Minnieland Private Day School, Inc. v. Applied Underwriters Captive Risk Assurance Co.
2017 U.S. App. LEXIS 14916
| 4th Cir. | 2017

Background

  • Minnieland, a Virginia daycare, entered a three-year Reinsurance Participation Agreement (RPA) with Applied Underwriters as part of an "EquityComp" workers' compensation program; Continental Indemnity (affiliate) issued the workers' comp policy and Minnieland paid premiums to Applied.
  • The RPA created a segregated protected cell for sharing profits/losses and included a broad arbitration clause (British Virgin Islands, AAA) plus a delegation clause assigning arbitrability questions to the arbitrator.
  • After dramatic premium increases and termination of the program, Minnieland sued in Virginia federal court alleging the RPA was an insurance contract (not reinsurance) and thus violated Virginia insurance and workers' compensation law; it also argued any arbitration clause in an insurance contract is void under Va. Code § 38.2‑312.
  • Applied moved to compel arbitration, relying on the RPA's delegation clause and FAA preemption principles; the district court initially granted the motion but later denied it and applied judicial estoppel to bar Applied from arguing the RPA is not an insurance contract.
  • On appeal, the Fourth Circuit affirmed denial of arbitration (holding Virginia law § 38.2‑312 voids delegation of the insurance‑contract question to arbitrators) but reversed the application of judicial estoppel, remanding for the district court to decide whether the RPA is an insurance contract under Virginia law.

Issues

Issue Plaintiff's Argument Defendant's Argument Held
Whether Virginia law (Va. Code § 38.2‑312) voids arbitration clauses in the RPA, including delegation of arbitrability § 38.2‑312 makes any arbitration provision in an insurance contract void; court must decide arbitrability Delegation clause gives arbitrator exclusive authority to decide arbitrability; FAA & Rent‑A‑Center require court to enforce delegation Held: Court (not arbitrator) must decide whether RPA is an insurance contract because § 38.2‑312 voids delegation that assigns the insurance‑contract question to arbitrators
Whether delegation provision was specifically challenged so Rent‑A‑Center requires court review Minnieland specifically challenged arbitration (including delegation); court must rule on validity Applied argued Minnieland failed to challenge delegation specifically and burden rests on plaintiff Held: Minnieland sufficiently challenged the delegation provision under Rent‑A‑Center; challenge must be considered by the court
Whether judicial estoppel barred Applied from denying RPA is an insurance contract Minnieland urged estoppel based on Applied's prior statements in other proceedings Applied said prior positions concerned other states/laws and issues of law (not inconsistent facts) Held: District court abused its discretion applying judicial estoppel—prior positions were not inconsistent on the Virginia legal question; estoppel improperly applied
Whether the district court properly compelled arbitration overall Minnieland: arbitration provisions are void in insurance contracts governed by Virginia law Applied: FAA and delegation clause require arbitration; arbitrator should decide Held: Denial of motion to compel arbitration affirmed (because delegation of the insurance‑contract question is void under Va. Code § 38.2‑312)

Key Cases Cited

  • Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (2010) (delegation clauses can allocate arbitrability to arbitrators; challenges to the delegation itself must be litigated in court)
  • Noohi v. Toll Bros., 708 F.3d 599 (4th Cir. 2013) (de novo review of district court orders denying motions to compel arbitration)
  • ESAB Group, Inc. v. Zurich Ins. PLC, 685 F.3d 376 (4th Cir. 2012) (McCarran‑Ferguson reverse preemption permits state insurance regulation to displace federal statutes)
  • Preston v. Ferrer, 552 U.S. 346 (2008) (FAA generally preempts state laws limiting arbitration but subject to McCarran‑Ferguson)
  • South Jersey Sanitation Co. v. Applied Underwriters Captive Risk Assurance Co., 840 F.3d 138 (3d Cir. 2016) (addressed arbitrability of Applied Underwriters RPAs under other states' laws)
  • King v. Herbert J. Thomas Mem'l Hosp., 159 F.3d 192 (4th Cir. 1998) (judicial estoppel is equitable and reviewed for abuse of discretion)
  • Lowery v. Stovall, 92 F.3d 219 (4th Cir. 1996) (four‑element test for applying judicial estoppel)
  • John S. Clark Co. v. Faggert & Frieden, P.C., 65 F.3d 26 (4th Cir. 1995) (doctrine prevents party from adopting positions inconsistent with prior litigation)
  • New Hampshire v. Maine, 532 U.S. 742 (2001) (describing judicial estoppel's purpose to protect judicial integrity)
  • Allen v. Zurich Ins. Co., 667 F.2d 1162 (4th Cir. 1982) (judicial estoppel protects the integrity of the judicial process)
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