On September 14, 2017, we reported on the Fourth Circuit’s reversal of a district court’s denial of a motion to compel arbitration, which found that a party was judicially estopped from arguing that a Reinsurance Participation Agreement (“RPA”) was not an insurance contract. (If the RPA is an insurance contract, its arbitration provision becomes invalid under state law.) Subsequent to that ruling, on remand, the district court held that the RPA is indeed an insurance contract and that the RPA’s arbitration clause is void.

The Fourth Circuit has now affirmed the district court. The circuit court explained that the RPA was part of a workers’ compensation insurance program that Appellee Minnieland Private Day School purchased from Appellant Applied Underwriters Captive Risk Assurance Company, Inc. (AUCRA) and its affiliated entities. Under this “EquityComp” program, the pooled companies provide workers’ compensation insurance coverage to employers and also mutually reinsure each other’s insurance business. A layer of reinsurance is also provided by AUCRA. AUCRA in turn enters into RPAs with EquityComp customers, under the terms of which each customer pays into a segregated “cell” or account that is then used to fund AUCRA’s liabilities. In this fashion, EquityComp customers participate in underwriting the risk of their own workers’ compensation insurance policies. Minneland sued AUCRA alleging that AUCRA was not authorized or licensed to act as an insurance company under Virginia law; that the RPA was 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.

In affirming the denial of arbitration, the Fourth Circuit rejected AUCRA’s argument that the RPA was a standalone contract. Instead, the panel determined that the RPA was but one component of an integrated insurance sale because the documents, including the RPA, were intended to provide Minnieland with workers’ compensation insurance coverage. Minnieland Private Day School v. Applied Underwriters Captive Risk Assurance Co. Inc., Case No. 17-2385 (4th Cir. Jan. 14, 2019).