Reinsurance and Insurance Arbitrator and Umpire Ronald S. Gass
ARIAS-U.S. Certified Arbitrator and Umpire
AAA Roster of Neutrals
Reinsurance and Insurance Dispute Resolution Services Consultant

Uruguayan Reinsurer Not Immune from Arbitration Panel Pre-hearing Security Order

In yet another case this year involving arbitration panel pre-judgment security orders and foreign reinsurers (see my June 7th Case Note at http://www.gassco.com/casenotes.htm), a New York federal district court confirmed interim panel orders requiring the Uruguayan state reinsurer to post an irrevocable letter of credit (“LOC”) after concluding that such interim orders constituted a reviewable “arbitral award” under the Inter-American Convention.

When a dispute arose over quota share treaty reinsurance recoverables allegedly due from Banco de Seguros Del Estado (“Banco”), the Uruguayan state reinsurer, to the Mutual Marine Offices, Inc. (“MMO”), MMO commenced an arbitration in 2001. After receiving the parties' statements of position, in which MMO requested pre-hearing security and Banco vigorously opposed such relief, and hearing oral argument at the organizational meeting, the panel issued two interim orders. The first required Banco to post a $708,714 LOC. Banco refused to post the LOC and requested reconsideration of the order. After considering further written submissions from the parties, the panel issued a second order denying reconsideration and confirming its first order.

Because the panel's interim pre-hearing security orders were tantamount to a reviewable “arbitral award” under the Inter-American Convention (a jurisdictional question of first impression), the court concluded that it had jurisdiction to consider Banco's challenge to the panel's LOC orders. It then proceeded to address Banco's twin arguments that the arbitration panel acted in manifest disregard of the law and exceeded its authority in issuing the pre-hearing security orders.

Rejecting Banco's contention that, as the Uruguayan state reinsurer, it was immune from pre-hearing security orders under the Foreign Sovereign Immunities Act, the court held that the panel did not ignore or refuse to apply “well defined, explicit, and clearly applicable” law of which it was aware and that there was ample case law from which the panel could have reasonably inferred that it could lawfully impose pre-hearing security on Banco.

In confirming the interim orders, the court also ruled that the panel did not exceed its authority because the parties clearly expected it to rule on MMO's pre-hearing security request and the issue was fully briefed and orally debated before the panel. The panel had the “inherent power,” according to the court, to require the posting of such security because the arbitration agreement between the parties did not preclude such a remedy.

Banco de Seguros Del Estado v. Mutual Marine Offices, Inc., No. 02 Civ. 467 (SAS), 2002 U.S. Dist. LEXIS 14591 (S.D.N.Y. Aug. 6, 2002), aff'd on reh'g, 2002 U.S. Dist. LEXIS 16980 (S.D.N.Y. Sept. 5, 2002)

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