Reinsurance Focus

In First State Ins. Co. v. Nationwide Mutual Ins. Co., No. 13-cv-11322-IT (U.S.D.C. D. Mass. Oct. 21, 2014), a petition for an order to confirm a final arbitration award and entry of judgment was denied.  The court determined that although labeled a “Final Award,” the arbitration panel expressed no intention to resolve all claims submitted in the demands for arbitration.  Instead, the award focused on the plaintiff’s motion regarding contract interpretation, which directed the parties back to the panel with a proposed schedule leading to a hearing on remaining matters.  Moreover, although the panel proceeded to address the issues in phases, the parties did not jointly agree to bifurcation of the arbitration. Rather the record in the case showed that the defendant objected to bifurcation of the issues at an organizational meeting with plaintiff and the panel when it argued that the panel should consider all of the issues before it at the same time.

This post written by John Pitblado.

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A federal district court has confirmed an arbitration panel’s interim award requiring Allied Provident, as reinsurer, to post security for unreimbursed losses and expenses that its cedent claims are due under the parties’ reinsurance agreement. The court first considered whether it even had the power to confirm the panel’s interim award because generally a court does not have the authority to review an interlocutory ruling by an arbitration panel. The court found, however, that an exception to that rule exists when a panel has granted an award of temporary equitable relief, such as a security award, separable from the merits of the arbitration. The court therefore found that it had the power to confirm the interim award and rejected all of Allied Provident’s arguments to vacate it.

The court also denied Allied Provident’s request to stay the interim award and to disqualify the entire arbitration panel. The court directed Allied Provident to appoint a new party arbitrator, as its arbitrator had resigned due to health reasons, so the proceedings could continue. Companion Property and Casualty Insurance Co. v. Allied Provident Insurance Inc., Case No. 13-CV-7865 (USDC S.D.N.Y. Sept. 26, 2014).

This post written by Renee Schimkat.

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In prior proceedings, Glory Wealth obtained an England arbitration award against Industrial Carriers, Inc. (ICI) and a confirmation of the award in the United States District Court for the Southern District of New York.

Glory Wealth instituted an admiralty case in the Eastern District of Virginia to attach a vessel to satisfy the confirmed arbitration award, naming ICE and Freight Bulk PTE, Inc. (FBP) as defendants. FBP moved to vacate the arbitration confirmation judgment of the Southern District of New York, relying on Rule 60(b)(4), Fed.R.Civ.P., contending the New York judgment was void for lack of jurisdiction. The Virginia district court held that FBP could not collaterally attach the New York confirmation judgment, since FBP was not a party to the New York proceeding. Strong elements of judicial estoppel appear to have influenced the Virginia district court’s decision, since the court noted that FBP had repeatedly denied any status as ICI’s alter ego, yet in the motion at bar to dismiss Glory Wealth’s action, FBP contended it had standing as a party to the New York case to move to vacate the New York judgment. Flame S.A and Glory Wealth Shipping PTE Ltd. v. Industrial Carriers, Inc., Vista Shipping, Inc. and Freight Bulk PTE, Inc., Case No. 2:13-cv-658 (U.S.D.C., E.D. Va., July 17, 2014).

This post written by Kelly A. Cruz-Brown.

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Following is a selection of some of the recent decisions concerning requests to confirm, vacate or modify arbitration awards:

Evident Partiality / Fraud

Mohammad Z. Alim v. KBR, Inc., Case No. 13-11094 (5th Cir. June 5, 2014) (affirming district court’s denial of motion to vacate arbitration award, finding plaintiff had waived his partiality argument by failing to raise the known information prior to the arbitration hearing; summarily rejecting all claims that award was procured through fraud or undue means; and affirming district court’s decision to compel arbitration in the first instance);

Tenaska Energy, Inc., et al. v. Ponderosa Pine Energy, LLC, Case No. 12-0789 (Tex. Jan. 7, 2014) (reinstating trial court’s order vacating arbitration award because of arbitrator’s evident partiality and failure to disclose relevant information; rejecting claim of waiver as to partiality issue as information was never disclosed and therefore not known prior to arbitration; and ordering a new arbitration).

Exceeding Authority / Failure to Consider Evidence

Hungry Horse, LLC v. E Light Electric Services, Inc., Case No. 13-1425 (10th Cir. June 19, 2014) (affirming district court’s denial of motion to vacate, concluding arbitration panel had acted within its broad authority afforded under the parties’ arbitration agreement when issuing its award);

American Postal Workers Union, AFL-CIO v. U.S. Postal Service, Case No. 13-2579 (2d Cir. June 6, 2014) (reversing district court’s decision which had granted motion to vacate arbitral award on the basis that arbitrator exceeded his powers by applying the doctrine of collateral estoppel; holding that arbitrator’s decision to use collateral estoppel based on a prior administrative decision was not in excess of his powers; and remanding with instructions to confirm award);

Why Nada Cruz, L.L.C. v. Ace American Ins. Co., Case No. 13-20644 (5th Cir. June 3, 2014) (affirming district court’s confirmation of award which had dismissed arbitration due to untimeliness, finding arbitrator did not exceed his powers by concluding that the request for arbitration was dilatory under the parties’ agreement, and rejecting argument that arbitrator failed to hear pertinent evidence);

Seed Holdings, Inc. v. Jiffy Int’l As, et al., Case Nos. 13-CV-2284 and 13-CV-2755 (USDC S.D.N.Y. March 24, 2014) (denying motion to vacate award, and granting motion to confirm award, finding no evidence that arbitrators exceeded their authority; rejecting arguments that arbitrators failed to consider certain evidence and that arbitrators manifestly disregarded the law; and denying motions to remand or stay court actions based on jurisdictional grounds);

West Liberty Foods, L.L.C. v. Moroni Feed Co., Case No. 4:10-CV-00146 (USDC S.D. Iowa March 6, 2014) (denying plaintiff’s motion to vacate prejudgment interest awarded to defendant in arbitration, finding award to be a “reasoned award” and within arbitrator’s authority; denying defendant’s request to reimburse attorney’s fees incurred in response to plaintiffs’ alleged “bad faith” actions in filing and arguing its motion to vacate; and confirming remainder of arbitration award).

Manifest Disregard

Berkshire Wilton Partners, LLC v. Bilray Demolition Co., Inc., Case No. 2013-191 (R.I. June 9, 2014) (vacating lower court’s judgment which had vacated an arbitration award; rejecting arguments that arbitrator had manifestly disregarded both the law and the plain language of the parties’ release; and remanding with instructions to enter judgment in favor of party who had been awarded damages in arbitration);

Aerotel, Ltd. v. IDT Corp., Case No. 13-3085 (2d Cir. June 3, 2014) (affirming district court’s declination to vacate arbitration award where panel had awarded plaintiff some, but not all, lost profits sought and had declined to order specific performance under the parties’ contract; finding panel “was unquestionably applying the governing law” and therefore there were no grounds to vacate);

A&G Coal Corp., et al. v. Integrity Coal Sales, Inc., Case No. 13-2411 (2d Cir. May 9, 2014) (affirming district court’s confirmation of arbitration award, finding no support that the arbitrator manifestly disregarded the law or the parties’ agreements to justify vacatur).

This post written by Renee Schimkat.

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Nearly ten years after arbitration proceedings commenced involving a claim arising from the purchase and sale of various insurance companies, the Texas Supreme Court vacated the $26 million arbitration award entered against Americo Life, Inc. et. al. (“Americo”) in favor of Robert L. Myer and Strider Marketing Group, Inc. (“Myer”) and reversed the Court of Appeal’s judgment, finding that the arbitration panel exceeded its authority because the panel was formed contrary to the express terms of the arbitration agreement. The arbitration clause contained in the agreement between Americo and Myers provided for a tripartite arbitration, where each party appointed an arbitrator and the two arbitrators would select a third. Each arbitrator was to be a “knowledgeable, independent business person or professional.” The arbitration clause also provided that the arbitration proceedings “shall be conducted in accordance with the commercial arbitration rules of the American Arbitration Association (“AAA”). At the time the agreement was executed, AAA rules did not require arbitrator impartiality, but by the time the arbitration was invoked, AAA rules required by default that any arbitrator shall be “impartial and independent…”

The issue in this case centered around the AAA striking the arbitrator selected by Americo on the basis the arbitrator was not impartial. America moved to vacate the award and argued that in disqualifying the arbitrator, the AAA failed to follow the arbitrator-selection process specified in the parties’ agreement because the parties never agreed that the arbitrators must be “impartial.” The Texas Supreme Court agreed.

First, the Texas Supreme Court rejected Myer’s argument that the term “independent”, which was contained in the parties’ agreement, was the same as the term “impartial.” The Court then turned to the question of whether the incorporation by reference of the AAA Rules also incorporated the impartiality requirement even though the requirement did not exist at the time the agreement was signed. The Americo Court held the impartiality requirement was not incorporated because it conflicted with the terms of the parties’ agreement. The parties agreed to arbitrators who were “knowledgeable” and “independent,” but not impartial. Thus, because the AAA impartiality rules conflicted with the parties’ agreement, the agreement controls over the AAA rules. Therefore, the AAA should not have disqualified Americo’s arbitrator on the grounds of impartiality and the arbitration panel exceeded its authority, requiring that the award be vacated. Americo Life, Inc. v. Myer, No. 12-0739 (Texas June 20, 2014).

This post written by Leonor Lagomasino.

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The Eleventh Circuit affirmed a decision permitting discovery for use in foreign proceedings which were contemplated but not yet pending. In this case, which arose from a billing dispute between Consorcio Ecuatoriano de Telecomunicaciones S.A. (“CONECEL”) and Jet Air Service Ecuador SA, CONECEL applied in the district court for an order under 28 U.S.C. § 1782 to obtain discovery for use in foreign proceedings in Ecuador. The foreign proceedings included both a pending arbitration brought by Jet Air against CONECEL and contemplated civil and private criminal suits CONECEL might bring against two of its former employees who, CONECEL claimed, may have colluded with Jet Air. The District Court granted CONECEL’s application and Jet Air appealed.

As we previously reported, on June 25, 2012, the Eleventh Circuit affirmed the lower court’s order, holding that the arbitral panel was a foreign tribunal for purposes of 28 U.S.C. § 1782. That decision did not address whether the contemplated civil and criminal proceedings constituted foreign proceedings within the meaning of § 1782. Recently, however, the Eleventh Circuit vacated its earlier decision sua sponte and instead analyzed whether the contemplated civil and criminal proceedings satisfied the “foreign tribunal” element of the statute. Noting § 1782 requires only that a proceeding be within reasonable contemplation, as supported by reliable indications that the proceedings will be instituted within a reasonable time, the Court found that CONECEL provided such reliable indications by proffering the results of its internal audits leading to its findings of collusion and by submitting sworn declarations of CONECEL’s intent to purse the civil and criminal actions. Application of Consorcio Ecuatoriano de Telecomunicaciones SA v. JAS Forwarding (USA), Inc., No. 11-12897 (11th Cir. Jan. 10, 2014), vacating 685 F.3d 987 (11th Cir. 2012).

This post written by Leonor Lagomasino.

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The Eleventh Circuit recently limited the authority by which an aggrieved party can obtain judicial review of arbitration awards outside of the four grounds enumerated in the Federal Arbitration Act, ruling that an insurance policy alone could not serve as “an independent basis for the enforcement of an arbitration award.” The plaintiff argued that its right to expanded judicial review was based on the policy’s express language that “[a]ny decision rendered in arbitration is binding on you and us unless judicial review is sought…you and we have the right to judicial review of any decision rendered in arbitration.” The Eleventh Circuit disagreed, holding that if parties wish to allow for more avenues to judicial review, they must explicitly designate the “state statutory or common law alternatives to the FAA in their arbitration agreements.” Otherwise, the contract alone will not suffice as the sole basis for judicial review when the FAA itself does not apply. Campbell’s Foliage, Inc. v. Federal Crop Insurance Corp., No. 13-11896 (11th Cir. Apr. 3, 2014).

This post written by Rollie Goss.

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The Ninth Circuit Court of Appeals affirmed a district court’s denial of a motion to vacate an arbitration award issued in a dispute between the Johnsons and Wetzel’s Pretzels, concerning the termination of a franchise agreement. The appellants, the Johnsons, challenge the award on grounds that the arbitrator exceeded his powers by enforcing provisions in the franchise agreement that required the Johnsons to assign their lease and property interests to the defendant. The Ninth Circuit denied the appellants’ claims, stating that the Johnsons were unable to show that the award was “irrational or exhibit[ed] a manifest disregard of law,” two of the limited grounds on which a federal court may vacate an arbitral award. Emphasizing the terms of the franchise agreement, the Court stated that the arbitrator acted within the scope of the agreement, which expressly provided for the assignment of the plaintiff’s lease and property interests upon termination of the agreement. Additionally, the Court indicated that the Johnsons were unable to offer convincing evidence that award exhibited a manifest disregard of law. Wetzel’s Pretzels, LLC v. Johnson, No. 12-56716 (10th Cir. Apr. 3, 2014).

This post written by Rollie Goss.

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A federal judge in Houston recently vacated an arbitration award where the reinsurance agreement specified that the arbitration of any disputes would proceed “under the auspices of the ICC,” but the arbitration actually proceeded under the American Arbitration Association’s Commercial Arbitration Rules. The Court found that the parties to the reinsurance agreements selected the International Chamber of Commerce, and application of its rules, as a mandatory and essential condition of their agreement to arbitrate. Because this did not occur, the selected arbitrator lacked jurisdiction to hear the claims presented. The court noted that generally, after the conclusion of an arbitration, a court cannot second guess the arbitrator’s jurisdiction and decision so long as the arbitrator (1) is arguably construing or applying the contract, and (2) is acting within the scope of his authority. The court found, however, that the case presented a rare example of the second exception, in which an arbitrator assumed authority over a dispute that the parties’ agreements mandated be referred to a different forum, namely the ICC. This error fundamentally prejudiced the proceedings. PoolRe Insurance Corp. v. Organizational Strategies, Inc., Case No. H-13-1857 (USDC S.D. Tex. Mar. 31, 2014).

This post written by Catherine Acree.

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The Third Circuit recently vacated a lower court’s decision granting a motion to compel arbitration of (1) direct claims by certain cardiac services health providers against CIGNA and (2) claims by those providers on behalf of employee benefit plan participants who were initially denied coverage of the cardiac services by CIGNA but subsequently provided such services by the providers in exchange for assignment of their rights and claims under ERISA against CIGNA to the providers. After observing that the plain language of an arbitration agreement controls and that the presumption of arbitrability applies only where an arbitration provision is ambiguous, the Court of Appeals first held that the alleged facts underlying the direct claims unambiguously did not concern “the performance or interpretation” of the administrative agreement between CIGNA and the providers, as required by the arbitration clause, because the claims involved a CIGNA policy update document distinct from, and sent years after, the administrative agreement. As for the derivative claims, which related to CIGNA’s decision to deny coverage of the cardiac services to the participants, the court concluded that such coverage decision was subject to the terms or conditions of the applicable benefit plan and governed by ERISA, not the administrative agreement. The participants’ rights to pursue their ERISA claims in court could not be diluted through compelled arbitration just because the providers, as assignees, had promised to arbitrate certain of the direct claims they might bring against CIGNA. CardioNet, Inc. v. CIGNA Health Corp., No. 13-2496 (3d Cir. May 6, 2014).

This post written by Kyle Whitehead.

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