Creative people create creative schemes to save customers money when dealing with insurance. When the scheme did not work and premiums increased exponentially the insurer attempted to enforce the higher premiums at arbitration and the insured tried to avoid the contract requirements because of a state-of-the-art statute that prohibits arbitration. Minnieland Private Day School, Inc., of a Virginia corporation v. Applied Underwriters Captive Risk Assurance Company, Inc., No. 17-2385, United States Court of Appeals for the Fourth Circuit (January 14, 2019) Applied Underwriters Captive Risk Assurance Company, Inc. ("AUCRA") appealed to the Fourth Circuit of the District Court's Reinsurance Participation Agreement ("RPA ") By the and Minnieland Private Day School is an insurance contract under Virginia law. Minnieland asserted that the RPA is an insurance contract which, by state statute that renders arbitration clauses contained in insurance contracts. The district court holds that the RPA is an insurance contract and that the RPA's arbitration clause is valid as a matter of law.
This case involves a workers' compensation insurance program that Minnieland purchased from AUCRA and its affiliated entities . Applied Underwriters, Inc.'s EquityComp program, is an innovative program of workers' compensation insurance that offers small and mid-sized employers the benefits of both a guaranteed cost policy and a retrospective rating plan in one insurance program. The program is so novel that it has been patented.
The pooled companies provide workers compensation insurance to employers and also mutually reinsure each other's insurance business. Country of origin was unable to reap the benefit of the program.
Minnieland bought into the EquityComp program. At the same time, Minnieland executed with RPA. The RPA had a term of three years and provided that one or more “Issuing Insurers” —all of which were affiliated with Applied Underwriters, Inc. — would issue workers ’compensation insurance policies to Minnieland. The RPA also established that Minnieland was share in the profits and losses associated with its policies through its segregated protected cell.
For the first 33 of the 36 months during which the RPA was active, AUCRA charged, and Minnieland paid, an average of $ 58,81
Minnieland filed suit against AUCRA in the Eastern District of Virginia. Minnieland alleged that AUCRA is not authorized or licensed to act as an insurance company under Virginia law; that the RPA is an insurance contract and not a reinsurance agreement; and that AUCRA misrepresented the EquityComp program, and the RPA specifically, to circumvent Virginia insurance and workers compensation laws. Minnieland sought (1) a declaration that the RPA constitutes an insurance contract and is void because of AUCRA's failure to comply with Virginia law; (2) a declaration of the amount, if any, that Minnieland owes under the RPA; and (3) AUCRA were excessive in the case of premiums, deposits, and charges. The district court ruled in a public opinion that the RPA is an insurance contract.
The Fourth Circuit must apply ordinary state-law principles that govern the formation of contracts and the federal substantive law of arbitrability. This is the question of whether or not the RPA is the contract for the Virginia Code, the Fourth Circuit applied to Virginia law.
Under Virginia law, where two papers are executed at the same time or contemporaneously between the same parties , in reference to the same subject matter, they must be regarded as parts of one transaction, and receive the same construction as if they were in one and the same instrument. To construct two instruments as one, reference in one instrument to the other need not be explicit; It is sufficient if it is fairly traceable.
The Virginia Supreme Court holds that multiple documents constitute a single transaction despite the fact that each of the contracts was not signed by all three parties. them at the same time as part of a single transaction to accomplish an agreed purpose. The court was also persuaded by the fact that some of the agreements explicitly referred to the other agreements.
Both the RPA and the first CNI policy went into effect on the same day, one day after the landing, executed the Binder and RPA. Issuance of the policy was expressly conditioned on the country's prior execution of the RPA. Therefore, as contemplated by the parties, execution of the RPA would be temporarily precise issuance of the insurance policy. The subject matter of the documents is also the same: the workers' compensation insurance issued to Minnieland, including the less in which the payroll, premiums, and losses in connection with the insurance coverage would be calculated and how the risk would be distributed. The RPA also discusses the insurance coverage; it notes that workers' compensation insurance coverage "will be provided" to Minnieland at "one or more of the Issuing Insurers," as affiliates of Applied Underwriters, Inc.
The documents also internally reference each other and set forth each other's terms. The RPA and insurance policies are linked. The RPA provides that its early cancellation terms apply if any of the insurance policies is canceled before the end of the RPA's three-year term. The RPA also provides that Minnieland and AUCRA's bonds under the RPA survive the active term of the RPA ”and shall be extinguished only when [AUCRA] no longer has any potential or actual liability to the Issuing Insurers with respect to the [workers’ compensation insurance] Policies. ”
The explicit internal references, interrelated terms, and shared subject matter are strong evidence that the parties intended these documents to be part of one integrated transaction. To be sure, the documents were not executed by the same parties. The Binder was signed by Minnieland as an acceptance of the EquityComp program, apparently drafted by ARS, a subsidiary of Applied Underwriters, Inc., to which the EquityComp trademark is registered. The RPA was implemented between Minnlandand and AUCRA, another subsidiary of Applied Underwriters, Inc. and the insurance policies were produced by Applied Risk Services, Inc., another subsidiary of Applied Underwriters, Inc., with CNI, yet another Applied Underwriters, Inc. subsidiary, as the insuring entity.
The EquityComp program is promoted and sold as a unified program for your business needs across all states provided by Applied Underwriters, Inc., group of companies with leading experience in the casualty insurance, reinsurance and business services disciplines.
In sum, the documents, considered together, show that the purpose of the binder, RPA, and CNI policies was one: to provide Minnieland with workers' compensation insurance coverage while allowing Minnieland the opportunity to keep its insurance costs low by sharing in the underwriting risk. We need to determine exactly whether the RPA constitutes a policy endorsement or rider. The general consensus across the country has consistently been that the RPA is a subject to insurance regulations. We join that consensus in holding that the RPA at issue here is an insurance contract under Virginia law. Due to arbitration provisions in insurance contracts are void under Virginia law, Va. Code § 38.2-312, AUCRA must face Minnieland's claims in court.
The parties, working in Virginia knew, or should have known, about the statute prohibiting arbitration with regard to an insurance contract. The integrated agreements include such an agreement and, as a result of Virginia statutory law, the group of contracts were all part of an integrated insurance contract and, as a result, the arbitration clause is void. An insurer, working together with other insurers, to create an insurance contract – whether in a single document or in a group of integrated contracts – is an insurance contract and any arbitration clause in such a group of contracts is unenforceable.
© 2019 – Barry Zalma
This article, and all of the blog posts on this site, digest and summarize cases published by courts of the various states and the United States. The court decisions have been modified from the actual language of the court decisions, were condensed for reading, and conveyed the opinions of the author regarding each case.
Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance, faith and insurance fraud almost equally for insurers and policyholders. He also serves as an arbitrator or mediator for insurance related disputes. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 50 years in the insurance business. He is available at http://www.zalma.com and email@example.com
Mr. Zalma is the first recipient of the first annual claims magazine / ACE Legend Award
Books from Full Court Press
Zalma on Property and Casualty Insurance
T he earns almost every civil lawyer in the United States are funded by the insurance industry. Insurance can best be described as the mother's milk of the law profession. The civil defense law is paid by insurer for each hour he or she works. The civil plaintiffs' lawyer is usually paid by taking a percentage of any judgment entered into the plaintiff, which judgment is usually paid by the defendant's insurer.
In almost every situation in which a civil law law practices the funds for that work, either directly or indirectly, from insurance. Therefore, lawyers must use their wits and energies to avoid or to pursue litigation to the benefit of the client. Both sides understand that an insurer will eventually pay one or both sides in the dispute. Insurance is important to every civil dispute and even that fall within the criminal courts.
Every lawyer retained to prosecute or defend a civil suit should begin the representation with a serious effort to find insurance coverage for the benefit of the client or the client. defendant the client is suing. Without that knowledge, the lawyer will find out if she is litigating with duct tape firmly self-placed across his mouth.
Insurance Law Deskbook: Learn the insurance basics that are essential to every civil practitioner. The Insurance Law Deskbook is intended for help law students, practitioners, insurance lawyers, professional claims personnel, insured persons and anyone else involved in insurance. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, state appellate courts, and foreign courts that have molded the American insurance law, as well as vital explanatory chapters, historical context, form letters, and more.
California Insurance Law Deskbook: California has long way to go when it comes to insurance law in the United States, and few know more about California insurance law than Barry Zalma. The California Insurance Law Deskbook is intended for help law students, practitioners, insurance lawyers, professional claims personnel, insured persons and anyone else involved in insurance. Similar to Barry Zalma's General Insurance Law Deskbook, this title focuses on the state where the author has long resided and practiced as an expert in California law. The book, published for the first time under Full Court Press, includes the full texts or digests of insurance-related decisions of the U.S. Supreme Court, the U.S. District Courts of Appeal, and California Appellate Courts, as well as vital explanatory chapters and historical context.
Insurance Bad Faith and Punitive Damages Deskbook : Understand the relationship between insurance, the tort of bad faith, and why punitive damages are awarded to punish insurers. Previously, a person insurance company in the United States could only contract damages, but when the tort of bad faith was created by the courts contract law was enormously affected, allowing insurers to both contract and tort damages, including punitive damages. Read a thoughtful analysis of how punitive damages apply in the United States to insurance bad faith suits, and why some states allow judges and juries to award punitive damages against insurers in civil litigation.