Minnieland Private Day Sch., Inc. v. Applied Underwriters Captive Risk Assurance Co.

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.

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 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.

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 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.

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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.

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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.

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 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

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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,

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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.

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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.

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