Ario v. The Underwriting Members of Syndicate 53 at Lloyd’s
(3rd Circuit, August 18, 2010)
Two Pennsylvania insurers entered into reinsurance treaties with a Lloyd’s syndicate. The reinsurance treaties called for arbitration “in accordance with the rules and procedures established by the Uniform Arbitration Act as enacted in Pennsylvania.” The treaties also provided that the reinsurers will “submit to a Court of competent jurisdiction within the United States,” but did not waive the right of removal as permitted.
A dispute arose between the parties. The reinsurer alleged that the primary insurers underwrote business in a manner that exposed the reinsurers to greater risk because the insurers were not underwriting risks as described in the initial placement materials. The reinsurer sought to rescind the treaties and be relieved of any obligation to pay losses. The insurers (now in liquidation and represented by the Insurance Commissioner of Pennsylvania) sought to compel the insurers to pay. Following a long hearing, an arbitration panel rescinded three of the four reinsurance treaties.
Following the decision, the Commissioner filed a motion to confirm in part and vacate in part the arbitrator’s decision as part of the liquidation proceedings in state court. The reinsurer removed the case to the Eastern District of Pennsylvania and moved to confirm the award. The parties conceded that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards applied, but disagreed regarding whether the FAA or the PUAA vacatur rules applied. The Commissioner attempted to vacate the award by asserting that the parties had opted out of the FAA rules, and that under the applicable PUAA rules, the award must be vacated. The reinsurer opposed, and sought sanctions. The district court denied the insurer’s motion and imposed certain sanctions, while denying others.
The basis for the Commissioner’s argument that the parties “opted out” of the FAA rules was the language in the reinsurance treaty providing that PUAA rules applied and supplanted the FAA rules in their entirety. The reinsurers argued that the FAA allows parties to choose state-law arbitration standards, but cannot “opt out” of the FAA. Thus, notwithstanding the language of the reinsurances treaties referencing PUAA, the FAA’s vacatur rules still applied.
The court agreed with the insurers and held that the FAA was applicable and that the parties could not “opt out” of FAA’s rules because the FAA itself authorizes the parties to chose different rules in the first place. The court also held that under the arbitration agreement, there was not an unambiguous waiver of the right of removal. The court noted that such a waiver must be “clear and unambiguous,” and the service of suit provision clearly conflicted with the arbitration provision regarding removal.
The court then held that between the Convention and the FAA, the vacatur rules of the FAA applied. It concluded that the FAA applied because the arbitration award was made in the United States. It also held that between PUAA and FAA, there was no “clear intent” to apply PUAA rules regarding vacatur, finding the arbitration language addressed only the “rules and procedures” of the arbitration, but not its enforcement (i.e. the applicable vacatur standards).
Ultimately, the court affirmed the arbitration awards in all respects, but overturned the district court ruling granting Rule 11 fees to the reinsurers. The court noted that while the Commissioner’s arguments may have been unpersuasive, they were not patently unmeritorious.
For a copy of the decision click here
Sarah Delaney and Daniel W. Gerber