The dispute involved whether a defense contractor, its owners, and its captive insurance companies (collectively, “OSI”) were entitled to a return of their premiums from a non-party insurer (“PoolRe”) that serviced a risk pool in which OSI had decided not to participate. This unsuccessful risk pool arrangement had been arranged by a law firm and related companies (collectively, “Capstone Companies”) that were responsible for forming and administering the captives. Following a contested arbitration in Texas, which culminated in an award that was vacated, and a concurrent Delaware litigation that culminated in a dismissal in favor of a second arbitration in Delaware, a Delaware arbitrator awarded OSI reimbursement of the premiums it had paid to non-party PoolRe. However, since PoolRe was not a party to the agreement between OSI and Capstone Companies, the arbitrator exercised its equitable powers and ordered the Capstone Companies “to arrange for the payment” from PoolRe to OSI.
Capstone Companies moved to vacate the award, and the Delaware district court granted the motion, ruling that the arbitrator exceeded his authority by awarding relief against non-party PoolRe. While the award did not technically require any action on the part of PoolRe because all the obligations were imposed upon the Capstone Companies to arrange for payment, the court found that the award effectively imposed an obligation upon a non-party. The court was also persuaded by the fact that a separate arbitration proceeding was pending between OSI and PoolRe before the International Chamber of Commerce, and the Delaware award’s attempt to adjudicate PoolRe through Captstone could result in a conflicting award. Hendricks, et al. v. Feldman Law Firm LLP, et al., Case No. 1:14-cv-00826 (USDC D. Del. Sept. 25, 2015).
This post written by Barry Weissman.
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