Platinum Underwriters appealed to the Third Circuit the vacatur of an arbitration award in Platinum’s dispute against PMA Capital over a “deficit carry forward” provision in a reinsurance agreement. The Third Circuit affirmed the District Court’s decision, finding that the arbitrators had exceeded their powers under the Federal Arbitration Act in awarding Platinum $6 million, which effectively eliminated the “deficit carry forward” provision, in violation of the standard that an award must be “rationally derived from the agreement between the parties or from the parties’ submissions to the arbitrators.” The Court found that “this relief exceeded the arbitrators’ powers because it was not sought by either party, and was completely irrational because it wrote material terms of the contract out of existence.” The Court agreed with the District Court that the “honorable engagement” language in the contract did not justify the elimination of the agreed upon contractual provision. PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., No. 09-3963 (3d Cir. Nov. 8, 2010).
This post written by John Black.