California court vacates arbitration award involving insurer in liquidation
A California Court of Appeal has reversed an order of a Liquidation Court, directing it to vacate an arbitration award that rescinded a reinsurance contract where the reinsureds had been placed in liquidation by the California Insurance Commissioner. The Court had no difficulty with the rescission of the reinsurance, but took exception with the panel's action of imposing a set-off of approximately $4.5 million against the accompanying return of premium by the reinsurer to the company in liquidation. The Court of Appeals held that the set-off award violated an injunction issued when the reinsureds were placed in liquidation, which prohibited any party from maintaining any claims, or asserting any right of set-off, against the parties in liquidation. Garamendi v. California Compensation Ins. Co., 2005 WL 3485747 (Cal.Ct.App. 2 Dist. Jan. 20, 2006). Since the arbitration award only provided the amount of the payment due to the reinsureds, which was net of the set-off amount, the Court could not determine the amount of premium that should be returned. It therefore remanded the matter to the Liquidation Court, with directions that it order a new arbitration hearing.
