Reinsurance Focus

Prior to 1995, Fencourt Reinsurance Company was a wholly owned subsidiary of ITT Corp., and provided reinsurance to Century Indemnity Company, which insured ITT. Fencourt alleged that ITT promised to hold it harmless for any net losses resulting from the reinsurance arrangement, but did not produce any written agreement to that effect. In 1995, ITT reorganized, splitting into three unaffiliated public companies. This split was accomplished through a Distribution Agreement (“DA”), which Fencourt did not sign, and which contained a broad arbitration provision. Century suffered asbestos-related losses, and demanded $85.5 million from Fencourt under their reinsurance agreement. Fencourt sought indemnification from what it alleged was the successor to the indemnification promisor. Century and Fencourt commenced arbitration of their dispute, and Fencourt and the former ITT-related entities commenced a separate arbitration. Fencourt sued ITT to enforce the indemnification promise.

ITT contended that the arbitration provision in the DA covered the dispute, even though Fencourt was not a signatory to that agreement. The district court agreed with ITT and stayed the case pending the result of the already commenced Fencourt-ITT arbitration. There were three bases for the ruling: (1) the DA plainly covered the dispute, and as a wholly owned subsidiary of a party to the DA, Fencourt was bound to arbitrate; (2) Fencourt was equitably estopped from asserting that its lack of signature precluded arbitration since despite its status as a non-party to the DA, it nevertheless took advantage of certain of its provisions; and (3) Fencourt was an intended third-party beneficiary of the DA. This opinion contains a good discussion of these various theories. Fencourt Reinsurance Company, Ltd. V. ITT Industries, Inc., Case No. 06-4786 (USDC E.D. Pa. June 20, 2008).

This post written by Rollie Goss.