Reinsurance Focus

The first decision involved reconsideration of an interim arbitration award of prejudgment security that the court initially refused to confirm as a manifest disregard of the law. The court had determined that the arbitrators erroneously awarded a prejudgment bond of $10 million or an injunction from transferring such an amount, in the alternative. The court had relied on a provision in the underlying contract that provided that the agreement would be enforced in accordance with New York law, which prohibits such provisional remedies. On reconsideration, however, the court focused on another provision of the agreement, which adopted the AAA International Dispute Resolution Procedures. Under those rules, such provisional remedies were permitted. The court held, “It lay with the parties to confer on the arbitrator whatever powers they wished. Having adopted rules that allowed the arbitrator to award interim security, [defendants] are bound by their bargain. Nothing about enforcing an order rendered in accordance with the procedures to which the parties agreed offends either New York law or New York public policy.” The court relied on a Second Circuit opinion, Banco de Seguros del Estado v. Mutual Marine Offices, Inc., as support for this holding, and as support for the underlying premise that interim security issues are reviewable prior to a final arbitration award. CE International Resources Holdings LLC v. S.A. Minerals Ltd. Partnership, Case No. 1:12-cv-08087 (USDC S.D.N.Y. Dec. 10, 2012).

The second decision involved a court’s refusal to prohibit a foreign sovereign-owned bank from litigating in a reinsurance dispute, notwithstanding the bank’s failure to post security as required by state law. The court held that the bank could not be compelled to post such security under the Foreign Sovereign Immunities Act, which prohibits “attachment” of the property of a foreign state or its instrumentalities. The court found that other courts that have considered this issue have determined that the practical effect of prejudgment security is akin to an attachment of property, and thus the FSIA’s immunity applied. The court also found that the bank did not waive this immunity, distinguishing the Second Circuit’s opinion in Banco De Seguros Del Estado v. Mutual Marine Offices, Inc. Whereas the Second Circuit opinion found waiver of FSIA immunity under an arbitration agreement that permitted the arbitrators to “abstain” from following “the strict rules of law,” this case involved no such agreement. Pine Top Receivables of Illinois, LLC v. Banco De Seguros Del Estado, Case No. 1:12-cv-06357 (USDC N.D. Ill. Dec. 13, 2012).

This post written by Michael Wolgin.

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