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

Federal Court Rules That Consolidation Question is for the First Fully Constituted Panel to Decide

Lately, the federal case law has been relatively uniform regarding the issue of who should decide whether separate arbitrations are to be consolidated, with most courts relegating that decision to the arbitration panel (or panels) as a "procedural matter." A recent Massachusetts federal district court decision follows this trend but without explicitly addressing the "which panel gets to decide" question when two or more panels have been partially or fully constituted. Instead, it ordered the parties to complete umpire selection for the first panel, which would determine the number of arbitrations going forward.

In December 2010, the reinsurer in this case filed an arbitration demand with its cedent pursuant to a series of excess of loss treaties written between year-end 1968 and year-end 1982 seeking declaratory relief regarding the scope of the treaties' access to records clause. Although worded slightly differently over the years, the arbitration clauses essentially provided that "any dispute" arising out the treaties would be submitted to arbitration before a tripartite panel. Four days after the reinsurer filed its demand, the cedent issued a counter-demand seeking reinsurance payments for losses arising out of a settlement with one of its insureds. In late January 2011, the reinsurer issued a second arbitration demand seeking an award that the cedent had improperly presented that insured's claims for payment under the treaties.

In March 2011, the reinsurer filed a motion in federal court to compel the cedent to proceed with two separate arbitrations because the language of the arbitration clauses referred to "any dispute" (i.e., in the singular) and it had two separate disputes, one regarding its access to records and the other the payment of a specific ceded loss settlement. In April 2011, the cedent filed a cross-motion to compel the reinsurer to proceed with the selection of a single umpire to preside over the parties' arbitration and to have that fully constituted panel determine whether the two arbitrations should be consolidated.

The federal court ruled that the parties' motions did not raise a threshold arbitrability issue that is typically within the court's province to decide. Citing a First Circuit collective bargaining case involving the consolidation of several labor grievances as precedent, the court held that consolidation, unlike arbitrability, was a "procedural matter" for the arbitrators to decide. It found no evidence in the treaties to support the view that the parties did not expect disagreements over issues like consolidation to be resolved through arbitration. In granting the cedent's cross-motion, the court ordered the reinsurer to participate in selecting a single umpire so that a fully constituted arbitration panel could then decide the number of arbitrations to be held.

Because the parties' motions to compel arbitration were filed before the first panel was fully constituted, the court did not have to address the thorny issue of multiple partially or fully constituted arbitration panels, each vying to decide the same consolidation question as was the case, for example, in Argonaut Insurance Co. v. Century Indemnity Co., Civ. No. 05-5355, 2007 U.S. Dist. LEXIS 65863 (E.D. Pa. Sept. 6, 2007) (for a summary of this interesting multi-panel consolidation case, see Pennsylvania Federal Court Rejects “First in Time” Rule to Determine Which of Four Arbitration Panels Should Decide Consolidation Question).

Allstate Insurance Company v. Liberty Mutual Insurance Company, Civ. Action No. 11-10415-RGS, 2011 U.S. Dist. LEXIS 53608 (D. Mass. May 19, 2011).

THE GASS COMPANY, INC.
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REDDING, CONNECTICUT 06896-1728

TELEPHONE: (203) 227-9431
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rgass@gassco.com

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