Reinsurance Focus

A California appellate court recently examined that state’s legislative response to the situation where a party moves to compel arbitration and some of the parties to the dispute are not parties to the arbitration agreement. In a situation including an arbitration provision of a reinsurance agreement, the court interpreted the so-called “third party litigation exception” to compelling arbitration, which according to the Court of Appeals addresses “the special practical problems that arise in multiparty contractual disputes when some or all of the contracts at issue include agreements to arbitrate.” Section 1281.2(c) of the California Code of Civil Procedure provides that a court need not order arbitration if it determines that: (1) a party to the arbitration agreement is also a party to a pending court action or special proceeding with a third party; (2) the dispute arises out of the same transaction or series of related transactions; and (3) there is a possibility of conflicting rulings on a common issue of law or fact.  The court concluded that the California statute was not preempted by the Federal Arbitration Act, relying on an opinion of the Untied States Supreme Court which held that the application of the third party litigation exception of section 1281.2(c) to stay the arbitration of a contract dispute involving interstate commerce did not undermine the goals and policies of the FAA, and was not preempted by the FAA.  Arrow Recycling Solutions, Inc. v. Applied Underwriters, Inc., No. B245379 (Cal. Ct. App. Jan. 8, 2015), modified (Cal. Ct. App. Jan. 12, 2015).

This post written by Catherine Acree.

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