A court has confirmed, by agreement of the parties, an arbitration award that rejected an attempt to avoid multiple excess of loss reinsurance agreements based upon the contention that the reinsured had not disclosed information in its possession at the time of placement with respect to prospective losses. The describes the background of the dispute, which resulted in an , which was confirmed in an entered based upon a . American Home Assur. Co. v. CGU Int’l Ins., Case no. 06-6819 (S.D. N.Y.).
Confirmation / Vacation of Arbitration Awards
Cundiff and State Farm arbitrated the amount of damage suffered by Cundiff as a result of an automobile accident while working. Neither party challenged the award or sought confirmation. The policy contained a provision allowing State Farm to offset benefits received from worker's compensation from any policy claim. Cundiff sued State Farm, contending that she was entitled to recover the full amount of her loss, without an offset for the workers' compensation benefits. The Court determined that the full amount of Cundiff's loss, at least implicitly including the offset issue, had been litigated in the arbitration, and that Cundiff's failure to follow Arizona law to seek modification of the arbitration award barred her action, justifying summary judgment in favor of State Farm. Cundiff v. State Farm Mut. Auto. Ins. Co., Case No. 2005-0209 (Az. Ct. App. Oct. 27, 2006).
Four recent non-reinsurance opinions have applied accepted principles in the confirmation of arbitration awards:
- A party may not successfully contend that an arbitration award entered pursuant to what is referred to as the “baseball arbitration” process is “manifestly irrational and prejudicial” when the parties agreed to use that process. The Court also found that a claim that the award was the result of corruption, fraud or undue means failed because the proof of fraud was vague, rather than clear and convincing, and there was no nexus demonstrated between the alleged fraud and the basis for the award. , Case No. 02-1758 (USDC W.D. Pa. Oct. 5, 2006)
- An arbitration award was confirmed where a panel granted a Respondent summary judgment, holding that the doctrines of res judicata, collateral estoppel and waiver all precluded the panel from deciding the merits of the Petitioner's claims. , Case No. 06-351 (USDC M.D. Pa. Oct. 12, 2006)
- An arbitration award was confirmed, rejecting a contention that the award failed to draw its essence from the contract at issue, since the arbitrator's award arguably construed the contract. , Case No. 06-150 (USDC E.D. Ky. Oct. 13, 2006)
- An arbitration award was vacated on the basis that it failed to draw its essence from the underlying contract, where an award contravened express contractual limits on the authority of the arbitrator. The Court rejected the suggestion that it was merely disagreeing with the award. , Case No. 05-73509 (USDC E.D. Mich. Oct. 16, 2006).
A reinsurer (Sphere Drake Insurance Limited) which successfully persuaded an arbitration panel to accord collateral estoppel effect to a decision of the London, England, Commercial Court, has convinced a , which avoided four excess of loss reinsurance slips. The London Commercial Court had determined that the four slips at issue in the arbitration had been procured through fraud by the reinsurer’s broker, and were void. The startling aspect of this decision is that the reinsured in the arbitration, Lincoln National Life Insurance Company, had not been a party to the London case. The Court found that the decision did not violate due process, since Lincoln was in “privity” with the broker party to the London case due to a similarity of interests. Sphere Drake Insurance Limited v. Lincoln National Life Insurance Co., Case no. 05-6411 (N.D. Ill. Sept. 13, 2006). Given the deference given to arbitration awards, it may be very difficult for Lincoln to obtain reversal of this decision on appeal. Further background is provided in Sphere Drake’s . The London Commercial Court decision (Sphere Drake v. EIU) was the subject of an earlier entry in this blog.
The United States Court of Appeals for the First Circuit has joined numerous other Circuits this year in announcing a harsh standard for vacating arbitration awards on the basis that they are in manifest disregard of the law. In , Case No. 06-1001 (1st Cir. Sept. 19, 2006), the Court vacated a District Court Order that set aside an arbitration award. The Court of Appeal held that to prevail in establishing manifest disregard, “there must be some showing in the record, other than the result obtained, that the arbitrators knew the law and expressly disregarded it. … 'Disregard' implies that the arbitrators appreciated the existence of a governing legal rule but wilfully decided not to apply it.” The District Court had previously vacated a decision by the Panel and remanded with instructions, which it believed the Panel “might” have disregarded on remand. The Court of Appeal held that this was insufficient to vacate the Panel's second award, because, as stated by the Supreme Court in United Paperworkers Int'l Union v. Miusco, Inc., 484 U.S. 29, 38 (1987), courts “do not sit to hear claims of factual or legal error by an arbitrator as an appellate court does in reviewing decisions of lower courts.” The First Circuit concluded that even if legal error is “painfully clear, courts are not authorized to reconsider the merits of arbitration awards.”