Minnieland Private Day School v. Applied Underwriters

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 17-2385
MINNIELAND PRIVATE DAY SCHOOL, INC., a Virginia corporation,
Plaintiff - Appellee,
v.
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC.,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. Anthony John Trenga, District Judge. (1:15-cv-01695-AJT-IDD)
Argued: October 30, 2018 Decided: January 14, 2019
Before GREGORY, Chief Judge, MOTZ, and WYNN, Circuit Judges.
Affirmed by published opinion. Chief Judge Gregory wrote the opinion, in which Judge
Motz and Judge Wynn joined.
ARGUED: Daniel William Olivas, LEWIS, THOMASON, KING, KRIEG &
WALDROP, P.C., Nashville, Tennessee, for Appellant. James Scott Krein, KREIN
LAW FRIM, Prince William, Virginia, for Appellee. ON BRIEF: R. Dale Bay,
Ryan N. Clark, LEWIS, THOMASON, KING, KRIEG & WALDROP, P.C., Nashville,
Tennessee, for Appellant.
GREGORY, Chief Judge:
Appellant Applied Underwriters Captive Risk Assurance Company, Inc.
(“AUCRA”) comes to us for the second time in this case, appealing the district court’s
determination that a Reinsurance Participation Agreement (“RPA”) executed by it and
Appellee Minnieland Private Day School is an insurance contract under Virginia law.
The RPA, executed in connection with Minnieland’s purchase of workers’ compensation
insurance, contains an arbitration clause. In the district court, AUCRA moved to compel
arbitration in accordance with the RPA’s terms. In opposing arbitration, Minnieland
asserted that the RPA is an insurance contract for purposes of Virginia Code § 38.2–312,
which renders void arbitration clauses contained in insurance contracts. The district court
denied AUCRA’s motion to compel arbitration, finding that AUCRA was judicially
estopped from arguing that the RPA is not an insurance contract. We reversed that
determination, concluding that AUCRA was not estopped from making its argument, and
remanded to allow the parties to brief fully the issue of whether the RPA is an insurance
contract for purposes of Virginia Code § 38.2–312. On remand, the district court held
that the RPA is indeed an insurance contract and that the RPA’s arbitration clause is void
as a matter of law. AUCRA now appeals that determination.
For the reasons set forth below, we conclude that the RPA is an insurance contract
for purposes of Virginia Code § 38.2–312. We therefore affirm.
2
I.
A.
This case involves a workers’ compensation insurance program that Minnieland
purchased from AUCRA and its affiliated entities. Under Virginia law, workers’
compensation insurance is “insurance against the legal liability of any employer for the
death or disablement of, or injury to, his or its employee whether imposed by common
law or by statute, or assumed by contract.” Va. Code § 38.2–119. Workers’
compensation insurance coverage is required of “[e]very employer subject to” Virginia’s
workers’ compensation statute. Va. Code § 65.2–800(A); Redifer v. Chester, 720 S.E.2d
66, 67–68 (Va. 2012).
In general, workers’ compensation insurance is typically provided in one of two
types of policies: a guaranteed cost policy or a retrospective rating plan. Under a
guaranteed cost policy, the premiums are fixed and usually do not change over the term
of the policy. Steven Plitt, Daniel Maldonado, Joshua D. Rogers, & Jordan R. Plitt, 2
Couch on Insurance § 69:10 (3d ed. 1995). In many states, these plans are the only plans
lawfully available to small and mid-sized employers. Retrospective rating plans, on the
other hand, usually require an advance premium deposit with the insurer and then provide
that the insurer, at some specified time, will compute the actual premium based on the
insured’s actual loss experience or total payroll during a set period of time. Id. § 69:16;
see Va. Code § 38.2–1901 (defining “retrospective rating plan” as “a rating plan that
adjusts the premium for the insurance to which it applies on the basis of losses incurred
during the period covered by that insurance”). The insured is then either issued a refund
3
if the actual premium is lower than the premium deposit paid or required to pay the
difference if the actual premium exceeds the deposited amount.
At issue in this appeal is Applied Underwriters, Inc.’s EquityComp program, 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 EquityComp program provides employers with guaranteed
cost workers’ compensation insurance at the same time that they enjoy the benefits—and
are subject to the risks—of a retrospective rating plan. See J.A. 404 (explaining that this
RPA allows small and mid-sized employers to “in effect, have a retrospective rating plan
. . . even though, in fact, the insured has Guaranteed Cost insurance coverage with the
insurance carrier”). 1 The program is so novel that it has been patented.
Under the program, various insurance companies affiliated with Applied
Underwriters, Inc. have entered into a reinsurance pooling agreement. 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, a wholly owned subsidiary of Applied Underwriters, Inc. 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 essence, EquityComp customers participate in underwriting the risk of their
own workers’ compensation insurance policies.
1
Citations to the “J.A.” refer to the Joint Appendix filed by the parties in this
appeal.
4
In theory, an EquityComp customer can save costs on its workers’ compensation
insurance through a refund of monies deposited into its segregated cell if its workers’
compensation insurance claims are kept low during the term of the RPA. As detailed
below, however, Minnieland was unable to reap this benefit.
B.
Minnieland provides education and childcare services in Virginia and is subject to
the workers’ compensation laws and requirements of the state. Va. Code § 65.2–800(A).
On January 14, 2013, Minnieland bought into the EquityComp program.
Minnieland executed a Request to Bind Coverages and Services (“Binder”), by which
Minnieland “request[ed] that Applied Underwriters, Inc. through its affiliates and/or
subsidiaries . . . cause to be issued to [Minnieland] one or more workers’ compensation
insurance policies . . . subject to [Minnieland] executing the . . . [RPA].” J.A. 40. At the
same time, Minnieland executed an RPA. The RPA had a term of three years and
provided that one or more “Issuing Insurers”—all of which were entities affiliated with
Applied Underwriters, Inc.—would issue workers’ compensation insurance policies to
Minnieland. The RPA also established that Minnieland would share in the profits and
losses associated with its policies through its “segregated protected cell.” Applied Risk
Services, Inc. (“ARS”), another subsidiary of Applied Underwriters, Inc., was designated
as the billing agent for both AUCRA and the Issuing Insurers. Schedule 1 of the RPA
sets forth various formulae for calculating premiums and losses under the RPA and
insurance policies.
5
The day after Minnieland executed the EquityComp documents, the RPA went
into effect, as did the first of what would become three consecutive one-year Virginia
workers’ compensation insurance policies, the last of which was to expire on January 15,
2016. The first policy listed the estimated annual premium as $589,163. The second and
third policies listed the estimated annual premiums as $642,333 and $706,160,
respectively. The policies were produced by ARS and insured by Continental Indemnity
Company (“CNI”), another affiliate of Applied Underwriters, Inc.
According to the complaint, at no time was AUCRA licensed to sell insurance in
Virginia, and the RPA has not been approved by the Virginia Workers’ Compensation
Commission.
For the first 33 of the 36 months during which the RPA was active, AUCRA
charged, and Minnieland paid, an average of $58,810 per month in premiums. In
November 2015, however, the premium charged to Minnieland increased drastically to
$471,213, a 1167% increase from the October 2015 premium and a 801% increase over
the first 33 months’ average. Despite Minnieland’s requests, AUCRA refused to disclose
the basis on which it assessed the November 2015 premium. Minnieland nonetheless
paid the November premium.
AUCRA billed Minnieland a similarly high premium of $414,604 for December
2015. AUCRA once again refused to disclose the basis for the increased premium, and
Minnieland did not pay the December premium.
6
On December 16, 2015, AUCRA 2 faxed Minnieland notice that it was terminating
Minnieland’s EquityComp program, including the RPA and insurance coverage, effective
December 27, 2015. The reason provided for the termination of coverage was “Non-
Payment of Premium; Client has an outstanding balance.”
C.
On December 24, 2015, 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) a
declaration that the premiums, deposits, and charges assessed to Minnieland by AUCRA
were excessive. Minnieland also sought damages for fraud and breach of contract.
On January 18, 2016, AUCRA filed a demand for arbitration with the American
Arbitration Association, invoking the RPA’s arbitration provisions. That demand sought
payment from Minnieland of a total of $342,358 that AUCRA claimed it was owed under
the RPA and EquityComp program.
2
The complaint alleges that AUCRA sent the notice. The letter is printed on
“Applied Underwriters” letterhead and does not specify if the sender is AUCRA or
Applied Underwriters, Inc. J.A. 52. The document attached to the letter indicates that it
was “produced by” ARS. J.A. 53.
7
AUCRA also moved the district court to dismiss Minnieland’s complaint and
compel arbitration under the RPA’s arbitration clause. In opposing the motion to compel
arbitration, Minnieland argued that the RPA is an insurance contract. As such,
Minnieland argued, the arbitration clause is void because it is prohibited by Virginia
Code § 38.2–312.
On March 17, 2016, the district court granted in part and denied in part AUCRA’s
motion. The district court determined that the RPA’s arbitration clause calls for
arbitration of the threshold question of whether the RPA is an insurance contract such
that Virginia’s insurance statute, which reverse-preempts the Federal Arbitration Act
(“FAA”), applies. Accordingly, the court ordered the parties to submit that question to
the arbitrator.
A week later, the district court granted Minnieland’s motion for reconsideration of
the court’s March 17, 2016 order. The district court again concluded that the threshold
issue of arbitrability was for the arbitrator to determine. The district court nonetheless
stayed its March 17 order and requested supplemental briefing on Minnieland’s
contention that AUCRA was judicially estopped from arguing that the RPA is not an
insurance contract.
The parties briefed the judicial estoppel issue, and the district court heard
argument on AUCRA’s motion to compel arbitration. The district court denied the
motion to compel, concluding that the four elements of judicial estoppel were met such
that AUCRA was estopped from arguing that the RPA is not an insurance contract. See
8
Lowery v. Stovall, 92 F.3d 219, 223–24 (4th Cir. 1996) (discussing the elements of
judicial estoppel).
AUCRA appealed that order. On appeal, we affirmed in part and reversed in part.
Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co.,
Inc., 867 F.3d 449 (4th Cir. 2017), cert. denied, 138 S. Ct. 926 (2018). We concluded
that Virginia Code § 38.2–312 “renders invalid delegation provisions in putative
insurance contracts governed by Virginia law, at least to the extent such delegation
provisions endow an arbitrator, as opposed to a court, with exclusive authority to
determine whether the contract at issue constitutes an ‘insurance contract’ for purposes of
Virginia law.” Id. at 456. Therefore, we affirmed the district court’s denial of the motion
to compel arbitration. Id. at 457. We also concluded that AUCRA was not judicially
estopped from arguing that the RPA is not an insurance contract under Virginia law. Id.
at 458–59. Because the parties had not had the opportunity to brief fully the issue of
whether the RPA is an insurance contract under Virginia law, we remanded the matter to
the district court. Id. at 459.
On remand, the district court ruled in an oral opinion that the RPA is an insurance
contract. As the district court explained:
Under this arrangement, Minnieland and AUCRA
entered into a contract as a result of which Minnieland
received workmen’s compensation coverage through an
insurance policy in exchange for premiums that were paid for
that coverage.
AUCRA’s position rests entirely on parsing this
transaction to the point of being completely disassociated
with the realities of the overall transaction. So the Court
9
concludes that it’s an insurance contract for the purposes of
38.2–312 as the Fourth Circuit has already determined. 3
J.A. 1073–74. Accordingly, the district court denied the motion to compel arbitration,
finding that “any arbitration provisions pertaining to any disputes under [the RPA] are
void.” J.A. 1074.
AUCRA appeals the district court’s denial of its motion to compel arbitration.
II.
We review de novo a district court’s order denying a motion to compel arbitration
under the FAA. Noohi v. Toll Bros., Inc., 708 F.3d 599, 605 (4th Cir. 2013). “At the
same time, we give due regard to the federal policy favoring arbitration and resolve ‘any
doubts concerning the scope of arbitrable issues . . . in favor of arbitration.’” Hill v.
Peoplesoft USA, Inc., 412 F.3d 540, 543 (4th Cir. 2005) (citation omitted).
In determining whether a dispute is arbitrable, we “apply ordinary state-law
principles that govern the formation of contracts and the federal substantive law of
arbitrability.” Id. (internal citations and quotation marks omitted). Because this matter
3
In our prior opinion, we did not determine that the RPA is in fact an insurance
contract. Rather, we affirmed the district court’s denial of AUCRA’s motion to compel
arbitration on the grounds that Virginia Code § 38.2–312 “renders void delegation
provisions in putative insurance contracts—at least to the extent such provisions
authorize an arbitrator to resolve whether the contract at issue constitutes an ‘insurance
contract.’” Minnieland, 867 F.3d at 457. Recognizing that the parties had not had the
opportunity to brief and argue the issue of whether the RPA is an insurance contract
under Virginia law, we remanded this matter to the district court for consideration of that
issue.
10
involves the question of whether the RPA is an insurance contract for purposes of the
Virginia Code, we look to Virginia law, which the parties agree applies in this case. 4
III.
A.
We begin by addressing AUCRA’s argument that the district court ignored this
Court’s “narrow” mandate and improperly considered the entire program of workers’
compensation insurance—rather than only the RPA—in determining that the RPA is an
insurance contract under Virginia law. Opening Br. 23–26. AUCRA points out that the
complaint names only AUCRA as a defendant, not CNI (the policy issuer), Applied
Underwriters, Inc. (the parent company), or Applied Risk Services (the billing agent). Id.
at 25 (citing J.A. 1). AUCRA also relies on the fact that Minnieland’s claims are
predicated on the RPA alone. Id. (citing J.A. 11–22). In light of this narrow focus of
Minnieland’s suit and our “narrow mandate” to determine whether “the RPA is an
insurance contract under Virginia law,” AUCRA asserts that the district court should
4
We note that the RPA provides that it “shall be exclusively governed by and
construed in accordance with the laws of Nebraska and any matter concerning this
Agreement that is not subject to [arbitration] shall be resolved exclusively by the courts
of Nebraska without reference to its conflict of laws.” J.A. 34 (§ 16). The question of
whether the contract itself is an insurance contract for purposes of Virginia Code § 38.2–
312, however, is a matter of Virginia law, and both parties brief the issue on appeal under
Virginia law. See, e.g., Opening Br. 28–34; Resp. Br. 13, 18–22. Because the parties
agree that Virginia law applies, we need not inquire further into the choice-of-law
questions, and Virginia law controls the analysis. Cosey v. Prudential Ins. Co. of Am.,
735 F.3d 161, 169 n.7 (4th Cir. 2013) (citing Am. Fuel Corp. v. Utah Energy Dev. Co.,
122 F.3d 130, 134 (2d Cir. 1997)). We also note that AUCRA has not invoked the
RPA’s forum selection clause.
11
have considered only the RPA, not the workers’ compensation insurance transaction as a
whole. Id. at 25–26.
Nothing in our prior opinion suggests that we intended to preclude any evaluation
of whether the RPA’s terms are the complete terms of the parties’ agreement or whether
the RPA’s terms should be construed as integrated with the terms of the other
EquityComp agreements. Our mandate was indeed limited to the RPA. However, on the
previous appeal, we were concerned only with the RPA because the RPA contains the
arbitration provision at issue. Because we remanded for consideration of whether the
RPA is an “insurance contract” under Virginia law, the district court was faced with the
initial question of whether the RPA is in fact a standalone contract or is simply one part
of an integrated contract. See Hitachi Credit Am. Corp. v. Signet Bank, 166 F.3d 614,
626 (4th Cir. 1999) (“A contract may be contained in several instruments, and they may
be read together as one instrument [i]f made at the same time and in relation to the same
subject matter.” (alteration in original) (internal citations and quotation marks omitted)).
Only after the court made that threshold determination could it then determine the nature
of the contract. Therefore, the district court did not ignore our previous mandate by
looking at the EquityComp program as a whole.
B.
1.
Having concluded that the district court did not violate our prior mandate, we turn
to the issue at the heart of this appeal: whether the RPA is an insurance contract for
purposes of Virginia Code § 38.2–312. Under Virginia law, “[w]here two papers are
12
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 their several provisions were in one and the same instrument.”
Countryside Orthopaedics, P.C. v. Peyton, 541 S.E.2d 279, 284 (Va. 2001) (alteration in
original) (citations omitted). “To construe two instruments as one, reference in one
instrument to the other need not be explicit; ‘it is sufficient if it is fairly traceable.’”
Hitachi Credit, 166 F.3d at 626 (quoting Tex. Co. v. Northup, 153 S.E. 659, 662 (Va.
1930)). While “a court is not required to construe two documents as one contract just
because they are executed at the same time and concern the same subject matter[,] [t]he
court must give effect to the intent of the parties.” Id. (citing Am. Realty Tr. v. Chase
Manhattan Bank, N.A., 281 S.E.2d 825, 831 (Va. 1981)).
The Virginia courts have yet to address whether a contract similar to the RPA,
executed during an insurance transaction, comprises part of the insurance contract. The
Virginia Supreme Court, however, has taken a rather expansive view of what constitutes
a single integrated contract. In Daugherty v. Diment, the Virginia Supreme Court made
clear that, “[w]here a business transaction is based upon more than one document
executed by the parties, the documents will be construed together to determine the intent
of the parties; each document will be employed to ascertain the meaning intended to be
expressed by the others.” 385 S.E.2d 572, 574 (Va. 1989) (citing Am. Realty Tr., 281
S.E.2d at 830).
The Virginia Supreme Court has since applied Daugherty’s rule regularly to
transactions involving multiple written agreements. In Musselman v. Glass Works, LLC,
13
for example, the Virginia Supreme Court held that an asset purchase agreement and a
non-competition agreement executed at the same time “formed an integrated business
transaction.” 533 S.E.2d 919, 921 (Va. 2000). The purchase agreement provided that the
purchase price was payable in various payments, including a deposit, a sum certain at
closing, a secured promissory note to the sellers, and a total of $60,000 to be paid
pursuant to three non-competition agreements. Id. at 920. The Virginia Supreme Court
rejected an argument that the non-competition agreements were separate, personal service
contracts. Id. at 921. Instead, the court determined that the four contracts formed an
integrated contract because the sum due under the non-competition agreements was
explicitly part of the purchase price of the business under the purchase agreement. Id.
The Virginia Supreme Court has also found that agreements not executed by the
same parties may nonetheless constitute an integrated contract. In Countryside
Orthopaedics, for instance, the court found an integrated contract comprised of four
agreements: two employment agreements executed by Countryside Orthopaedics and
two respective physicians, a Stock Purchase Agreement executed by the physicians, and a
Stockholders’ Agreement executed by all three parties. 541 S.E.2d at 284. The court
held that these documents constituted a single transaction despite the fact that each of the
contracts was not signed by all three parties because “all the parties knew about the
agreements and executed them at the same time as part of a single transaction to
accomplish an agreed purpose.” Id. The court was also persuaded by the fact that “some
of the agreements contain[ed] explicit references to the other agreements.” Id. at 285.
14
Also instructive is Parr v. Alderwoods Grp., Inc., 604 S.E.2d 431 (Va. 2004). The
transaction at issue in that case involved four agreements: an asset purchase agreement, a
non-competition agreement, a lease, and a management agreement. Id. at 432. In
reviewing the agreements, the Virginia Supreme Court rejected the argument that the
management agreement was “a contract separate and apart from” the asset purchase
agreement. Id. at 435. The court found that the management agreement and asset
purchase agreement should be construed “as a single integrated contract” because they
cross-referenced each other and contained certain provisions written in identical
language. Id. The court explained that those references “reflect[ed] the parties’
knowledge and understanding of the interrelationship between the contracts and
provide[d] strong support for the proposition that the parties intended that the documents
constitute a single transaction.” Id. The court further reasoned that, although the four
contracts “identified discrete acts required of the parties,” the contracts all shared the
same result and purpose. Id. Also relevant was the fact that the provisions of the
management agreement “could not be performed” without the acquisition of the business
through the purchase agreement and the lease of the property. Id. As the court stated,
“[t]he absence of any one of the agreements would frustrate the purpose of the
transaction.” Id.
Moreover, it is well-established that insurance may be sold and purchased by way
of more than the pages of the policy itself. See 2 Couch on Insurance § 21:21
(“Endorsements, riders, marginal references, and other similar writings are a part of the
contract of insurance and are to be read and construed with the policy proper.”). Counsel
15
for AUCRA conceded during oral argument that an insurance contract is broader than an
insurance policy and that a policy endorsement, for example, would be considered part of
the insurance contract.
2.
With these principles in mind, we examine the relationship between the Binder,
RPA, and the CNI workers’ compensation insurance policies. Both the RPA and the first
CNI policy went into effect on the same day, one day after Minnieland executed the
Binder and RPA. Issuance of the policy was expressly conditioned on Minnieland’s prior
execution of the RPA. Therefore, as contemplated by the parties, execution of the RPA
would temporally precede issuance of the insurance policy. See Seabulk Offshore, Ltd. v.
Am. Home Assurance Co., 377 F.3d 408, 419 (4th Cir. 2004) (“Under Virginia law, a
contract is made when the last act to complete it is performed, and in the context of an
insurance policy, the last act is the delivery of the policy to the insured.” (citation
omitted)). And the entire program went into effect at the same time, on January 15, 2013.
The subject matter of the documents is also the same: the workers’ compensation
insurance issued to Minnieland, including the manner in which the payroll, premiums,
and losses in connection with the insurance coverage would be calculated and how the
risk would be distributed. The Binder represented Minnieland’s acceptance of the
EquityComp program, and through the Binder, Minnieland requested that Applied
Underwriters, Inc. “through its affiliates and/or subsidiaries . . . cause to be issued”
workers’ compensation insurance coverage to Minnieland. J.A. 40. The RPA also
discusses the insurance coverage; it notes that workers’ compensation insurance coverage
16
“will be provided” to Minnieland by “one or more of the Issuing Insurers,” defined as
affiliates of Applied Underwriters, Inc. J.A. 30–31. The RPA establishes Minnieland’s
participation in a segregated cell to be funded in part by “a portion of the premium and
losses” under the RPA. J.A. 30. The premium and losses are calculated pursuant to the
RPA’s Schedule 1. Id. And Schedule 1 “applies . . . to all payroll, premium, and losses
occurring under the [CNI workers’ compensation insurance] Policies.” J.A. 36.
The documents also internally reference each other and set forth each other’s
terms. The Binder formally requests the issuance of workers’ compensation insurance
coverage subject to Minnieland’s execution of the RPA. The RPA references the
workers’ compensation policies explicitly, and Minnieland was required to execute the
RPA before those policies would issue. Schedule 1 of the RPA establishes the manner in
which Minnieland’s fees for the EquityComp program as a whole would be calculated.
That is, Schedule 1 applies to all premiums and losses under the actual insurance policies.
In fact, the billing statements for Minnieland’s participation in the EquityComp program
show that Minnieland was charged a single “pay-in amount” each month for the
“Workers’ Compensation Program.” J.A. 45, 47, 49 (emphasis added). The RPA also
waives Minnieland’s right to choose deductibles for its workers’ compensation insurance
policies, and the Binder acknowledges that waiver. See J.A. 31 (§ 5), 40.
The RPA and insurance policies are linked in other ways as well. The RPA
provides that its early cancellation terms apply if any one of the insurance policies is
cancelled prior to the end of the RPA’s three-year term. J.A. 31 (§ 4). The RPA also
provides that Minnieland and AUCRA’s obligations under the RPA survive the active
17
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.” J.A. 31 (§ 7). The RPA additionally provides that, in
the event Minnieland defaults under the RPA “or under any other agreement with any
affiliates of [AUCRA] (Affiliated Agreements),” AUCRA “may take all reasonable steps
to protect its and its affiliates’ interests.” J.A. 31 (§ 9). The RPA goes on to state that
“[t]he parties hereto shall have the right . . . to offset or recoup any balances due from one
to the other under [the RPA] or any Affiliated Agreements.” Id. Those Affiliated
Agreements would include the insurance policies issued by CNI, an AUCRA affiliate.
The RPA also sets forth the terms that apply if CNI were required to provide workers’
compensation insurance coverage outside of the active term of the RPA. J.A. 31 (§ 4).
These 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. See Countryside Orthopaedics, 541 S.E.2d at 285; Musselman, 533 S.E.2d at
921.
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 proposal apparently
drafted by ARS, a subsidiary of Applied Underwriters, Inc., to whom the EquityComp
trademark is registered. See J.A. 23 (defining “we” as Applied Risk Services). The RPA
was executed between Minnieland and AUCRA, another subsidiary of Applied
Underwriters, Inc. J.A. 30. And the insurance policies were produced by Applied Risk
18
Services, Inc., another subsidiary of Applied Underwriters, Inc., with CNI, yet another
Applied Underwriters, Inc. subsidiary, as the insuring entity. J.A. 42–44.
Nonetheless, the EquityComp program is promoted and sold as “[o]ne unified
program for your business needs across all states” provided by Applied Underwriters,
Inc., “a premier financial services group of companies with leading experience in the
casualty insurance, reinsurance and business services disciplines.” J.A. 24–25 (emphases
added). The EquityComp program is marketed as being “effected through a separate
reinsurance transaction issued in conjunction with a fully insured, guaranteed cost,
workers’ compensation policy.” J.A. 24. In fact, the Producer’s Quote Transmittal sent
to the agent who brokered this deal for Minnieland expressly stated that the program
proposed to Minnieland was “valid only if presented prior to expiration, in its original
form, and in its entirety without modification.” J.A. 29 (emphasis added). And the
Binder makes clear that insurance coverage was conditioned on execution of the RPA.
Therefore, absent execution of the RPA, the insurance coverage would not have been
offered as proposed. See Nat’l Convention Servs., LLC v. Applied Underwriters Captive
Risk Assurance Co., Inc., 239 F. Supp. 3d 761, 786 (S.D.N.Y. 2017) (examining the
workers’ compensation insurance program offered by AUCRA and its affiliates and
noting that the RPA “would serve no purpose” without the approved guaranteed cost
insurance policies and that “it is plausible that the two can be treated as one
undertaking”); see also Parr, 604 S.E.2d at 435 (finding integrated contract where one
contract’s terms could not be performed in the absence of other contracts).
19
Additionally, the RPA contemplates that its terms will apply to AUCRA’s
affiliates. The RPA provides that “[n]othing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto and their affiliates,
successors and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided herein.” J.A. 35 (§ 19) (emphasis
added). The RPA also provides that “[a]ll existing obligations from each party to the
other or to third parties shall remain in force as of the expiration of the Active Term until
this Agreement is terminated.” J.A. 31 (§ 4) (emphasis added). These provisions further
suggest that Minnieland and AUCRA intended the RPA to be part of an integrated
transaction with AUCRA’s affiliates. See Countryside Orthopaedics, 541 S.E.2d at 284.
During oral argument, counsel for AUCRA highlighted that, despite the RPA’s
Schedule 1, the RPA does not charge “premiums”; it merely explains what happens to the
premiums that are paid under the policies. This, however, does not render the RPA a
standalone contract. Instead, it lends support to Minnieland’s argument that the RPA and
the CNI policies must be read as one integrated contract. The policies set forth an
estimated annual premium that is not subject to the RPA’s Schedule 1 calculations. J.A.
42–44. The policies also contain a Short Rate Cancelation Policyholder Notice that
explains how the final premium will be calculated if the policies are cancelled by
Minnieland. J.A. 761–63. The RPA’s Schedule 1, on the other hand, purports to
establish the total fee to be paid by Minnieland for the EquityComp program as well as
any early cancellation fee that may be due. J.A. 36–37.
20
Schedule 1’s calculations, however, incorporate the provisions of the CNI policies.
Schedule 1 states that it “applies as of the Effective Date [January 15, 2013] to all
payroll, premium, and losses occurring under the Policies.” J.A. 36. Schedule 1 explains
that “[a]n amount equal to the premium earned under the Policies in excess of the Loss
Pick Containment Amount multiplied by the applicable Exposure Group Adjustment
Factor multiplied by the Allocation Factor listed in Table B, will be allocated to the
Participant’s cell.” J.A. 36 (§ 2). Thus, although Minnieland was billed one monthly fee
for the EquityComp program, the premium amount set forth in the policies was part of
that monthly fee and was included in calculating the total amount that would be due
under the program as a whole. Absent the CNI policies, the calculations in Schedule 1—
including the amount to be allocated to Minnieland’s segregated cell—would be
impossible to make.
The early cancellation provision of the RPA also depends on the cancellation
provisions of the CNI policies. The RPA’s early cancellation provision applies if either
Minnieland cancels the RPA or if any of the insurance policies are “cancelled or non-
renewed prior to the end of the Active Term” of the RPA. J.A. 31 (§ 4). That
cancellation policy, described in Schedule 1, states that certain of the factors used to
calculate premiums and losses will be increased in the event of early cancellation and that
Minnieland will be required to pay, among other things, “any remaining premium,
including short rate penalties, due under the Policies.” J.A. 37 (§ 6) (emphasis added).
Those “short rate penalties” are the early termination provisions of the insurance policies.
See, e.g., J.A. 761 (“Short Rate Cancelation Policyholder Notice”). And the short rate
21
penalties apply when the policy is cancelled by Minnieland. Id. Therefore, when the
short rate cancellation provisions of the policies apply, they are another integer of the
formula used under the RPA to calculate the total amount due under the EquityComp
program. In the absence of the CNI policy terms, the RPA’s Schedule 1 calculations and
early cancellation provisions make no sense. See Musselman, 533 S.E.2d at 921.
We do not ignore that Minnieland chose to sue only AUCRA and to base its
claims only on the RPA. However, because the RPA was but one component of an
integrated insurance sale, we must examine the related documents and the relationship
between the affiliated entities. Daugherty, 385 S.E.2d at 574. In the absence of the CNI
policies, the RPA would have been pointless and nonsensical; and in the absence of the
RPA, there would have been no insurance coverage. Nothing in the record suggests that
Minnieland could have simply paid the premiums listed in the CNI policies, without
paying the amounts set forth in the RPA’s Schedule 1, and maintained its workers’
compensation coverage; the RPA expressly provides for the opposite result. Because the
EquityComp program was marketed and sold as a package deal, Minnieland’s failure to
execute the RPA would have frustrated the purpose of the transaction. See Parr, 604
S.E.2d at 435.
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 not determine specifically whether the
RPA constitutes a policy endorsement or rider. Regardless of the label that may attach,
22
the RPA and insurance policies constitute an integrated transaction and must be read as
one contract.
C.
Having determined the scope of the contract at issue, we must now decide whether
the integrated contract is a contract of insurance under Virginia Code § 38.2–312. The
Virginia Code does not define “insurance contract.” It does define “insurance,” however,
as “the business of transferring risk by contract wherein a person, for a consideration,
undertakes (i) to indemnify another person, (ii) to pay or provide a specified or
ascertainable amount of money, or (iii) to provide a benefit or service upon the
occurrence of a determinable risk contingency.” Va. Code § 38.2–100. The Code also
lists the required terms of “[e]ach insurance policy or contract”:
1. The names of the parties to the contract;
2. The subject of the insurance;
3. The risks insured against;
4. The time the insurance takes effect and, except in the case
of group insurance, title insurance, and insurance written
under perpetual policies, the period during which the
insurance is to continue;
5. A statement of the premium, except in the case of group
insurance and title insurance; and
6. The conditions pertaining to the insurance.
Va. Code § 38.2–305. 5
5
Minnieland cites to Virginia common law for the essential terms of an insurance
contract. See Resp. Br. 20–21; Grp. Hospitalization Med. Serv., Inc. v. Smith, 372 S.E.2d
(Continued)
23
Neither party argues that the terms of the CNI policies themselves fail to meet the
statutory requirements for insurance contracts. In fact, AUCRA acknowledges that the
CNI policies meet Virginia’s requirements. Opening Br. 7 n.3. Construing the CNI
policy terms as integrated with those of the RPA, as though the terms of each were
written in a single document, Countryside Orthopaedics, 541 S.E.2d at 284, it becomes
clear that the contract at issue is an “insurance contract” under Virginia law.
Accordingly, the district court properly determined that the RPA is an insurance contract
for the purposes of Virginia Code § 38.2–312.
D.
We note, as Minnieland does, that we are not the first to determine that the
program marketed by Applied Underwriters, Inc. is insurance. In fact, several state
insurance commissioners have determined that the EquityComp program and its sister
program, SolutionOne, are not only subject to insurance regulations, but also violate
those regulations. For example, the Vermont Department of Financial Regulation has
barred Applied Underwriters, Inc. from selling the RPA in conjunction with guaranteed
159, 160 (Va. 1988) (listing “essential terms” of insurance contract as: “(1) the subject
matter to be insured; (2) the risk insured against; (3) the commencement and period of the
risk undertaken by the insurer; (4) the amount of insurance; and (5) the premium and time
at which it is to be paid” (citation omitted)). AUCRA argues that, since the addition of
the definition of “insurance” to the Virginia Code in 2001, this common law definition is
no longer controlling. Opening Br. 32–33. The Virginia Supreme Court has not applied
the common-law definition in connection with the statutory definition of “insurance.”
However, the common-law elements are essentially the same as the statutory
requirements for every insurance policy. Therefore, an evaluation of the contract at issue
under either the statutory factors or the common-law definition should yield the same
result.
24
cost insurance policies in Vermont after concluding that the RPA “de facto operated as a
retrospective rating plan, replacing [CNI’s] guaranteed-cost workers’ compensation
insurance policy with an unfiled, unapproved retrospective rating plan.” J.A. 233.
Similarly, the Wisconsin Office of the Commissioner of Insurance entered into an
agreement with ARS and CNI that they will “cease and desist from marketing, binding,
issuing and renewing SolutionOne and EquityComp policies and any similarly designed
policies and programs that involve side agreements that affect the terms of the workers’
compensation policy, including but not limited to reinsurance agreements.” J.A. 375.
The California Insurance Commissioner likewise found that the EquityComp program
and its RPA violate the California Insurance Code. See Decision and Order, In the
Matter of the Appeal of Shasta Linen Supply, Inc., No. AHB-WCA-14-31 (Dep’t of Ins.,
State of Cal. June 20, 2016), http://www.insurance.ca.gov/0250-insurers/0500-legal-
info/0600-decision-ruling/0100-precedential/upload/ShastaLinenSupplyInc.pdf.
Other courts faced with the RPA and similar related documents have also
suggested that the program marketed by Applied Underwriters, including the RPA, is
insurance. See, e.g., Nat’l Convention Servs., 239 F. Supp. 3d at 786 (observing that the
RPA and guaranteed cost policies “plausibly serve the common purpose of providing
workers’ compensation insurance at rates that are affected by loss experience”); Nielsen
Contracting, Inc. v. Applied Underwriters, Inc., 22 Cal. App. 5th 1096, 1116–17 (Cal. Ct.
App. 2018) (determining that the RPA’s provisions were meant to replace those of the
insurance policies and that the Applied Underwriters affiliated entities were “so
enmeshed” and “intertwined” that the RPA and insurance policies should be considered
25
together); Citizens of Humanity, LLC v. Applied Underwriters Captive Risk Assurance
Co., Inc., 909 N.W.2d 614, 632 (Neb.) (stating that “the RPA has the hallmarks of a
retrospective rating plan” and concluding that the RPA is an “agreement concerning or
relating to an insurance policy” under Nebraska law), cert. denied, 139 S. Ct. 274 (2018).
While each of these other jurisdictions has evaluated the RPA under different laws
and for different purposes, the general consensus has consistently been that the RPA is
subject to insurance regulations. We join that consensus in holding that the RPA at issue
here is an insurance contract under Virginia law. Because arbitration provisions in
insurance contracts are void under Virginia law, Va. Code § 38.2–312, AUCRA must
face Minnieland’s claims in court.
IV.
For these reasons, we affirm the judgment of the district court.
AFFIRMED.
26