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California court vacates arbitration award involving insurer in liquidation
A California Court of Appeal has reversed an order of a Liquidation Court, directing it to vacate an arbitration award that rescinded a reinsurance contract where the reinsureds had been placed in liquidation by the California Insurance Commissioner. The Court had no difficulty with the rescission of the reinsurance, but took exception with the panel's action of imposing a set-off of approximately $4.5 million against the accompanying return of premium by the reinsurer to the company in liquidation. The Court of Appeals held that the set-off award violated an injunction issued when the reinsureds were placed in liquidation, which prohibited any party from maintaining any claims, or asserting any right of set-off, against the parties in liquidation. Garamendi v. California Compensation Ins. Co., 2005 WL 3485747 (Cal.Ct.App. 2 Dist. Jan. 20, 2006). Since the arbitration award only provided the amount of the payment due to the reinsureds, which was net of the set-off amount, the Court could not determine the amount of premium that should be returned. It therefore remanded the matter to the Liquidation Court, with directions that it order a new arbitration hearing.
SPECIAL FOCUS: multiple arbitrations
Courts are sometimes asked to consolidate mutliple arbitrations relating to insurance and reinsurance matters. This issue has been the topic of three recent court opinions.
- In Markel International Ins. Co. v. Westchester Fire Ins. Co., Case No. 05-5522 (Aug. 10, 2006), the United States District Court for the District of New Jersey found that since the issue of the type of arbitration proceeding, including whether multiple arbitrations should be consolidated, was not a “gateway” issue under the Supreme Court’s analysis in Green Tree Financial Corp. v. Bazzle, 539, U.S. 444 (2003), the arbitrators, rather than the courts, should decide whether to use multiple arbitration panels or a consolidated panel.
- In Allstate Ins. Co. v. Global Reinsurance Corp., Case No. 06-4419 (Aug. 8, 2006), the United States District Court for the Southern District of New York held that arbitrators should decide whether to consolidate two arbitrations related to two facultative reinsurance certificates. The Court strongly implied that if the reinsurance agreements contained a provision relating to consolidated arbitrations, that the Court could have acted to enforce whatever the parties had agreed to in that regard.
- In Certain Underwriters at Lloyd’s v. Westchester Fire Ins., Case No. 06-1457, the United States Court of Appeals for the Third Circuit currently is accepting briefing of an appeal of a decision of a District Court decision that required separate arbitration panels in multiple arbitrations. The briefs suggest that conflict exists on this issue between a pre-Bazzle unreported Third Circuit opinion and a post-Bazzle Seventh Circuit opinion.
Expect further developments in this area.
Massachusetts court holds that AAA arbitrators may impose sanctions for discovery abuse
In a non-insurance matter, the Supreme Judicial Court of Massachusetts has held that a panel of arbitrators convened under the rules of the American Arbitration Association had authority to impose monetary sanctions for discovery abuse, finding that they had the inherent authority to impose monetary sanctions and enter other orders relating to noncompliance with appropriate discovery orders, in order to facilitate their adjudication of claims effectively, in the manner contemplated by the arbitration process. Superadio Limited Partnership v. Winstar Radio Productions, LLC, 446 Mass. 330, 844 N.E.2d 246 (Mass. 2006).