NON-SIGNATORY BOUND TO REINSURANCE CONTRACT’S ARBITRATION PROVISION
A Pennsylvania district court has held that a non-signatory insured is obligated to arbitrate claims against a reinsurer pursuant to the reinsurance contract’s arbitration provision. The plaintiff, a psychiatrist, purchased malpractice insurance from Transatlantic Reinsurance Company (“TRC”) using Legion Insurance as a fronting company. The insured later was sued for malpractice. Legion initially defended the action, but subsequently withdrew and a judgment was issued against the plaintiff.
Thereafter, Legion was declared insolvent and ordered into liquidation. Following a court ruling that Legion’s insureds could assert direct actions against TRC, the plaintiff filed an action against TRC for Legion’s breach of contract and breach of the duty of good faith and fair dealing and bad faith. The plaintiff also alleged bad faith against TRC for its own conduct.
TRC moved to compel arbitration arguing that as a third party beneficiary of the reinsurance contract, the plaintiff was bound to arbitrate the dispute. TRC also argued that the plaintiff was equitably estopped from disavowing the arbitration provision while simultaneously seeking to invoke the benefits of the agreement. The court granted TRC’s motion to compel arbitration finding in favor of TRC on both arguments. Doeff v. Transatlantic Reinsurance Company, Case No. 07-2110 (USDC E.D. Pa. Dec. 14, 2007).
This post written by Lynn Hawkins.
