COURT VACATES ARBITRAL AWARD FINDING IT “COMPLETELY IRRATIONAL” AND IN MANIFEST DISREGARD OF LAW
Platinum Underwriters Bermuda, Ltd. reinsured PMA Capital Ins. Co., under a reinsurance agreement that contained a “deficit carry forward” provision. The parties disputed how certain deficits were to be calculated under the provision and arbitrated the claim. The arbitral panel awarded PMA $6,000,000, but eliminated the “deficit carry forward” provision from the contract, which provision ran to the benefit of Platinum. Both parties sought to vacate or modify the award. The court found the panel’s decision “completely irrational” – even under the broad grant of authority provided to the panel under the contract’s “Honorable Engagement Clause” – as the deficit carry forward provision was part of the essence of the contract and could not be written out of it. Moreover, the court saw no justification for the $6,000,000 award, other than as an equally irrational attempt to “compensate” Platinum for the elimination of the deficit carry forward provision. The Court granted PMA’s application to vacate the award, finding that an arbitration award that is not drawn from the essence of the contract is completely irrational, and therefore, in manifest disregard of the law. PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., No. 09-84 (USDC E.D. Pa. Sept. 15, 2009).
This post written by John Pitblado.
