Reinsurance Focus

KX Reinsurance Company (“KX”) arbitrated certain disputes with North Star Reinsurance Corporation (“North Star”) and General Reinsurance Company (“Gen Re”) (North Star and Gen Re had each initiated separate arbitral proceedings against KX, but all parties agreed to consolidate the proceedings as they involved interrelated issues). The arbitral panel ruled against KX on North Star’s and Gen Re’s contract claims, and awarded North Star and Gen Re interest and attorneys fees pursuant to the parties’ respective contracts. The Panel ruled in KX’s favor on North Star’s and Gen Re’s bad faith claims.

During the course of the proceedings, North Star and Gen Re also sought an interim order requiring KX to post security in the form of letters of credit pertaining to certain other potential future contract disputes. KX argued that letters of credit pertaining to potential future claims were beyond the scope of the arbitral submission. North Star and Gen Re argued that their respective submissions broadly included future potential claims. The panel ruled against KX and issued the interim order, which it later incorporated into the final award. It also included in the award an explicit retention of jurisdiction over potential future disputes. KX thereafter sought to confirm the award in the district court, except for that aspect of the final award which purported to allow the panel to retain jurisdiction over potential future disputes under the parties’ contracts, which it sought to vacate.

The district court ruled in KX’s favor, confirming the undisputed aspects of the final award, and vacating the panel’s decision to retain jurisdiction insofar as it exceeded the scope of the submission and was violative of KX’s right under its contracts with North Star and Gen Re to select an arbitrator of its choosing pertaining to any future disputes under the contracts. The Court noted that any contrary interpretation of that contractual right would create arbitral panels with unlimited jurisdiction over the course of the parties’ future contractual relations, a result not supported by the public policy underlying the Federal Arbitration Act. KX Reinsurance Co. v. North Star Reinsurance Corp., Case No. 08-7807 (USDC S.D.N.Y. Nov. 14, 2008).

This post written by John Pitblado.