Reinsurance Focus

A federal district court has issued an order enjoining the arbitration of a dispute between several workers compensation insurers and reinsurer, National Union Fire Insurance Co. of Pittsburgh, while allegations of misconduct concerning the arbitration process are investigated. The parties’ reinsurance treaty requires disputes to be adjudicated by “disinterested officials” who are “not under the control of either party.” It also provides that each side will choose one arbitrator and that the two will select an umpire. The chosen two arbitrators in the matter could not agree on an umpire; thus, after casting lots, National Union selected an umpire who was a close friend of their chosen arbitrator. The panel issued an interim final award favorable to National Union that addressed liability but left damages issues open. Plaintiffs petitioned the court to stay the arbitration.

Plaintiffs argued that National Union breached the provision in the treaty requiring disputes to be decided by arbitrators not under either party’s control. In support of their motion, plaintiffs presented National Union’s attorneys’ bills (submitted in connection with its attorneys fee request during the arbitration), demonstrating that National Union’s counsel had repeatedly communicated with its arbitrator during the course of the arbitration proceeding in violation of the arbitration panel’s order. Additionally, plaintiffs showed that the arbitration panel had made decisions without the participation of the third arbitrator chosen by plaintiffs. The court issued a corrected preliminary injunction that precludes any further orders from the arbitrators and communications between the parties and the arbitrators pending subsequent order from the court. National Union has filed a notice of appeal in which it indicates it will argue to the Sixth Circuit, among other things, that the court lacked jurisdiction to enjoin an ongoing arbitration proceeding.

Star Ins. Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, Case No. 2:13-cv-13807 (USDC E.D. Mich. Sept. 12, 2013).

This post written by Ben Seessel.

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