Reinsurance Focus

On August 26, the Second Circuit Court of Appeals considered whether a trial court had appointment authority under the Federal Arbitration Act (“FAA”). Overturning a prior order that denied Odyssey Reinsurance Company’s (Odyssey) motion to appoint, the Second Circuit found that the trial court not only had the authority to appoint an arbitration umpire but “the obligation to appoint an umpire to correct a breakdown in the umpire selection process.”

The trial court found that it did not need to intervene in a dispute over worker’s compensation billings. The Second Circuit Court disagreed, finding the parties deadlocked as to the interpretation of various terms in the arbitration agreement concerning umpire qualifications. This “lapse” therefore necessitated the trial court to appoint an arbitration umpire.

Odyssey Reinsurance Co. v. Certain Underwriters at Lloyd’s London Syndicate 53, No. 14-2840-cv (2nd Cir. Aug. 26, 2015)

This post written by Matthew Burrows, a law clerk at Carlton Fields in Washington, DC.

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In a dispute involving an earlier arbitration ordering American United Life Insurance Company (“AUL”) to make a commutation payment to The Travelers Indemnity, the parties filed cross petitions for arbitration pursuant to different clauses of a reinsurance contract. AUL argued arbitration should proceed pursuant to the Article 16 in the contract requiring all disputes between the company and the reinsurer be submitted to arbitration. It further argued that Travelers had forfeited its right to name umpire candidates, and that the court should appoint an umpire from the names submitted by AUL. Travelers, for its part, argued that the matter should proceed pursuant to Article 6 of the contract that required actuaries to make the determination concerning the amount of the loss.

The Court sided with AUL stating that an arbitration panel needed to decide the threshold issue of whether the matter should proceed pursuant to Article 16 or Article 6. The court reasoned that in order to determine whether to proceed by a panel of actuaries, the reinsurance contract had to be interpreted and that Article 16 was clear that “any dispute between the Company and the Reinsurer arising out of, or relating to the formation, interpretation, performance or breach of this Contract, whether such dispute arises before or after termination of this Contract, shall be submitted to arbitration.” Regarding AUL’s request that the court appoint an umpire from its list of candidates, the court noted that the parties were engaged in settlement discussions and Travelers had offered to name umpire candidates but AUL never responded. Based on this, the court held that Travelers never knowingly waived its right to name umpire candidates, and ordered Travelers to comply with Article 16. American United Life Insurance Co. v. Travelers Indemnity Co., et al., Case No. 3:14-cv-1339 (USDC D. Conn. Aug. 18, 2015).

This post written by Barry Weissman.

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The Ninth Circuit held that an arbitration agreement between Opus Bank and its former executive vice president Carey Brennan should be interpreted under federal, not state, law unless the parties unambiguously agreed otherwise. While Brennan’s employment contract contained a California choice-of law clause, his arbitration agreement required any employment-related dispute be resolved “by binding arbitration in accordance with the Rules of the American Arbitration Association.” Brennan argued that the arbitration agreement’s clause was substantively and procedurally unconscionable, while Opus moved to compel arbitration under the Federal Arbitration Act.

The Ninth Circuit affirmed the district court’s finding that because the contract involves interstate commerce, the FAA applies. Further, because the arbitration agreement, did not incorporate California law expressly, federal law applies. “While the Employment Agreement is clear that California’s procedural rules, rights, and remedies apply during arbitration, it says nothing about whether California’s law governs the question whether certain disputes are to be submitted to arbitration in the first place. Further, the incorporation of the AAA rules constituted “clear and unmistakable” evidence that the parties intended to have an arbitrator decide the threshold question of arbitrability. Brennan v. Opus Bank, Nos. 13-35580, 13-35598 (9th Cir. Aug. 11, 2015).

This post written by Whitney Fore, a law clerk at Carlton Fields in Washington, DC.

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