MINNIELAND PRIVATE DAY SCHOOL, INC., a Virginia corporation, Plaintiff - Appellee,
APPLIED UNDERWRITERS CAPTIVE RISK ASSURANCE COMPANY, INC., Defendant-Appellant.
Argued: October 30, 2018
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)
William Olivas, LEWIS, THOMASON, KING, KRIEG & WALDROP,
P.C., Nashville, Tennessee, for Appellant.
Scott Krein, KREIN LAW FRIM, Prince William, Virginia, for
Dale Bay, Ryan N. Clark, LEWIS, THOMASON, KING, KRIEG &
WALDROP, P.C., Nashville, Tennessee, for Appellant.
GREGORY, Chief Judge, MOTZ, and WYNN, Circuit Judges.
GREGORY, CHIEF JUDGE
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.
reasons set forth below, we conclude that the RPA is an
insurance contract for purposes of Virginia Code §
38.2-312. We therefore affirm.
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).
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 if the actual
premium is lower than the premium deposit paid or required to
pay the difference if the actual premium exceeds the
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"). The program is so
novel that it has been patented.
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.
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.
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).
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.
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.
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.
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.
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 16, 2015, AUCRA 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