Arbitration Process Issues

COURT PUNTS DECISION ON HOW A PREVIOUS ARBITRATION AWARD AFFECTS A CURRENT DISPUTE TO ARBITRATOR

March 17, 2016 by John Pitblado

A Wisconsin federal district court determined, pursuant to the parties’ arbitration clause, it is the job of an arbitrator, not the court, to decide whether a present billing issue was resolved in a prior arbitration. The broad arbitration clause at issue stated “if any dispute shall arise . . . with reference to the interpretation of this Agreement . . . [it] shall be submitted to three arbitrators.” Previously, the parties had disagreed as to whether certain reinsurance treaties covered billings relating to a claim, which was resolved in a final order confirmed by the Court in 2004. In 2015, CNA demanded arbitration from Wausau for unpaid billings with respect to the same insured party, arguing the billings are part of a new and different dispute and subject to arbitration. Wausau disagreed, insisting they were improper “rebillings” already resolved in the 2004 arbitration.

The Court held under either party’s characterization, the dispute was subject to arbitration because whether or not CNA is, or is not, in compliance with the 2004 order is itself a dispute arising “with reference to the interpretation” of the party’s agreement. Essentially, Wausau was asking the Court to determine how the 2004 order should be treated in future arbitration disputes. The Court declined to do so, holding the “law is clear that arbitrators must determine in the first instance how a previous arbitration award affects a current dispute.” The parties were ordered to submit to arbitration and the action was dismissed.

Employers Ins. of Wausau, f/d/a Employers Ins. of Wausau a Mut. Co. v. Cont’l. Cas. Co., Case No. 15-cv-226 (USDC W.D. Wis. Feb. 17, 2016)

This post written by Nora A. Valenza-Frost.

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NEW YORK COURT OF APPEALS FINDS MCCARRAN FERGUSON ACT DOES NOT REVERSE PREEMPT THE FAA WITH RESPECT TO CALIFORNIA INSURANCE CODE § 11658

March 15, 2016 by John Pitblado

In an action to compel arbitration under payment agreements entered into between National Union and its insured, the New York Court of Appeals held the determination of arbitrability was not barred by the McCarran Ferguson Act, and would be decided by an arbitration panel, despite the fact National Union did not file copies of its workers’ compensation insurance policies in accordance with California Insurance Code § 11658. § 11658 requires workers’ compensation insurers to file copies of policies prior to issuance and at the time the payment agreements at issue were entered into. California law did not mandate a specific form or content of arbitration clauses, nor otherwise restrict their use. The law was later amended, requiring arbitration provisions in workers’ compensation policies or endorsements be disclosed to each potential insured, and failure to do so resulted in a default to California as the choice of law and forum (see § 11658.5).

Since California law did not prohibit arbitration in the insurance context, no law would be “invalidated, superceded or impaired” by application of the FAA, and thus the McCarran Ferguson Act does not reverse preempt the FAA with respect to § 11658. It was therefore up to the arbitrators – not the Court – to determine the question of whether the payment agreements’ arbitration provisions, and the agreements themselves, are enforceable under California law, despite the fact they were not filed in accordance with § 11658. The parties were required to arbitrate as they had clearly delegated the question of arbitrability and enforceability of the arbitration clauses to the arbitrators, and pursuant to the FAA, such arbitration provisions should be enforced as written.

Monarch Consulting, Inc., et al. v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., et al., Case No. 8 (N.Y. Feb. 18, 2016)

This post written by Nora A. Valenza-Frost.

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FIFTH CIRCUIT UPHOLDS DISTRICT COURT DISMISSAL OF MOTION TO STAY ARBITRATION

March 3, 2016 by Carlton Fields

The appellant disputed the manner in which the arbitrators were selected under the applicable arbitration agreement, as well as the partiality of the arbitrators. The district court refused to stay the arbitration, ruling that it lacked jurisdiction to address these issues before the panel renders a decision. The Fifth Circuit affirmed on this ground, but also noted that the appellant could not show a “lapse” in the selection of arbitrators or another significant breakdown in the arbitration process. The court characterized the appellant’s argument as an attempt to “rewrite” the arbitration agreement “to require that every arbitration among [the] multiple parties comprise only two ‘sides.’” The “plain wording of that provision,” however, showed that three or more “sides” were contemplated. Avic Int’l USA, Inc. v. Tang Energy Group, Ltd., Case No. 15-10190 (5th Cir. Aug. 25, 2015).

This post written by Joshua S. Wirth.

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FOLLOWING REVERSAL OF ARBITRABILITY RULINGS ON APPEAL, COURT DISMISSES REINSURANCE LITIGATION BASED ON FORUM SELECTION

February 29, 2016 by Carlton Fields

On August 15, 2014, we reported on a Tennessee district court finding unenforceable an arbitration clause in a Reinsurance Participation Agreement (RPA) between an insured and a reinsurer. The insured had filed a lawsuit seeking to reform the RPA, and the reinsurer sought to compel arbitration. The court refused to compel arbitration, finding that the arbitration clause was invalid. Subsequently, the Sixth Circuit vacated this ruling, finding that the parties manifestly intended to submit the threshold question of arbitrability to the arbitrator and not the court. On remand to arbitration, the arbitrator then determined that the matter was not arbitrable based on the RPA’s forum selection clause. In response to that ruling, the reinsurer moved to vacate it, and to dismiss the lawsuit altogether based on the choice of a Nebraska forum in the RPA’s forum selection clause.

The court has now granted dismissal, holding that the forum selection clause was unambiguous, and it was mandatory. The court also found that the insured failed to demonstrate that the clause was obtained by fraud, duress or other unconscionable means, that a Nebraska court would not handle the suit properly, or that Nebraska was seriously inconvenient to the insured. The insured also failed to show that “public-interest” factors disfavored a dismissal. Milan Express Co., Inc. v. Applied Underwriters Captive Risk Assurance Company, Inc., Case No. 1:13-CV-01069 (USDC W.D. Tenn. Feb. 2, 2016).

This post written by Barry Weissman.

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APPELLATE COURT REVERSES ORDER GRANTING MOTION TO COMPEL ARBITRATION

February 24, 2016 by Carlton Fields

In a three paragraph memorandum decision, the Ninth Circuit has reversed an order of a district court granting a motion to compel arbitration. The Court held that the district court erred in holding that the non-movant, GIB, had waived its right to a trial to determine the enforceability of a written arbitration agreement. The Court stated that once GIB challenged the validity of the agreement the district court was obligated under the Federal Arbitration Act to hold a trial on the issue of the validity of the agreement. Second, the Court held that the district court erred in holding GIB, which was not a signatory to the written arbitration agreement, bound by the agreement by the doctrine of estoppel, finding the factual record insufficient to support the district court’s ruling. Finally, the Court held that the submission by GIB of a sworn declaration denying that the parties had entered into a written agreement, accompanied by e-mails which suggested a different, more informal, agreement, precluded the district court from deciding, as a matter of law, that the parties had entered into an agreement to arbitrate. GIB, LLC v. Salon Ware, Inc., No. 14-55399 (9th Cir. Feb. 5, 2016) (unpublished).

This post written by Rollie Goss.
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