For arbitrations with U.S. venues, domestic insurers are generally more comfortable appointing American arbitrators, but when the adverse party is a foreign reinsurer, they may be confronted with an umpire slate comprised entirely of arbitrators from the United Kingdom or European countries, for example. Such a scenario was recently litigated in a New York federal district court case in which the manager of a U.S.-domiciled group of insurers tried, but failed, to compel a foreign reinsurer to propose an umpire slate solely of American arbitrators because a “U.S.-based” arbitration was allegedly consistent with the parties’ contractual intent.
In this action to compel arbitration, the manager and agent for eight insurers, the Mutual Marine Office, Inc. (“MMO”), ceded certain risks to an Irish reinsurer, Insurance Corporation of Ireland (“ICI”), under a number of reinsurance agreements. When the reinsurer failed to pay its share of the ceded claims, MMO petitioned the federal district court for an order appointing an arbitrator from a list of American candidates it offered and directing ICI to proceed with the arbitration.
The arbitration clauses in the disputed contracts provided, in pertinent part, that “the dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen.” Each side duly appointed their own arbitrator, but when the party-arbitrators conferred to select the third, MMO’s slate included only American arbitrators and ICI’s only candidates from the U.K. Because the parties’ intent under the reinsurance agreements, according to MMO, was that any disputes be governed by American law and resolved by American courts (e.g., the contracts involved U.S. insurance companies and were negotiated by a U.S. intermediary; required the reinsurers to submit to U.S. jurisdiction and service of process; and provided for U.S. venue for the arbitration), MMO alleged that ICI’s all-U.K. arbitrator slate was contrary to that intent. When ICI failed to provide the demanded list of “U.S.-based” candidates, MMO filed this motion to compel arbitration in federal court.
The district court, applying Sections 4 (petitions to compel arbitration) and 5 (applications to compel the appointment of arbitrators) of the Federal Arbitration Act, initially focused on the plain language of the arbitration clause and found no explicit requirement that the parties nominate only “U.S.-based” arbitrators.
Arguing that the parties intended otherwise, MMO emphasized the American origins of the contracts and further contended that an American arbitrator should be appointed “because an English arbitrator would be more costly and less familiar with American arbitration procedures and American law.” Unpersuaded, the court distinguished the lone 2003 Illinois federal district court decision MMO cited in support of its position that an American umpire must be selected, Continental Casualty Co. v. QBE Insurance, No. 03 C 2222, 2003 U.S. Dist. LEXIS 17826 (N.D. Ill. Oct. 6, 2003), and observed that an American arbitrator was appointed in that case because the reinsurance agreement required the arbitrators to consider “the custom and practice of the applicable insurance and reinsurance business” – language absent in the instant arbitration clause. Consequently, the court rejected MMO’s argument that the third panel member had to be a U.S.-based arbitrator and declined to direct ICI to proceed with the arbitration on that basis.
Mutual Marine Office, Inc. v. Insurance Corp. of Ireland, 04 Civ. 8952 (PKL), 2005 U.S. Dist. LEXIS 11584 (S.D.N.Y. June 13, 2005).
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