Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

Discovery allowed as to other reinsurance claims

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Zurich American, as reinsured, sued its reinsurer, R & Q Reinsurance, alleging that R&Q had breached its reinsurance obligations by not paying its full share of a settlement reached by Zurich with its insured. The dispute involved the allocation of policy limits among successive policies applicable to the loss. Zurich sought discovery of other instances in which R&Q had denied payments based upon allocation disputes. The Court found that R&Q's handling of similar claims might be relevant in the interpretation of the contract at issue, and ordered the production of certain information and the sampling of a claims database maintained by R&Q. Zurich American Ins. Co. v. Ace American Reinsur. Co., Case No. 05-9170 (USDC S.D.N.Y. Dec. 22, 2006).

Court declines to intervene in umpire appointment process

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A District Court has declined to intereven in the appointment of an umpire, finding that there was no impass, and that the parties should continue the process, following the process set forth in various facultative and excess of loss reinsurance agreements. Global Reinsurance Corp. v. Certain Underwriters at Lloyd's, London, Case No. 06-7689 (USDC S.D.N.Y. Dec. 16, 2006). The agreements provided that each party would appoint an arbitrator, and that the party appointed arbitrators would have 30 days to agree upon an umpire. Failing agreement, each arbitrator was to designate one umpire, with the selection being made between the two proposed persons by drawing lots. Global contended that there was an impass due to its objections to the impartiality of the umpire suggested by Lloyd's arbitrator. The Court disagreed, finding that objections to partiality were proper only after an award was entered, and that the process should continue as agreed. This opinion illustrates the importance of including, as part of the qualifications for arbitrators and umpires in an arbitration provision, requirements that prospective arbitrators and umpires not have relationships with parties and their counsel. All qualifications must be clearly stated in the agreement.

Fifth Circuit elaborates upon manifest disregard of law standard

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Quoting from one of its own 2004 opinions, the Fifth Circuit has elaborated upon the standard for finding that an arbitration award is in manifest disregard of law, holding that such a finding requires proof of two elements: (1) that the legal error must have been obvious and capable of being readily and instantly perceived by the average person qualified to serve as an arbitrator; and (2) that the award results in a significant injustice. The first element includes a need to demonstrate that the arbitrator appreciated the existence of a clearly governing principle of law, but decided to ignore or pay no attention to such principle. The arbitration hearing at issue was not reported. The Court concluded that “[h]aving failed to secure a record of the arbitration proceedings, and without any evidence that the arbitral panel was aware of the Fifth Circuit standard [for awarding attorneys' fees], OneBeacon cannot make this showing, so its claim that the award was in 'manifest disregard' of the law fails ….” OneBeacon America Ins. Co. v. Turner, Case No. 06-20302 (5th Cir. Oct. 30, 2006).