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Arbitration Process Issues

UK COURT RULES ON SCOPE OF CONFIDENTIALITY OF ENGLISH ARBITRATIONS

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Due to the relationships between the UK and US insurance and reinsurance markets, and the fact that different reinsurance agreements in a reinsurance program may involve both UK and US arbitration provisions, there are frequent overlaps between the two jurisdictions when things go awry. In a lengthy opinion, the UK Court of Appeals has engaged in an extensive discussion of the basis for the confidentiality of UK arbitration materials, and the circumstances under which such materials may be disclosed in other proceedings. Noting the strong tradition of confidentiality, the Court noted that exceptions “are still in the process of development on a case-by-case basis,” but that the principal instances in which disclosure may be appropriate are: (1) where there is consent, express or implied; (2) by court order (with courts not having general discretion to waive confidentiality); (3) where reasonably necessary for the protection of the legitimate interests of an arbitrating party; and (4) where required in the interests of justice, and perhaps the public interest. This may become a very influential opinion in this area of English jurisprudence. Emmott v. Michael Wilson & Partners Limited [2008] EWCA Civ 184 (Mar. 12, 2008).

This post written by Rollie Goss.

U.S. SUPREME COURT FINDS FAA PREEMPTS CALIFORNIA STATE LAW

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The U.S. Supreme Court ruled that when parties agree to arbitrate all questions arising under a contract, the Federal Arbitration Act (“FAA”) supersedes state laws that refer certain state-law controversies to a judicial forum or administrative agency. This case arose out of a contract dispute between a former Florida trial court judge (currently appearing as “Judge Alex” on Fox television) and his attorney regarding the payment of certain fees. The Petitioner sought to arbitrate the dispute. In response, the Respondent, Ferrer, petitioned the California Labor Commissioner for a determination that the contract was invalid because if violated a California state law known as the Talent Agencies Act (“TAA”). Ferrer also filed a state court action seeking a stay of the arbitration proceeding. The lower courts held that the statutes vested exclusive jurisdiction of the dispute with the Labor Commissioner.

The Supreme Court reversed that decision. The Court stated that “the dispositive issue… is not whether the FAA violates the TAA wholesale. The FAA plainly has no such destructive aim or effect. Instead, the question is simply who decides whether Preston [violated the TAA].” The Court concluded that because the contract contained an arbitration provision, the FAA superseded California state law, lodging jurisdiction elsewhere. blank”>Preston v. Ferrer, No. 06-1463, 552 U.S. _ (Feb. 20, 2008).

This post written by Lynn Hawkins.

COURT ADDRESSES PROCESS FOR REPLACING PARTY-APPOINTED ARBITRATOR WHO HAS WITHDRAWN

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WellPoint Health Networks and John Hancock Life Insurance Company became involved in a dispute over the interpretation of three documents relating to WellPoint’s purchase from John Hancock of what were termed Hancock’s Group Business Operations. The Purchase and Sale Agreement, Coinsurance Agreement and Administration Agreement all contained arbitration provisions. The issue was whether three loss-producing books of insurance business, the most important of which were heavily loss producing personal accident risks originated by JEH Re Underwriting Management in Bermuda, were included in the transaction. WellPoint demanded arbitration, seeking additional information about these businesses and a declaration of its responsibilities. Hancock counter-demanded for arbitration seeking $42.4 million from WellPoint, which it later “revised” to $464.4 million. Both parties appointed an arbitrator, and when the party-appointed arbitrators could not agree on an umpire, under the terms of the contract the Denver office of the American Arbitration Association appointed the umpire. Shortly after Hancock increased its claim by ten-fold, Hancock replaced its counsel and sought to replace its party-appointed arbitrator. Conceding that it could not “fire” its appointed arbitrator, WellPoint apparently convinced the arbitrator to withdraw, and a dispute arose as to how to appoint a replacement.

Neither the agreements nor applicable law expressly covered the issue. WellPoint contended that it could appoint a replacement, while Hancock contended that it could appoint the replacement under a provision allowing it to do so if WellPoint defaulted in timely appointing an arbitrator. The remaining arbitrator and umpire allowed WellPoint to appoint a successor, who Hancock conceded was qualified under the arbitrator qualification provisions of the agreements. The arbitration proceeded in two phases, with an interim award entered after the initial phase, and a final award entered after the second phase. The panel's conclusion was that the JEH Re business was not included in the purchase transaction, and that WellPoint owed Hancock $26.4 million instead of the $464 million it had requested.

Hancock moved to vacate the awards, while WellPoint moved to confirm. The first issue was whether the award after the initial phase was subject to immediate confirmation. If it were, Hancock’s motion to vacate was untimely. The court determined that the “initial award” was not a final award, and that Hancock had acted timely in seeking to vacate the final award.

With respect to the replacement of the arbitrator, the court held that Hancock had not waived its right to challenge the appointment by failing to seek relief immediately under section 5 of the FAA. The court upheld the appointment of the replacement arbitrator by WellPoint based upon its interpretation of the agreements and the evident intention of the parties that each would appoint one of the arbitrators. The fact that neither the agreements nor the FAA clearly addressed the situation provided the court with discretion, which it interpreted to require it to attempt to implement the intention of the parties.

This is a very interesting, 33 page opinion, which addresses a number of issues of great importance in many reinsurance arbitrations. The Seventh Circuit has addressed some interesting arbitration process issues, and we will watch to see if this decision is appealed. WellPoint Health Networks, Inc. v. John Hancock Life Ins. Co., Case No. 07-943 (USDC N.D. Ill. Apr. 24, 2008).

This post written by Rollie Goss.

FAA SUPPLIES ABSENT TERMS IN ARBITRATION CLAUSE

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A Virginia district court dismissed a Complaint alleging breach of contract after the defendant sought to enforce the arbitration clause in the contract governing the parties’ relationship. The plaintiff argued that the arbitration clause was too vague and indefinite to be enforced, in that it failed to prescribe a location, a number of arbitrators, procedural rules, or any enforcement mechanism for an arbitration award. However, because the parties agreed that the FAA was the appropriate federal law regarding arbitration, the court concluded that the absent terms were supplied by the FAA. Wolverine Fire Protection v. Atlantic Marine Construction Co., Case No. 2:08cv75 (USDC E.D. Va. April 24, 2008).

This post written by Lynn Hawkins.

REINSURANCE CLAIMS REJECTED; COURT REFUSES TO SEAL CONFIRMATION

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Argonaut Insurance reinsured Global Reinsurance under excess of loss, quota share and facultative reinsurance agreements. A dispute arose as to whether certain commutation payments made by Global and ceded to the reinsurance agreements came within the scope of the reinsurance agreements, and arbitration was demanded. Background is found in the Petition to Confirm the arbitration award (which is redacted). An arbitration panel decided in favor of Argonaut, finding that the commutation payments were not “claims, losses or settlements within the terms, limits and conditions of the Retrocessional Contracts at issue ….” Copies of the reinsurance contracts and the arbitration award are found in a declaration filed in support of confirmation of the award. The award was confirmed with the agreement of all parties. The court denied a request to keep filings in the confirmation proceeding under seal, finding that there had not been a sufficient showing to overcome the presumption that filings in US District Courts are public. Global Reinsur. Corp. v. Argonaut Insur. Co., Case No. 07-8350 (USDC S.D.N.Y. 2008).

This post written by Rollie Goss.