Academic journal article Fordham Urban Law Journal

Evolving Issues in Reinsurance Disputes: The Power of Arbitrators

Academic journal article Fordham Urban Law Journal

Evolving Issues in Reinsurance Disputes: The Power of Arbitrators

Article excerpt

INTRODUCTION

Due to its efficient and cost-effective nature, arbitration is often the preferred approach for resolving reinsurance and other complex commercial business disputes. (1) For this reason, reinsurance contracts, as well as many other commercial agreements, often contain arbitration clauses requiring that any and all disputes arising under the contract be resolved by arbitration. (2) The Federal Arbitration Act ("FAA") governs most reinsurance arbitrations in the United States. (3)

Arbitration is a creature of a contract, and the powers that arbitrators possess originate from the parties, who agree to confer specific powers on the arbitrators--either through an arbitration clause in the contract or through a separate agreement. (4) Typically, arbitration clauses found in reinsurance agreements confer broad power on arbitrators with respect to certain procedural or substantive issues. (5) As discussed below, where an arbitration clause enumerates specific powers to arbitrators, it is rare that parties challenge an exercise of those powers. Parties often challenge an arbitrator's actions, however, where the arbitrator acts in a manner not expressly provided for in the contract. In such instances, courts will look to the language of the parties' contract, as well as the FAA, to determine whether an arbitrator has exceeded his powers. (6)

Cases discussed in this Article suggest that courts often struggle to grasp the extent of arbitral powers pursuant to the interplay between arbitration agreements contained in reinsurance contracts, industry custom and practice, and the FAA. The result has been contradictory and often inconsistent decisions in this area of the law.

This Article examines emerging areas of the law governing certain procedural powers of arbitrators that has impacted and will continue to impact reinsurance arbitrations, as well as other commercial disputes. Specifically, the Article focuses on an arbitrator's powers with respect to the following procedural issues: (i) consolidation; (ii) non-party discovery; (iii) confidentiality; (iv) summary adjudication; and (v) the enforceability of a hold harmless agreement.

I. CONSOLIDATION

The issue of whether multiple disputes among related parties should be consolidated often arises in reinsurance arbitrations, where many contracts involve several reinsurers sharing a certain risk ceded to them by a single insurer, known as a cedent. (7) Until recently, the majority of case law has not supported consolidation, absent specific language in the parties' contract. (8)

A sample consolidation clause in a reinsurance contract may appear as follows: "If more than one reinsurer is involved in an arbitration where there are common questions of law or fact and a possibility of conflicting awards or inconsistent results, all such reinsurers will constitute and act as one party for purpose of this clause." (9)

A party seeking to enforce consolidation in an arbitration agreement may petition the court to do so pursuant to section 4 of the FAA, which provides that "[a] party aggrieved by the alleged failure, neglect or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court ... for an order directing that such arbitration proceed in the manner provided for in such agreement." (10) Although the language of this statute seems clear, courts have interpreted it in a variety of ways.

Early interpretations of section 4 held that an arbitration panel lacked the authority to order consolidation. In Del E. Webb Construction v. Richardson Hospital Authority, the Fifth Circuit held that under section 4 of the FAA:

   The question of consolidation ... is for the district court because
   the court must determine only whether the contract provides for
   consolidated arbitration, a question free of the underlying facts.
   Moreover, it is unclear how separate arbitrations could be
   consolidated by one of the arbitrators. … 
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