Don’t Throw Me into the Briar Patch – Consolidation of Reinsurance Arbitration
December 11, 2018

Employers Insurance Company of Wausau (“Wausau”) recently was adverse to The Hartford (“Hartford”), creating a procedural briar patch in a California federal court over the issue of consolidation of multiple disputes under different reinsurance treaties.  In Employers Ins. Co. of Wausau v. The Hartford, No. 2:18-cv-07240, 2018 WL 6330425 (C.D. Calif. Dec. 3, 2018), Hartford and three affiliated companies billed Wausau under nineteen different reinsurance treaties covering eight reinsurance programs for reimbursement of settlement payments the affiliated cedents made to cover claims by a single underlying insured.  Wausau denied that it owed any of the cedents any reimbursement under the nineteen treaties.

In response, Hartford requested that a single panel hear a consolidated arbitration for the nineteen disputes.  Wausau opposed this approach and identified three arbitrators for three separate panels – one arbitration for each of the three cedents.  Hartford refused and identified one arbitrator for a single arbitration.  Wausau’s arbitrators asked Hartford’s arbitrator to select three umpires for three separate arbitrations.  Hartford’s arbitrator refused to do so.

Thereafter, Wausau filed four separate petitions in three different jurisdictions to compel arbitration.  In the California action, Hartford moved to compel a single arbitration and stay the other proceedings.

Accepting Hartford’s argument that the issue of whether arbitrations may be consolidated is a question for the arbitrators and not the court to decide, the court held that, pursuant to Section 4 of the Federal Arbitration Act, the court had “the power to compel the parties to proceed to arbitration in accordance with the terms of their agreements.”  The court observed that it had only one treaty before it and was constrained to compel arbitration based on the language in that treaty.  The court agreed with Wausau that Hartford’s attempts to compel a single consolidated arbitration was “a de facto request for the Court to fashion a new procedure in contravention of the terms of the agreements.”

In reaching this decision, the court rejected Hartford’s arguments that its affiliates who had entered into the nineteen treaties could act as a single party for the purpose of seeking reimbursement from Wausau for the same settlement payments paid to the underlying insured.  The court noted that Hartford was cedent to only two of the nineteen treaties, and that the treaties entered into by two of the cedents required arbitration in Massachusetts – the others required arbitration in Los Angeles.  The court also rejected Hartford’s attempts to form a single panel to decide the consolidation issue for all of the disputes, observing that the treaties were separate agreements, that the arbitration clauses differed in the various treaties, and that the treaty before the court did not contain a provision to support Hartford’s request.  The court held that it could not expand the treaty before it – even though doing so could lead to greater efficiency – as such an action would contravene the terms of the treaty.

This decision presents a reminder to parties to insurance agreements, particularly those who have affiliates who all enter into treaties with a single reinsurer, that consideration of uniform arbitration clauses that contemplate consolidation could save a lot of effort if multiple disputes arise.  Here, the court indicated that the arbitrators could agree to a consolidation, thus reducing the number of arbitrations, and more importantly, the number of arbitrators.  Although not all reinsurers and insurers may consider consolidation to be an advantage, those that do should not assume that arbitrators will agree to make themselves redundant.  Making such an assumption is akin to voluntarily throwing oneself into the Briar Patch.  Wishful thinking!

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