Arbitration Process Issues

INJUNCTION ISSUED TO PREVENT WRITING OR AMENDING REINSURANCE RISKS PURSUANT TO BINDING AUTHORITY PENDING ARBITRATION

May 31, 2011 by Carlton Fields

The US District Court for the Eastern District of New York recently adopted the US Magistrate’s Report and Recommendation, granting United Insurance Company’s Motion in Aid of Arbitration for a Preliminary Injunction. The dispute arose out of a Binding Authority Agreement (“BAA”) authorizing World Wide Re (formerly World Wide Management Consultants) to underwrite and bind reinsurance risks on UIC’s behalf subject to the underwriting guidelines. The BAA allows both parties to terminate the agreement immediately upon notice for cause, in the event that either party breaches the agreement. The BAA also provides for mandatory arbitration of all disputes. On February 28, 2001, UIC sent a Notice of Termination to World Wide asserting that it breached the agreement when it disregarded UIC’s specific instructions not to bind the risk related to Arcelor Mittal’s reinsurance. By letter dated March 3, World Wide responded, stating that it would continue to write business until an arbitration decision was rendered granting the relief sought. World Wide has since continued to bind risks on behalf of UIC. UIC subsequently filed the instant motion for a preliminary injunction.

The Magistrate issued a Report and Recommendation (adopted by the District Court) granting the motion. The Magistrate concluded that World Wide’s continued actions to continue binding risk on behalf of UIC constituted irreparable harm, and that UIC had demonstrated a likelihood of success on the merits. Accordingly, World Wide was enjoined from writing reinsurance risks on behalf of UIC or modifying or canceling existing risks. United Insurance Co. Ltd. v. Word Wide Web Re, Case No. 11-01177 (E.D. N.Y. Apr. 27, 2011).

This post written by John Black.

IN ABSENCE OF A PRESCRIBED METHOD, A PARTY CAN CHOOSE ITS OWN REPLACEMENT ARBITRATOR

May 25, 2011 by Carlton Fields

The manner in which a replacement arbitrator is selected where the agreement is silent was resolved in a recent case. Northwestern National Insurance Company petitioned the court to appoint an ARIAS-certified replacement arbitrator for its reinsurer Insco, Ltd. Insco’s arbitrator had resigned three days before argument on Northwestern’s summary judgment motion amid allegations from both sides that the other’s arbitrator was improperly partial. The arbitration agreement provided that each party would select its own arbitrator and that a neutral umpire would be appointed; the agreement, however, did not supply a method for replacing an arbitrator. Shortly after Northwestern filed its petition, Insco appointed an ARIAS-certified arbitrator of its own choosing. The court denied Northwestern’s request. Although the court had the power to appoint an arbitrator under Section 5 of the FAA, allowing Insco to appoint a replacement was consistent with the terms of the reinsurance agreement and the underlying goals of arbitration. Northwestern National Insurance Co. v. INSCO, Ltd., Case No. 11 Civ. 1124 (USDC S.D.N.Y. May 12, 2011).

This post written by Ben Seessel.

ARBITRATOR SHOULD DECIDE TIMELINESS EVEN WHERE CONTRACT SELECTS LAW THAT PERMITS IT TO BE DETERMINED IN COURT

May 17, 2011 by Carlton Fields

The Second Circuit Court of Appeals has recently reversed a court decision to apply New York law to bar the arbitration of a Brazilian construction dispute as untimely, holding that this issue should have been determined by the arbitrator. The Second Circuit held that the underlying contract ambiguously contained both a provision calling for “any” contract dispute to “be finally settled by arbitration” and a New York choice of law provision. New York law permits a party to litigate in court a statute of limitations defense. In resolving the ambiguity in favor of arbitration, the Second Circuit applied Supreme Court precedent, which holds that where a contract contains a broad arbitration provision and a general choice of law provision that does not itself specify that a timeliness defense should be withheld from arbitration, the choice of law provision “encompasses substantive principles” that courts would apply, but not “special rules limiting the authority of the arbitrators.” Bechtel Do Brasil Construcoes Ltda. v. UEG Araucaria LTDA, No. 10-0341 (2d Cir. March 22, 2011).

This post written by Michael Wolgin.

UNCONSCIONABILITY DOCTRINE PREEMPTED BY FAA

May 16, 2011 by Carlton Fields

In a Special Focus analysis, we profile the long-awaited Supreme Court decision in AT&T v. Concepcion, which holds that the Federal Arbitration Act prohibits states from conditioning the enforceability of an arbitration agreement on the availability of class wide arbitration procedures. AT&T v. Concepcion, No. 09-893 (US Apr. 27, 2011).

This post written by John Black.

INTERPRETATION OF TREATY’S “ACT-AS-ONE” PROVISION HELD TO BE A PROCEDURAL ISSUE FOR ARBITRATORS TO DECIDE

May 11, 2011 by Carlton Fields

National Casualty is one of several reinsurers providing reinsurance to Munich Re under a single treaty. Munich Re submitted claims under the treaty that were denied by National Casualty and another reinsurer, Wasau. The treaty provided disputes would be submitted to arbitration and that if more than one reinsurer was involved in the same dispute, all the reinsurers would constitute and act as one party. Wasau refused to submit to the arbitration, however, and National Casualty refused to proceed without Wasau, taking the position that the treaty’s “act-as-one” clause prohibited the arbitration from going forward without Wasau as a party. Munich Re successfully moved to compel. The district court held that whether the “act-as-one” provision prohibited a separate arbitration against National Casualty was a threshold procedural issue for the arbitrators to decide. Munich Reinsurance America, Inc. v. National Casualty Co., Case No. 10 Civ. 5782 (USDC S.D.N.Y. April 26, 2011).

This post written by Ben Seessel.