A recent filing1 by my friend and colleague Jeff Raizner certainly brings home a concern that insurance companies and their lawyers want a stacked deck to win at any cost when it comes to arbitration. State legislators and insurance commissioners need to get control of surplus lines carriers. Otherwise, their state and federal anti-trust exemptions should be stricken. Making policyholders apply laws other than their forum state and arbitrated losses in faraway places is an abuse, as noted in Arbitration Clause Requiring New York Law and New York Arbitration Cited as Avoidance of Florida Lawsuit—Another Instance of Surplus Lines Insurer Abuse in Florida, and Surplus Lines Carriers Select Arbitration and Choice of Law in New York to Pay Less Coverage and Less on Claims.
Jeff Raizner argued the following:
This is the framework that the parties are working from. In their eagerness to proceed under what they assume are the favorable auspices of New York law, the Insurers overlook, or worse, dismiss, the essential state and local requirements that are either contrary to their assumptions or would remain applicable, regardless of which state law applies. The profound financial and administrative costs associated with the proposed arbitration for a local school district cannot be overstated, particularly when the district’s main mandate is to educate, not litigate. Moreover, the Insurers continue to disregard reasonable alternatives which would more equitably serve the interests of all parties involved.
…the Insurers are now on their second appointed arbitrator, Mr. Stephen Rogers, who worked for 26 and a half years as the Senior Vice President of Claims at Industrial Risk Insurers and is not licensed in either Texas or New York.
The Insurers are right that the party-appointed arbitrators at this stage are former Texas State District Judge Ginsberg and former Insurance Claims VP Mr. Rogers. But that does not tell the full story that is relevant to this Court’s evaluation of arbitral chairs.
The Insurers first appointed Courtney E. Murphy, an insurance defense litigator at the firm Hinshaw & Culbertson. Edcouch Elsa’s party-appointed arbitrator, Judge Ginsberg, recommended several Texas-based arbitrators to serve as the neutral umpire. Ms. Murphy responded by rejecting the Texas-based umpires recommended by Judge Ginsberg and recommending four New York based umpires—including former insurance company executives and an actual current employee of claims adjuster Sedgwick (the entity retained by the Insurers in this case). To make this point clear: the Insurers proposed that the chair of the panel be someone on the payroll of Sedgwick, to whom the Insurers have contractually delegated broad responsibility relating to claims adjustment, management, administration, payment, etc. That in and of itself served as demonstrative bad faith on the part of the Insurers and slowed the process down for months.
Then on August 3, 2023—after nearly a year of negotiation on the arbitral chair—the Insurers unilaterally announced that they were replacing Ms. Murphy with Mr. Rogers. During the course of negotiations on the arbitral chair, Judge Ginsberg offered a number of compromises including, but not limited to: (i) consideration of neutrals with more limited hourly rates; (ii) consideration of neutrals outside of either Texas or New York so as to avoid the perception of a ‘home court’ advantage; and (iii) neutrals along the gulf coast with substantial experience in the insurance space.
How impartial can an insurance defense attorney actively litigating against policyholders be? Ms. Murphy may be a stellar litigator. However, I am certain that any policyholder would be concerned to see that her website lists the following as her representative matters:
Secured a defense verdict in a multi-million dollar first party property case where the corporate policyholder sought recovery for catastrophic water loss and damage to its five-story commercial property located in the Detroit Business District. Courtney successfully argued that the policyholder failed to comply with the Policy’s Protective Safeguard Endorsement, and all claims were dismissed. Additionally, various costs were reimbursed to the insurer, due to an offer of judgment filed before trial.
Successfully defended against a multi-million claim filed against a large market of insurers for loss arising out of a purported explosion to a manufacturing facility.
Raizner correctly noted that the policy does not require that the Umpire has to be from New York:
At every turn, the Insurers misread and misapply the Policy’s arbitration clause. Simply as an example, the Policy notes: ‘If the Arbitrators cannot agree to an Umpire, either may request the selection be made by a judge of a New York court.’ In other words, either Arbitrator, not either party, may go to a New York court. As a threshold matter, the Insurers have usurped a right that belongs solely to the party-appointed arbitrators.
The Insurers have circumvented the requirements of the Policy repeatedly. But in addition to ignoring the Policy’s actual written requirements, the Insurers go a step further: they have wholly fabricated a New York chair requirement that cannot be found anywhere in the Policy.
Simply put, the Insurers raise the specter of New York law not out of an unbiased belief that a candidate need to be an expert in New York law, but simply because it is convenient for the position that Insurers take today. Indeed, the Insurers’ prior appointment of an individual without a New York license belies the sole argument raised by the Insurers in this Petition.
Curiously, the Insurers allege that use of an umpire from a neutral state would be inconsistent with the Policy.’ It is unclear then how they justify the use of Mr. Rogers, a Connecticut-based attorney.
The central issue is the troubling trend of certain insurance companies exploiting policyholders. They do this by enforcing clauses that drag policyholders into arbitration in New York, imposing New York law and leveraging potentially biased arbitrators to their advantage. This case is a prime illustration of such practices. It’s imperative that Congress, state legislatures, and insurance commissioners address this growing concern, as it’s clear that entities like Lloyds and others in the surplus market have no intention of halting these unjust methods.
Insurance brokers who market these policies to clients have a duty to clearly inform them about such arbitration clauses. The costs associated with pursuing coverage through arbitration in a distant location can be prohibitively expensive for the policyholder. In cases where policyholders are not adequately informed about these clauses, they should seriously consider legal action against the brokers who facilitated the sale of these problematic policies.
Thought For The Day
Our courts have their faults, as does any human institution, but in this country, our courts are the great levellers, and in our courts, all men are created equal.
—Harper Lee in “To Kill a Mockingbird”