Arbitration Process Issues

COURT APPROVES REPLACEMENT ARBITRATOR IN REINSURANCE DISPUTE DESPITE TECHNICAL VIOLATION OF ARBITRATION AGREEMENT

December 8, 2015 by Carlton Fields

In a short handwritten ruling, a court recently denied Odyssey Reinsurance Company’s challenge to a replacement arbitrator appointed by its opponents, Certain Underwriters at Lloyds London Syndicate 53 and Reliastar Reinsurance Group. The parties had selected their arbitrators and were beginning the process of selecting an umpire, when Lloyd’s and Reliastar informed Odyssey that they had replaced their appointed arbitrator. Odyssey objected to the replacement arbitrator on the ground that the individual did not satisfy the requirements of the underlying arbitration agreements, which provided: “The arbitrators and umpire shall be officials of Insurance and or Reinsurance companies authorized to transact business in one or more states of the United States of America and writing the kind of business about which the difference has arisen.” Odyssey Re contended that, while the replacement arbitrator was an officer of a broker that had corporate affiliates that wrote the type of insurance business at issue in the arbitration, the arbitrator was not an officer of an actual insurance or reinsurance company. The court rejected Odyssey’s objection, ruling simply that the arbitrator “meets the qualifications” of the arbitration agreement. Odyssey Re v. Certain Underwriters at Lloyds London Syndicate 53 et al., Case No. 1:13-cv-09014 (USDC S.D.N.Y. Oct. 9, 2015).

This post written by Barry Weissman.

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SECOND CIRCUIT FINDS ARBITRATOR DID NOT EXCEED AUTHORITY BY ISSUING AWARD, CONTRARY TO EARLIER AWARD

November 30, 2015 by John Pitblado

This appeal is from a judgment entered by a district court in New York, denying a petition of United Brotherhood of Carpenters and Joiners of America (“UBC”) to enforce a May 4, 2014 arbitration award (“May 4 Award”) and to vacate a subsequent award on May 13, 2014 (“May 13 Award”), and granting Tappan Zee Constructors, LLC’s cross petition, seeking enforcement of the May 13 Award. UBC appealed the district court’s conclusion that the May 4 Award was not final and that the arbitrator did not exceed his authority by issuing the May 13 Award.

The contract at issue provided that the arbitrator must “render a short-form decision within 5 days of the hearing based upon the evidence submitted at the hearing, with a written decision to follow within 30 days of the close of the hearing”. The Second Circuit, under the “heightened standard of deference” courts apply to arbitration awards, concluded that it must defer to the arbitrator’s interpretation of the contract as allowing him to alter the earlier short‐form decision when rendering his later written decision. The Court noted that the contract does not define the term “short‐form”, nor does it specifically require that the second decision echo the result of the first. Thus, the Court held that, absent any such definitions or provisions, the arbitrator had the authority to interpret the contract as allowing him to change or alter the first award in consideration of certain criteria under the National Plan for the Settlement of Jurisdictional Disputes in the Construction Industry, which governed the arbitration. Accordingly, the Court affirmed the district court’s ruling, confirming the May 13 Award and vacating the May 4 Award.

United Brotherhood of Carpenters and Joiners of America v. Tappan Zee Constructors, LLC, No. 15-1002 (2d Cir. Oct. 20, 2015).

This post written by Jeanne Kohler.

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INSURER’S ACTION TO ARBITRATE STAYED IN LIEU OF EARLIER-FILED STATE COURT COVERAGE ACTION

November 23, 2015 by Carlton Fields

An Illinois federal court recently stayed an insurer’s petition to compel arbitration of a dispute with its policyholder, finding that abstention in favor of an earlier-filed suit involving the parties was appropriate under the so-called Colorado River doctrine. A.O. Smith Corporation entered into a settlement/coverage-in-place agreement (the “Agreement”) with Allstate Insurance Company to resolve disputes between them concerning the coverage afforded by various policies for underlying asbestos claims. In exchange for certain payments, the Agreement released Allstate from all claims and liabilities under the subject policies, provided that A.O. would be responsible for a share of defense and indemnity costs, and required A.O. to cooperate in the defense of such claims. The Agreement also contained a provision mandating that A.O. and Allstate resolve disputes by arbitration.

The complex factual history regarding this case can be found here. In short, years after the Agreement was entered into, Continental Casualty Company brought suit in Wisconsin against Allstate, A.O., and other insurers seeking contribution and indemnification for amounts paid by Continental to resolve certain asbestos claims. Allstate moved to stay the action and petitioned an Illinois federal court to compel arbitration under the Agreement on the basis that certain issues involved in the Wisconsin action concerning the Agreement’s scope and A.O.’s duty to cooperate were arbitrable. The Illinois court held that it had subject matter jurisdiction over the action, rejecting A.O.’s motion to dismiss for lack thereof, on the grounds that the Wisconsin suit plainly involved matters that fell within the ambit of the Agreement’s arbitration provision, making it ripe under Section 4 of the Federal Arbitration Act. However, the court granted A.O.’s request to stay the lawsuit pursuant to the Colorado River doctrine, finding that the Wisconsin action would dispose of all the claims presented by Allstate, and that other factors, such as the desire to avoid piecemeal litigation with the other insurer-defendants, that the Wisconsin suit was filed first, the Agreement’s incorporation of Wisconsin law, and the risk of inconsistent rulings weighed in favor of abstention. Allstate Insurance Co. v. A.O. Smith Corp., No. 1:15-cv-06574 (USDC N.D. Ill. Oct. 23, 2015).

This post written by Rob DiUbaldo.

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COURT COMPELS ARBITRATION BUT REFUSES TO STAY PARALLEL STATE ACTION

November 18, 2015 by Carlton Fields

The district court of South Carolina granted National Home Insurance Company’s (“National”) motion to compel arbitration in a dispute over new home defects. Home Buyers Warranty Corporation (“HBW”) manages a program for home warranties. National provides warranties to home builders associated with this program. Respondent, Ruth Bridges (“Bridges”), obtained a home warranty through HBW. Prior to the expiration of the warranty, Bridges contacted National over alleged structural defects in her home. National originally denied the claim and Bridges subsequently sued. National sought arbitration under the agreement which mandated arbitration for “any claim, dispute, or controversy . . . .”

Procedurally, the court first found that it had subject matter jurisdiction over the dispute as the parties were diverse—National is based in Colorado and Bridges is from South Carolina. The threshold question became whether the Federal Arbitration Act (“FAA”) governed the arbitration provision. This question hinged on whether the HBW warranty involved interstate commerce. The court found that because the HBW warranty was located in South Carolina, that HBW completed the warranty application in Georgia, and because National insured the warranty in Colorado, the FAA applied. Because the FAA applied, National’s motion to compel was granted. However, the court did deny National’s petition to stay the proceedings in South Carolina state court pending arbitration. The court found that “[National] has alleged no facts indicating that the state court would fail to act in accordance with its obligations under the FAA . . .” Additionally, the court’s decision did not preclude National from seeking a similar stay order in the South Carolina state court. National Home Ins. Co., v. Bridges et al., No. 6:15-00112-MGL (D.S.C. Oct. 30, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.
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FIFTH CIRCUIT AGAIN REJECTS NLRB RULING THAT EMPLOYMENT AGREEMENTS REQUIRING INDIVIDUAL ARBITRATION ARE UNLAWFUL

November 9, 2015 by John Pitblado

On December 16, 2014, we reported on the National Labor Relations Board’s ruling that Murphy Oil violated the National Labor Relations Act by requiring its employees to sign arbitration agreements which “requir[ed] . . . employees to resolve all employment-related claims through individual arbitration.” The NLRB’s decision reaffirmed its prior D.R. Horton ruling (which we reported on February 16, 2012), but which was reversed by the Fifth Circuit Court of Appeals (which we reported on December 19, 2013). On October 26, 2015, the Fifth Circuit, adhering to its previous decision in D.R. Horton, rejected the NLRB’s ruling in Murphy Oil, holding that the arbitration agreements are not unlawful and that Murphy Oil committed no unfair labor practice by requiring its employees to arbitrate claims on an individual basis, waiving their rights to pursue a class arbitration. The Court upheld the NLRB’s determination that Murphy Oil must take corrective action as to any employees subject to one of its arbitration agreements, which provided that “any and all disputes or claims [employees] may have . . . which relate in any manner . . . to . . . employment” must be resolved by individual arbitration, so that those employees understand that such language did not eliminate their right to pursue claims of unfair labor practices with the NLRB.

Murphy Oil USA, Inc. v. National Labor Relations Board, No. 14-60800 (5th Cir. Oct. 26, 2015).

This post written by Jeanne Kohler.

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