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

No "Second Bite at the Apple" for Losing Party to Challenge Arbitral Award's Treaty Interpretation and Application a Year Later

hat happens when the losing party in an arbitration claims a year after the arbitral award is issued that the panel's reinsurance treaty interpretations are so fundamentally flawed that it is impossible to apply them to the disputed claims?  That was the key question decided by an Illinois federal district court, which enjoined the re-arbitration of any of the treaty interpretation issues decided by the panel but would permit new arbitration demands seeking interpretations of the language of the panel's award before a new panel.

This dispute arose between a cedent and its six British reinsurers over the terms and conditions of a reinsurance agreement and resulted in an arbitration award favorable to the reinsurers.  The panel ordered the cedent to return certain sums that had been paid in error.  Although the award was issued on June 6, 2002, the panel retained jurisdiction until July 1, 2002 to resolve any issues arising from its interpretation and application.  On June 29, 2002, the cedent requested an extension until July 10, 2002 on the grounds that the accounting applications of the award were "time consuming" and that its counsel was occupied with another hearing.  The panel declined the cedent's request to extend its jurisdiction and disbanded. 

The cedent did not appeal the award and complied with it over the following year.  On June 30, 2003, however, it resubmitted claims for the same losses, which the panel had previously denied, on the ground that the award was "not susceptible of any interpretation that is consistent with the treaty language and is incapable of being complied with."  It also served the reinsurers with new arbitration demands claiming that another arbitration was necessary to address "fundamental flaws" in the prior award. 

The reinsurers filed this federal district court action seeking to confirm the prior award, to enjoin the cedent from re-arbitrating the same disputes, and in the alternative, remand the dispute to the original panel for clarification of any alleged ambiguities.  The cedent moved for summary judgment in its favor on the ground that the one-year statute of limitations for seeking judicial confirmation of an arbitral award under the Federal Arbitration Act ("FAA") had passed.

In denying the cedent's summary judgment motion and confirming the 2002 award, the district court concluded that both the FAA and the Inter-American Convention on International Commercial Arbitration ("Convention") applied because the reinsurers were all foreign corporations.  Under the Convention, parties have three years from the date of issuance to confirm arbitral awards, and the court found no reason to assume that Congress did not intend to provide overlapping coverage between the Convention and the FAA thereby permitting the reinsurers to elect the most advantageous remedy available.

Regarding the cedent's contention that the award was so flawed and incapable of being reconciled with the treaties as to require a new arbitration, the court held that this really amounted to an attempt to get a "second bit at the apple" before a new panel on the same issues previously decided by the original arbitrators.  Because the award was not appealed and thus final, according to the court, "it must be reconciled with the treaties, whatever its supposed defects may be."

The court granted an injunction against the re-arbitration of the same treaty interpretation issues previously decided.  However, it also ruled that the cedent may pursue "arbitration of disputes as to [the award's] application to new situations which the original arbitrators never contemplated."  Hence, the injunction did not apply to arbitration demands seeking interpretation of the language of the previous panel but did apply to any arbitration demands seeking to alter or correct that language in any manner.

As for remanding this dispute to the original panel for further proceedings, the court held that such award clarification requests must be made within a "reasonable period of time" after the award and that a remand to the original panel more than 18 months after it was disbanded was inappropriate, particularly when the panel had refused to extend its own jurisdiction at the cedent's request for even ten days.

Unionamerica Insurance Co., Ltd. v. Allstate Insurance Co., No. 03 C 7400, 2004 U.S. Dist. LEXIS 458 (N.D. Ill. Jan. 14, 2004).

 

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