PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., No. 09-3963, 2010 U.S. App. LEXIS 23222 (3rd Cir., Nov. 8, 2010).
The Third Circuit affirmed a District Court’s vacatur of an arbitration award on the grounds that the arbitrators, by granting unrequested relief and rewriting the parties’ contract, exceeded their authority. PMA Capital (“PMA”) is an insurance company and Platinum Underwriters (“Platinum”) is a reinsurance company. Platinum and PMA entered into a contract by which Platinum indemnified PMA for obligations arising from its insurance policies. The contract included a “deficit carry forward provision” that entitled Platinum to reimbursement for losses carried from one year to the next. A dispute arose concerning the scope of the carry forward provision. The parties submitted the matter to arbitration, requesting the arbitrators to interpret and apply the carry forward provision with respect to a specified time frame. The contract also included an “honorable engagement” provision allowing arbitrators to make an award effecting the general purpose of the contract in a reasonable manner rather than in accordance with a literal interpretation of the agreement.
The arbitrators granted PMA an award of $6,000,000 payable within thirty days, struck the carry forward provision from the contract, and extinguished all future rights or claims under the contract which require a deficit carry forward. PMA successfully petitioned for vacatur of the award.
The Court of Appeals, on review, determined the arbitration panel clearly exceeded its authority by striking from the contract the very provision that it was called on to implement. The parties had sought arbitration requesting the provision be interpreted and implemented with respect to a disputed carry forward amount over certain years. The Court determined, even considering that the honorable engagement clause allows the arbitrators to stray from judicial formalities, the award exceeded the panel’s authority and must be vacated.
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Patrick Omilian and Jeffrey Kingsley