Arbitration Process Issues

A court compelled arbitration of a dispute between an insurer and an affiliated group of multinational companies, despite the fact that the agreement to arbitrate was “narrow,” signed by only one of the plaintiff companies, and subject to a statute of limitations defense that state law permitted to be addressed in court. The contract governed certain obligations under separate insurance agreements, including premium obligations and reimbursement of specified expenses incurred in settling claims. The contract contained an arbitration agreement, which provided for arbitration of “[a]ll disputes or differences arising out of [the contract’s] interpretation.” When a dispute arose regarding the insureds’ failure to reimburse the insurer for certain expenses, the insurer demanded arbitration and the insureds sued for a declaration that the claims were not arbitrable, and were barred by state statute of limitations.

Plaintiffs argued that the arbitration agreement was “narrow” and did not apply to the parties’ dispute, which they alleged related to matters collateral to the contract’s terms. While the court agreed that the agreement was narrow and that some record evidence supported their description of the dispute, the court found that there was sufficient evidence to find that the dispute “might” involve interpretation of the contract’s reimbursement calculation terms. The court also rejected plaintiffs’ argument that the non-signatories were not bound, holding that the non-signatories were estopped from excluding themselves because they effectively conceded receiving a “direct benefit” from the contract. Regarding the plaintiffs’ statute of limitations argument, the court held that despite the fact that the parties agreed to a choice of state law that provides for a limitations defense to arbitration to be made in court, the limitations issue was for the arbitration panel. Alfa Luval U.S. Treasury Inc. v. National Union Fire Insurance Co. of Pittsburgh, PA, Case No. 1:11-cv-01872 (USDC S.D.N.Y. Jan. 26, 2012).

This post written by Michael Wolgin.

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The National Labor Relations Board (“NLRB”) affirmed an administrative law judge’s decision that an employer violated the National Labor Relations Act (“NLRA”) by requiring covered employees, as a condition of employment, to sign an agreement precluding them from filing class actions addressing their wages, hours or other working conditions in any forum, arbitral and judicial. The NLRB found that such a prohibition unlawfully restricts employees’ NLRA Section 7 rights to engage in concerted action for mutual aid or protection. The NLRB stated that its holding does not conflict with the FAA or undermine the policy underlying the FAA and distinguished the Supreme Court’s recent Stolt-Nielson and Concepcion decisions. D.R. Horton, Inc., Case No.12-CA-25764 (N.L.R.B. Jan. 2, 2012).

This post written by Ben Seessel.

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Union Insurance Company and other insurers entered into an “Agency-Company Agreement,” with broker Hull & Company, providing Hull with binding authority. Hull bound risk from the Thirsty Parrot Bar and Grill, including umbrella coverage from Union. The Thirsty Parrot ultimately settled a covered assault claim against one its former employees, to which Union contributed $800,000. Union sought recompense from Hull, alleging that Hull breached underwriting guidelines which were incorporated by reference into the Agency-Company Agreement. Union sought to compel arbitration of its claim, but Hull resisted. The Court refused to compel arbitration under a provision allowing arbitration of disputes pertaining to “misunderstanding as to the interpretation or application of any provision of this Agreement.” The Court found that the dispute over underwriting guidelines was not related or collateral to interpretation of the Agency-Company Agreement, because it found that Union failed to establish that the underwriting guidelines were incorporated by reference into the Agreement, and thus the dispute did not come within the Agreement’s arbitration provision. Union Ins. Co. v. Hull &Company, Inc., Case No. 4-00337 (USDC S.D. Iowa Dec. 19, 2011).

This post written by John Pitblado.

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A federal district court consolidated several reinsurance cases to be heard before an arbitration panel already formed to hear a dispute between the parties, as well as a corporation which the parties agreed to keep confidential. The court determined that, to avoid duplicative litigation and conserve litigation, all three actions could be consolidated and resolved through arbitration. Further, because all three actions arose from the same set of operative facts the arbitration panel already in existence could determine the correct reading of the arbitration agreements contained in each reinsurance agreement. The panel would first determine if each dispute should be heard by an independent panel. The court stayed the actions pending resolution by the existing arbitration panel. Arrowood Indemnity Co. v. Harper Insurance Co., No. 12-2 (USDC W.D.N.C. Jan. 19, 2012).

This post written by John Black.

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