PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, LTD
(Eastern District of Pennsylvania, September 17, 2009)
A Reinsurer demanded arbitration, seeking a declaration with respect to calculation of the balance of the Experience Account under the reinsurance contract and that it was entitled to the “benefit deficit carry forward” under a prior contract with a different reinsurer. The arbitrators awarded the reinsurer $6 million dollars within 30 days and eliminated the deficit carry forward provision in the contract in its entirety. Finding that the arbitration award (1) could not be "rationally derived either from the agreement between the parties or from the parties submissions to the arbitrators" and (2) was irrational, the court held vacatur of the award is justified.
The district court first held that the monetary award could not be rationally derived as the parties conceded preconditions were not even met. Second, with respect to elimination of the clause, the court rejected the reinsurer's position that the "Honorable Engagement Clause" in the contract conferred broad powers on the arbitrators, stating that "no court has held that such a clause gives arbitrators authority to re-write the contract they are charged with interpreting." Moreover, the court held that the parties never asked for the subject provision to be eliminated, but rather a calculation of the balance and a declaration whether the reinsurer was entitled to the specific benefit.
Finally, the court found that the award was “completely irrational” as the provision eliminated was an essential part of the reinsurance agreement. Therefore, the award was found not to have been drawn from the essence of the agreement, but “is in manifest disregard thereof.” The Petition to Vacate the arbitration award was granted.
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Kimberly E. Whistler and Thomas F. Segalla