the disclaimer.  ©2022 Dennis J. Wall.  All rights reserved.

ARBITRATION OF AN INSURANCE COVERAGE DISPUTE IN TEXAS.

(Brennan Linsley Associated Press)

"This is an insurance coverage dispute."  5556 Gasmer Mgt LLC v. Underwriters at Lloyd's, London, ___ F. Supp. 3d ___, No. 19-cv-00974, 2020 WL 2813599, at *1 (S.D. Tex. May 29, 2020).  The coverage dispute arose as to the coverage provided under a commercial property insurance policy.

    In that insurance coverage dispute, the federal court was confronted with motions to arbitrate filed by "Insurer Defendants" and by "Broker Defendants."

    The policy at issue contained a broad, express arbitration provision governing "[a]ll matters ... in relation to this insurance[.]"  "This Court agrees that all means just that -- all."  5556 Gasmer, 2020 WL 2813599, at *3 (emphasis by the Court).

    The carriers were signatories to the insurance policy which included this express provision.  The brokers were not signatories.

     Accordingly, the court in that case granted the insurance carriers' motion to arbitrate and denied the brokers' motion to arbitrate.  The court further stayed all proceedings "until the arbitral proceedings conclude in their entirety."  5556 Gasmer, 2020 WL 2813599, at *1.

Please read the disclaimer.  ©2020 Dennis J. Wall.  All rights reserved.

DUTY TO DEFEND AN ARBITRATION?

A commercial general liability (CGL) carrier had a duty to defend its policyholder in an arbitration, the court held in Gemini Ins. Co. v. Constrx Ltd., 360 F. Supp. 3d 1055 (D. Haw. 2018).  As the Court read the liability policy at issue in that case, the policy provided that the policyholder could not be subjected to liability without a defense.  Under the policy provisions, as interpreted by the Court, the CGL carrier had to provide defense coverage for the arbitration.

The Requirements for a Duty to Defend and its consequences for Fulfillment or Enforcement of Good Faith Duties, are discussed based on the case law that decides them including the Gemini decision, in Section 3:51 in 1 DENNIS J. WALL, LITIGATION AND PREVENTION OF INSURER BAD FAITH (Thomson Reuters West, 3d Edition, forthcoming 2020 Supplement).

Please read the disclaimer. ©2020 Dennis J. Wall. All rights reserved.

DUTY TO DEFEND ARBITRATION? YES, IN THIS CASE.

In Gemini Ins. Co. v. Constrx Ltd., NO. 14-00355 DKW-RLP, 2018 WL 7508264 (D. Haw. September 24, 2018), the Court determined that a commercial general liability carrier owed a duty under its liability insurance policy to defend its policyholder in an arbitration.  The reason?  The policyholder could be subjected to liability and the liability policy had to provide defense coverage as a result.  Simple as that, the Court ruled in effect.

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PRACTITIONER, KNOW THY AUDIENCE. NOT EVERY JURY ARGUMENT SWAYS JUDGES.

In Goldman v. United Services Automobile Association, 244 So. 3d 310 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018), a Florida intermediate appellate court applied the Supreme Court of Florida's admonition that "bad faith" is simply not required to assess an insured's attorney's fees under the Florida Statutes.

    In Goldman, the appellate court pointed out the crux of the matter in its view:  The carrier in that case, a first-party carrier, acted appropriately and promptly but was deprived of even the opportunity to disclaim coverage.

    The insurance policy at issue in the case was a homeowner's policy.  The policyholders' damage claim to coverage under their homeowner's policy came out of a plumbing leak.  The carrier investigated the claim, issued a check, and then "[w]ithout informing their insurer that they disputed the amount of the payment, the homeowners filed a lawsuit for breach of the insurance policy."  Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).

    The carrier was served with the policyholders' suit papers.  It filed a motion to compel an appraisal.  The result of the appraisal was an award to the policyholders.  The appellate court observed that the carrier "timely paid the appraisal award."  For that reason as well, the trial court granted the carrier's motion for summary judgment against the homeowners'-policyholders' alleged claim that the carrier had breached the homeowner's policy in that case.  Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).

          The appellate court affirmed:

Here, the insurer valued the loss and paid the claim based on that valuation. The homeowners did not object. Until the filing of the complaint, the insurer was unaware of a disagreement with the damage valuation. Once informed, the insurer demanded appraisal and paid the appraisal.

There was never a breakdown in the claims adjusting or communications process, nor was there a refusal to pay the claim. “It is only when the claims adjusting process breaks down and the parties are no longer working to resolve the claim within the contract, but are actually taking steps that breach the contract, that the insured may be entitled to an award of fees under section 627.428, Florida Statutes.”

Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).

    Following the Supreme Court's admonition that an award of attorney's fees does not mean bad faith in Florida, and of course because there was no bad faith shown on the record of the case before it, the appellate court followed the law that holds that "it is the incorrect denial of benefits that triggers an award of attorney's fees under section 627.428," at least against a first-party carrier like the homeowner's carrier in the Goldman case.  Goldman v. United Services Automobile Association, 244 So. 3d 310, 312 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).

    The moral of this story is a simple one, really:   As a practice point in presenting the law, practitioners should be sensitive to how their presentation appears to their audience for attorney's fees, i.e., the trial judge, because judges naturally resist being led where they do not need or perhaps want to go.  "[H]ere, the insured never gave the insurer the opportunity to incorrectly deny the benefits before filing a lawsuit." Goldman v. United Services Automobile Association, 244 So. 3d 310, 311 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).

    To illustrate this practice point, the appellate court and the trial court were in complete agreement in this particular case that the homeowners'-policyholders' lawsuit "'was merely a preemptive lawsuit intended to obtain attorney's fees for the usual efforts in negotiating an insurance claim.'"  Goldman v. United Services Automobile Association, 244 So. 3d 310, 311-12 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).  "Here, the circuit court found that was the exact reason the lawsuit was filed.  Thus, the court properly granted summary judgment in favor of the insurer."  Goldman v. United Services Automobile Association, 244 So. 3d 310, 312 (Fla. 4th DCA 2018), review dismissed, No. SC18-1309, 2018 WL 3831364 (Fla., August 8, 2018).

Please Read The Disclaimer.  ©2018 Dennis J. Wall.  All Rights Reserved.

JUST FOUND OUT RECENTLY MYSELF! COMMENT ON STUDENT LOAN REPAYMENT REG CHANGES.

The deadline for receiving comments  at www.regulations.gov is one minute before Midnight tonight!  I can't urge you strongly enough:  Post your own comments.  Use the hyperlink below.  Tell them what you think.  Here's another comment that I posted there today:

 

August 30, 2018

www.regulations.gov

Re:      RIN:                                               1840-AD26

            Federal Register Number:         2018-15823

            ID:                                                  ED-2018-OPE-0027-0001

"Student Assistance General Provisions, Federal Perkins Loan Program, Federal Family Education Loan Program, and William D. Ford Federal Direct Loan Program"

To the Department of Education:

            With respect, you have not complied with applicable law to support your proposed regulations regarding the disposition of pre-dispute arbitration agreements and class action waivers.  Your proposed regulations hinge on disclosure, compliance with which would make the agreements and waivers legally sufficient.  However, your proposed regulations and your Proposed Rule document do not offer sufficient basis for taking this approach as distinct from either (1) an outright ban on such agreements and waivers or (2) restricting the use (as distinct from disclosure) of such agreements and waivers.   It is respectfully submitted accordingly that, because your proposed regulations are insufficiently supported rulemaking as required by applicable law, your proposed regulations are void including but not limited to, your proposed new language in Section 668.41, and new Section 668.41(h), and Section 685.304.

            Further, your proposed new Section 668.41(h) would add the following definition which is unsupported by experience or facts provided in your Proposed Rule document:

            (2)        For the purposes of this paragraph (h), the following definitions apply:

            (i)        Class action means a lawsuit or an arbitration proceeding ....

My experience may be limited in this regard but I have never experienced a class action arbitration proceeding, nor have I ever heard of one or come across one in 40 years of legal research.  If in fact there is no such thing, then your proposed regulation Section 668.41(h) is not supported by evidence or law at this time.  (In fact, it is probably not supportable at all.)

            Thank you for your consideration of these comments.

Sincerely Yours,

Dennis J. Wall, Esquire

Dennis J. Wall

NEVADA CARRIER'S ESTOPPEL DEFENSE COMES UP SNAKE EYES.

An underinsured motorist (UIM) policyholder's bad faith claims were not barred by claim preclusion, i.e., by res judicata or estoppel, where the bad faith claims were based on the UIM carrier's alleged conduct after the policyholder had prevailed in arbitration on her claim for the full UIM policy limits.  She filed suit to enforce the arbitration award and obtained a judgment in her favor, following which the carrier paid the UIM policy limits and the policyholder dismissed her case.  Searcy v. Endurance Ins. Co., 243 F. Supp. 3d 1146 (D. Nev. 2017).

The UIM carrier defended its conduct occurring after the policyholder filed suit to enforce the arbitration award and, in this case, after the judgment confirmed the arbitration award, on the ground that the policyholder's bad faith claims should have been brought before the conduct occurred, in basic and simple terms.  The District Judge disagreed.  And so, in the end, yet another gamble in Nevada did not pay off.

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ARBITRATION AWARD JUDGMENT NOT RES JUDICATA, PRECLUDES NO EXTRACONTRACTUAL CLAIMS.

Res judicata was no defense to bad faith and statutory unfair claim handling claims in Fortson-Kemmerer v. Allstate Ins. Co., 198 Wash. App. 387, 393 P.3d 849 (Ct. App., Div. 3, 2017).  The defendant underinsured motorist (UIM) carrier tried to preclude these claims with an earlier final judgment that was entered in favor of its policyholder after she successfully arbitrated her underlying UIM claims.

The arbitration did not preclude her bad faith claims, the Court held.  The arbitration was on coverage issues and damages covered by UIM.  "In this case, [the UIM carrier] will defend in a quasi-fiduciary role," the appellate court ruled.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

TRICK OR TREAT! BUT NO ARBITRATION HERE!

In Morrow v. Community Health Sys's, Inc., No. 3-16-cv-1953, 2017 WL 4641797 (M.D. Tenn. October 17, 2017), the Court denied a defendant's motion to compel arbitration.  Rarely do any of us quote long passages from any source.  For one thing, quoting long swatches of someone else's writing is frowned upon in writing generally, and in writing about legal issues in particular.

But sometimes the way in which the story is told in the original is so concise and to the point that it cannot easily be improved upon.

Such is the case here.

The District Judge laid out precisely what claims were involved.  This is the predicate for why the Court denied arbitration of these claims (even if it is not the legal reason for its decision):

    The First Amended Complaint in this purported class action (Docket No. 73) alleges that Community Health Systems, Inc. (“CHS”) and its direct and indirect subsidiaries (“affiliates”) have a policy and practice of breaching their provider contracts with health insurers, causing monetary damages to third-party beneficiaries of those contracts, including Plaintiff and other potential class members. Plaintiff contends that CHS and its affiliates are required by their provider contracts to submit the bills of insured patients to their respective health insurance carriers and to accept the insurer's contractually agreed-upon discounted payment as full payment for those bills, minus any co-pays or deductibles owed by the patients.

    Instead, Plaintiff asserts, the policies and practices of CHS and its affiliates require CHS-owned hospitals to either (1) refuse to submit the medical bills to the patient's health insurance carrier; (2) submit the medical bills to the patient's health insurance carrier, but then refund the insurer's discounted payment and try to collect a larger payment from another source, usually the patient or a third-party tortfeasor; or (3) submit the medical bills to the patient's health insurance carrier, keep the insurer's discounted payment, and then still try to collect the balance of the undiscounted charges from another source, including the patient.

Small wonder that these claims are being pursued in the lawsuit in which they were alleged, albeit under one count or claim:  unjust enrichment.  The District Court in this case granted the defendant's alternative motion to dismiss as to alleged claims for breach of contract, intentional interference, and conspiracy.  The Tennessee Court applied substantive Alabama law to all these claims.

To say again, the Court totally denied the defendant's motion to compel arbitration.  Since there was no contract between the parties according to the Court's rulings, it follows that there was no contract provision which could require arbitration.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

FREE US ALL FROM MANDATORY ARBITRATION!

Senate Joint Resolution 47 would force people to arbitrate their disputes even if they do not want to.

Joint Resolution 47 would delete the Consumer Financial Protection Bureau's rule prohibiting mandatory arbitration.  Understand that the CFPB rule does not require people to sue.  Instead the CFPB rule allows people to sue and allows people to arbitrate, but only if they want to.

Repealing the CFPB rule would require mandatory arbitration and take away people's right to join together with other people in any class action to sue.

Urge your United States Senators today to vote for FREEDOM and against Joint Resolution 47!

This is America, after all.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

UNLICENSED CARRIER CANNOT DEMAND ARBITRATION WITHOUT GOOD FAITH BOND.

A Bankruptcy Judge ruled that a foreign insurer must post bond prior to filing a motion to compel arbitration, in In re MF Global Holdings Ltd. (MF Global Holdings Ltd. v. Allied World Assur. Co.), 569 B.R. 544 (Bankr. S.D.N.Y. 2017).

 A U.S. District Judge denied motions for leave to appeal this Order, in MF Global Holdings Ltd. v. Allied World Assur. Co., Nos. 17 Civ. 742, 17 Civ. 953, 2017 WL 2819870 (S.D.N.Y. June 29, 2017).

Thereafter the foreign (Bermuda) insurer apparently got religion, or at least got a bond, but the  judge apparently never said so.  It is certain that the Bermuda insurer got additional attorneys to represent it in the Bankruptcy Court, but of course the judge did not mention that, either.  What the Bankruptcy Judge did say was that the Bermuda insurer admitted the Bankruptcy Court's jurisdiction over it and withdrew its contrary motions.  Then the Bankruptcy Judge granted the motion of the now-enlightened insurer, and entered an Order compelling arbitration, in In re MF Global Holdings Ltd. (MF Global Holdings Ltd. v. Allied World Assur. Co.), 571 B.R. 80 (Bankr. S.D.N.Y. 2017).

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

LENDER FORCE-PLACED AUTO INSURANCE, REPOSSESSION, AND CHURNING HUGE PROFITS.

Other features of this story were addressed in an article published on Monday of this week on Insurance Claims and Issues Blog.

Wells Fargo admittedly placed "collateral protection insurance" on its auto-loan borrowers and forced the premiums onto the borrowers' auto loans.  Wells only disputes how many of its customers it did this to. 

Wells Fargo also admits that it sometimes force-placed the insurance even when the borrowers already had auto insurance.

Wells Fargo further admits that the force-placed insurance premiums sometimes forced the borrowers into having their cars repossessed because they could not make the payments Wells added to their auto loans.

These admissions come to us courtesy of a report commissioned by Wells Fargo.  See  Alexa D'Angelo and James Rufus Koren, "Wells Fargo Charged Customers for Unneeded Auto Insurance -- Then Repossessed Their Cars" (Los Angeles Times Online, posted on Friday, July 28, 2017), also accessible at http://www.latimes.com/business/technology/la-fi-wells-fargo-insurance-20170728-story.html.

The consequences of Wells's admitted conduct even go beyond its customers.  The pending Consumer Financial Protection Bureau (CFPB) rule prohibiting mandatory arbitration provisions and class-action waivers in consumer contracts is reportedly being held up by the news from Wells.  "Some of Wells' auto loan contracts contain arbitration clauses, a spokesman said, which could become a further lightening rod in the dispute over whether customers should be allowed to band together in class-action lawsuits."  Kate Berry, "New Wells Scandal Harms Effort to Nix CFPB Arbitration Rule" (American Banker Online, posted on Friday, July 28, 2017), also available by pasting this website into your browser, but be forewarned that American Banker articles all seem to be protected by a paywall requiring a subscription, and this article is certainly one of those:  https://www.americanbanker.com/news/new-wells-scandal-harms-effort-to-nix-cfpb-arbitration-rule?brief=00000158-07c7-d3f4-a9f9-37df9bc10000.

Dennis Wall is the author of "Lender Force-Placed Insurance Practices" published by the American Bar Association.

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TAKING A TRIP TO BERMUDA TO AVOID PAYING SETTLEMENT.

"You can run, but you can't hide."

The Barton doctrine is a rule of law that says that if a Court has appointed a receiver, then you cannot sue that receiver without leave of that Court.  The Barton doctrine extends to court-appointed officers in bankruptcy proceedings.  Simple enough.  It seems.

MF Global was a policyholder.  It had many claims against it.  MF Global filed for bankruptcy, the claims against MF Global were settled and a Bankruptcy Judge approved the settlement.  MF Global's plan administrator, appointed by the Bankruptcy Court, participated in the settlements.

Rather than fund the settlements, of which it seems they may have been aware during settlement negotiations or at least they certainly became aware of the Bankruptcy Court's Order approving the settlements in any case, MF's E&O liability insurance carriers sought refuge in Bermuda.  In Bermuda, they convinced a Bermuda judge to enjoin MF from suing them to pay for the settlements back in the U.S. and to order arbitration in Bermuda instead.

These are the absconding defendants:

• Allied World Assurance Company Ltd.;
• Iron–Starr Excess Agency Ltd.;
• Ironshore Insurance Ltd.; and
• Starr Insurance & Reinsurance Limited.

To say again, at the time the carriers filed their lawsuit in Bermuda, they were involved in MF Global's bankruptcy proceedings in the United States.  They went to Bermuda anyway.

In fact, these carriers had already filed a motion in the Bankruptcy Court to compel arbitration.  They successfully petitioned the Bermuda courts to prevent MF Global from responding to the arbitration motion in the United States, however.

The Bankruptcy Court, like MF Global, did not take kindly to what they surely thought of as forum shopping at best, and perhaps other things at worst.  MF Global filed a motion in the Bankruptcy Court to hold the carriers responsible under the Barton doctrine.

The Bankruptcy Judge agreed with MF Global, holding that the carriers violated the Barton doctrine when the carriers filed their lawsuit in Bermuda to compel MF Global's plan administrator and the assignee of MF Global's rights under the policies, to arbitrate policy claims in this case.  It bears repeating that the carriers did not even request leave to sue from the Bankruptcy Court, which is the Court that happens to have appointed MF Global's administrator.

Further, the Barton doctrine is not simply wielded as a sword, the Bankruptcy Judge held, in effect; it is also a protection against being sued, as in this case. 

A case management conference is scheduled in the case for today.  Will the carriers try again to go off to Bermuda?  Stay tuned.

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

MISSOURI SCHOOL BUS DRIVER DOES NOT HAVE TO ARBITRATE BAD FAITH CLAIMS.

In Leonberger v. Missouri Utd. Sch. Ins. Council, 501 S.W.3d 1 (Mo. Ct. App., E.D., Div. 4, 2016), rehearing and/or transfer denied on June 30, 2016 and again on November 1, 2016 (unreported), a Missouri Court of Appeals held that a Missouri State Statute which bars mandatory arbitration clauses for insurance disputes applied to preclude arbitration of an original insured's alleged bad faith claims (bad faith in settlement, bad faith in defense) and alleged breach of fiduciary duty against his liability carrier and the liability carrier's reinsurance carrier as well.

Further, the Court followed established precedent and held that the Federal Liability Risk Retention Act did not preempt the Missouri State Statute:

Section 435.350 of the Missouri Arbitration Act prohibiting mandatory arbitration clauses in insurance contracts does not regulate Appellant's operation as a risk retention group.  (Citation omitted.) The purpose of Section 435.350 of the Missouri Arbitration Act is to regulate the business of insurance.  (Citation omitted.)  The Missouri statute was enacted for the purpose of regulating insurance in that it was designed to regulate the operation of an insurance contract.

Leonberger, 501 S.W.3d 1, under Point III—Preemption.

See in addition these articles posted on Insurance Claims and Issues Blog on

November 28, 2016, "Shh!  WELLS FARGO, INSURANCE CARRIERS, AND SECRET ARBITRATION," and on October 3, 2016, "ARBITRATION OF INSURANCE COVERAGE?"

Please Read The Disclaimer.  ©2017 by Dennis J. Wall.  All Rights Reserved.

ARBITRATION OF BAD FAITH CLAIMS DENIED, INJUNCTION AGAINST ARBITRATING GRANTED.

In Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., No. 3:16-cv-00495-HZ, 2016 WL 4059658 (D. Or. July 27, 2016), two agreements were involved.

First, Portland General Electric ("PGE") had an agreement with a Contractor to build a power plant.  That construction contract has an arbitration provision.  However, PGE did not sue the Contractor.

PGE also required the Contractor to obtain a Performance Bond from Sureties to indemnify PGE in the event the Contractor defaulted.  The Bond is the second agreement at issue here.

PGE made a claim under the Bond.  The Sureties refused to pay.  PGE sued the Sureties for alleged bad faith, among other things.

The Bond expressly authorized suit against the Sureties in Court.  "There is no agreement between PGE and Sureties to submit any proceeding to arbitration."  Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., No. 3:16-cv-00495-HZ, 2016 WL 4059658, at *2 (D. Or. July 27, 2016).

However, the Sureties filed a motion in PGE's case against them, to request arbitration under the Contractor's Construction Contract and to stay PGE's bad faith lawsuit against them.  The Contractor quickly claimed against PGE under the Construction Contract and demanded arbitration under the Rules of the International Chamber of Commerce.  The Chamber swiftly instituted arbitration proceedings.

To say again, there was no arbitration provision in the Bond issued by the Sureties and PGE did not sue the Contractor.  PGE sued the Sureties and filed its own motion to enjoin the Sureties from arbitrating PGE's bad faith claim and other claims against the Sureties.

To the Court, this was a simple case based on the language in the agreements alone:  There was an arbitration provision in the Contractor's agreement with PGE, but not in the Sureties' Performance Bond under which PGE made its claims (except for PGE's bad faith claim, of course, which was not under the Bond so much as a result of the Sureties' refusal to perform).  "The Court concludes it is not required to stay the case, and it declines to exercise its discretion to impose a stay. Furthermore, the Court enjoins Sureties from participating in [the Contractor's] ICC arbitration."  Portland Gen. Elec. Co. v. Liberty Mut. Ins. Co., No. 3:16-cv-00495-HZ, 2016 WL 4059658, at *4 (D. Or. July 27, 2016).   

So much for pulling a fast one, at least in this case.

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ARBITRATION, SECRECY, AND START-UPS.

Start-ups are lining up to require their employees to arbitrate labor disputes.  "Uber and Lyft, the ride-hailing services, make their drivers sign an arbitration clause."  Jessica Silver-Greenberg & Michael Corkery, "Start-Ups Embrace Arbitration to Settle Workplace Disputes" (New York Times Dealbook Online, posted May 14, 2016).

Secrecy seems to be the prime attraction in arbitrating labor disputes.  "That secrecy, federal labor officials said, can allow widespread problems to persist because the process bars employees from sharing their experiences with others who might be in similar positions."  Jessica Silver-Greenberg & Michael Corkery, "Start-Ups Embrace Arbitration to Settle Workplace Disputes" (New York Times Dealbook Online, posted May 14, 2016).

The results of arbitration will show whether arbitrators rule favorably toward so-called "start-ups" in similar numbers to their rulings in disputes involving large corporations.  Start-up corporations have already placed their bets.

Please Read The Disclaimer.  ©2016 by Dennis J. Wall, author of Litigation and Prevention of Insurer Bad Faith (3d ed. Thomson Reuters West in 2 Volumes, with Supplements).  You are invited to visit the author's website here.  All rights reserved.

Related articles

What We Have Here Is a Failure to Arbitrate.

Mandatory Arbitration, Waive Jury in Bad Faith Cases?

ACCI: RESEARCH BEFORE EVALUATIONS.

              
                Photo by NASA/Library of Congress 2014.

               I had the good fortune to attend the annual meeting of the American Council on Consumer Interests (“ACCI”) in Clearwater Beach, Florida last week.  The ACCI may have assembled the nicest group of people I have ever been around; if they are not in first place for “nicest” in my experience, I cannot recall who would be.

               The ACCI members as a group shied away from labels.  They did not seem to want to be pinned down even as “academics” or as “regulators.” Their membership is united in its devotion to scholarship regardless of labels.  They support one another’s research projects as they focus on the results of their collective research.  In short, they focus on evidence.

               For example, one presentation featured research which seriously challenges the legal concept of “consent.”  In the Roberts Court in Washington, D.C., some five of the Justices accept the notion for example that if a provision is in a contract it only has to be understandable or understood to be legally valid.  That point of view is perhaps typical of the law in the abstract, namely, from the point of view of the actor, of the defendant charged with not doing enough to make a contract provision understandable, in this case.

               The presentation at the ACCI which touched upon this concept shows that from the point of view of the recipient of the information, even though the contract language may be understood it is still not believed particularly when the contract language would, if enforced by the Courts, take away Constitutional rights.  In other words, simply because a contract is understood to take away Constitutional rights does not make many people believe that a contract can do that; it is just the opposite for many people.  Here is the publicly available abstract of the research article underlying this presentation:  http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2516432.  The results show the recipients’ point of view of the concept of consent, then:  Even though something is understood does not make it true.

               In the arena of forced arbitration clauses, five of the current Justices on the U.S. Supreme Court reach the opposite conclusion from the point of view strictly of the party writing the contract:  If it is understood, there is consent regardless of whether the provision takes away even Constitutional rights.

 

Please Read The Disclaimer.  ©2015 by Dennis J. Wall, author of "Lender Force-Placed Insurance Practices" (American Bar Association 2015).  www.lenderforceplacedinsurance.com.  All Rights Reserved.

YOU, ME, OUR CLIENTS MAY BE CONTRACTING OUR RIGHTS AWAY.

    A current majority of the U.S. Supreme Court has given effect to a variety of jury trial waivers in various contracts.  The contracted waivers of jury trial they have approved go beyond waivers to affirmative agreements:  to arbitrate rather than sue, to arbitrate in a certain venue, or to arbitrate according to the usual practice in arbitration proceedings without a record of the proceedings, among other things.

    Not-necessarily scientific comments to a survey reflect that many people do not believe what I have just written in the first paragraph above.  See Jeff Sovern, "Comments From the Arbitration Study Respondents:  Contracts Can't Take Away Your Rights as an American Citizen" posted on November 4, 2014 on Consumer Law & Policy Blog.

    Believe it.  What is true for me is true for all of us, I am afraid:  I cannot do anything about the way things are until I know the way things are.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved.

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Comments from the Arbitration Study Respondents: Contracts Can't Take Away Your Rights as an American Citizen

WHAT WE HAVE HERE IS A FAILURE TO ARBITRATE.

    Mandatory arbitration provisions are becoming commonplace.  They are particularly favored by a current majority of the U.S. Supreme Court, which helps to explain their popularity.  Mandatory arbitration clauses cannot always be used to compel arbitration, however.

   In the case of Griswold v. Coventry First LLC, 2014 WL 3892995, 2014 U.S. App. LEXIS 15362 (3d Cir. August 11, 2014), the mandatory arbitration provision was typical.  It was very broad:  The arbitration clause encompassed “[a]ll disputes and controversies of every kind and nature between the Parties arising out of or in connection with this Agreement.” [Emphasis added.]  The Third Circuit panel in this case described this provision accordingly:  "By all accounts, the language in the arbitration provision is fairly standard and interpreted to apply broadly."

    The decisions in this case by the U.S. District Court and by the Third Circuit have been concisely summarized in words that cannot be surpassed in their brevity: The Third Circuit "affirmed a federal judge in Pennsylvania's ruling denying a motion to compel arbitration ... because the allegations in his complaint stem from conduct that occurrred separate from the agreement," said Mealey's Insurance in their post on August 12, 2014.

    The plaintiffs did not sign the contract that contained the mandatory arbitration provision.  They alleged that in a separate agreement with someone else, but not them, the defendant, which the Third Circuit panel described as "a Pennsylvania-based insurer and significant player in the life settlement industry," engaged in conduct giving rise to their alleged claims of "common law fraud, fraudulent concealment, conversion, aiding and abetting the breach of fiduciary duties, unjust enrichment, and also violated state life settlement acts, the Sherman Act, and the Racketeer Influenced and Corrupt Organizations Act (RICO)."

   The Third Circuit panel affirmed the District Judge's ruling denying the defendant's motion to compel arbitration because the non-signatories to the contract containing the provision did not base their claims on that contract, but on matters arising outside of and apart from that contract:

Here, what “saves the day” for Griswold is the fact that the alleged [separate] “Secret McGarrey Agreement” took place prior to and apart from the execution of the purchase agreement. Of course, that alleged fraud was related to the purchase agreement—it set the purchase price and, allegedly, the inflated, undisclosed broker's commission. But that alone is not sufficient to compel arbitration under the equitable estoppel doctrine: the claims must be based directly on the agreement. [Citation omitted.] Here, Appellees' Amended Complaint sufficiently
alleged their injury without mention of the purchase agreement. Put simply, Appellees do not allege breach of the purchase agreement; they allege fraud antecedent to the purchase agreement.

    The Federal Courts' rulings in this life insurance case are broad enough to extend to all insurance contracts -- and to most if not all other forms of contracts too.

Please Read The Disclaimer.  Copyright 2014 by Dennis J. Wall.  All rights reserved. No claim to Original U.S. Government Works.

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