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New reinsurance-related and arbitration developments from Carlton Fields

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Arbitration Process Issues

SPECIAL FOCUS: multiple arbitrations

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Courts are sometimes asked to consolidate mutliple arbitrations relating to insurance and reinsurance matters. This issue has been the topic of three recent court opinions.

  • In Markel International Ins. Co. v. Westchester Fire Ins. Co., Case No. 05-5522 (Aug. 10, 2006), the United States District Court for the District of New Jersey found that since the issue of the type of arbitration proceeding, including whether multiple arbitrations should be consolidated, was not a “gateway” issue under the Supreme Court’s analysis in Green Tree Financial Corp. v. Bazzle, 539, U.S. 444 (2003), the arbitrators, rather than the courts, should decide whether to use multiple arbitration panels or a consolidated panel.
  • In Allstate Ins. Co. v. Global Reinsurance Corp., Case No. 06-4419 (Aug. 8, 2006), the United States District Court for the Southern District of New York held that arbitrators should decide whether to consolidate two arbitrations related to two facultative reinsurance certificates.  The Court strongly implied that if the reinsurance agreements contained a provision relating to consolidated arbitrations, that the Court could have acted to enforce whatever the parties had agreed to in that regard.
  • In Certain Underwriters at Lloyd’s v. Westchester Fire Ins., Case No. 06-1457, the United States Court of Appeals for the Third Circuit currently is accepting briefing of an appeal of a decision of a District Court decision that required separate arbitration panels in multiple arbitrations.  The briefs suggest that conflict exists on this issue between a pre-Bazzle unreported Third Circuit opinion and a post-Bazzle Seventh Circuit opinion.

Expect further developments in this area.

Party loses right to appoint arbitrator due to untimely appointment

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An arbitration provision required that both parties appoint an arbitrator within 30 days of receipt of written notice from the other party requesting that it do so. Lloyd's appointed an arbitrator timely. The 30th day after receiving such notification for Argonaut fell on the Sunday before Labor Day, and when the appointment was not made by the end of Sunday, Lloyd's appointed a second arbitrtator on Labor Day. Argonaut appointed an arbitrator the following day, claiming that the time for its appointment was extended since its deadline fell on a Sunday, followed by a holiday. The Court disagreed, holding that the agreement to appoint within 30 days was binding, and upheld Lloyd's appointment of two arbitrators. Certain Underwriters at Lloyd's v. Argonaut Insurance. Co., Case No. 04-5852 (N.D. Ill. Aug. 8, 2006).

Court of Appeals defers issues of arbitration procedure to arbitrators

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In an unreported opinion, the United States Court of Appeals for the Ninth Circuit affirmed the action of a District Court that declined to become involved in how an arbitration would be conducted, including whether consolidating multiple arbitrations was appropriate. The Court followed Supreme Court precedent in holding that the courts should only decide “gateway issues” such as whether there was a valid agreement to arbitrate, leaving issues relating to arbitration procedure to the arbitrators. Certain Underwriters at Lloyds v. Cravens Dargan & Co., 2006 WL 2337959, Case No. 05-56154 (9th Cir. Aug. 14, 2006).

Wisconsin Supreme Court vacates arbitration award

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Construing the Wisconsin arbitration statute, the Wisconsin Supreme Court vacated an arbitration award in a dispute between Allstate Insurance Company and a policyholder on the basis that a party-appointed arbitrator demonstrated evident partiality. Borst v. Allstate Insurance Co., Case No. 2004 AP 2004 (Wisc. June 13, 2006). The arbitrator appointed by Allstate was an attorney who had a “substantial, ongoing attorney/client relationship with Allstate.” Even though the relationship was disclosed, and all parties were aware of the relationship going into the arbitration hearing, the Court found that disclosure and knowledge did not avoid the prohibition of such a relationship under Wisconsin law. The Court also strictly limited the permissible discovery depositions to those permitted by the Wisconsin statute.

UK Court issues injunction to stop actions in a United States District Court

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At the request of the sole member of a Lloyd's syndicate that is in run-off, the London Commercial Court has issued an injunction to restrain a party to a UK arbitration from seeking to intervene in a related action pending in a United States District Court, in which it would seek to restrain the Claimant in the UK arbitration from proceeding with the UK arbitration. Goshawk Dedicated Ltd. v. ROP Inc., [2006] EWHC 1730 (Queen's Bench Div. Commercial Court July 12, 2006). The Court held that the parties were obligated to arbitrate in the UK, as contractually agreed. This is an interesting example of a jurisdictional conflict between two countries.