Forgive the Failure to Timely Appoint a Reinsurance Arbitrator?

The receipt of an arbitration demand in the reinsurance world usually results in a flurry of activity for the professionals employed in claims and legal departments. It can mean the need to collect file materials, retention of outside counsel to handle the matter and appointment of an arbitrator per the requirements in the relevant reinsurance contract. A recent case from a United States District Court in Kansas illustrates how some courts will be willing to forgive a party’s failure to appoint an arbitrator per the requirements of the contract. See, Ancon Insurance Company (U.K.) Limited v. GE Reinsurance Corporation, 480 F.Supp.2d 1278, (D. Kan. 2007).

Since the disposition of the case is contingent upon the dates that certain events were completed, the facts are somewhat tedious. Ancon Insurance Co. Ltd., headquartered in the United Kingdom, acted as a reinsurer for GE Reinsurance Corp. On Feb. 2, 2006, GE Re demanded arbitration with Ancon based upon the terms of the reinsurance contract, which required Ancon to appoint an arbitrator within thirty days after receipt of the demand. The arbitration demand was forwarded to Cavell Management Services Ltd, which Ancon had engaged several years earlier to handle certain aspects of its business. Cavell received the demand on Feb. 6, 2006; a Cavell employee reviewed the demand on Feb. 7; and (for an unknown reason) the Cavell employee waited until Feb. 13 to date stamp it as received. Ancon’s counsel advised GE Re’s counsel via electronic correspondence on Feb. 23, that Ancon received the arbitration demand on Feb. 13. The Feb. 13 date was incorrect, due to the Cavell date stamp issue. Of particular interest, in response to a subsequent inquiry from GE Re, Cavell advised that it received the arbitration demand on Feb. 7. On March 13, Ancon appointed an arbitrator via a letter directed to GE Re’s counsel. After receiving the Ancon appointment letter and receiving confirmation through Federal Express that Cavell received the arbitration demand on Feb. 6, GE Re forwarded correspondence to Ancon’s counsel advising Ancon that GE Re viewed Ancon’s appointment as untimely and designated a new arbitrator for Ancon. On March 22, Ancon initiated litigation against GE Re with each party subsequently seeking an order essentially declaring that their respective arbitrator appointments were valid.

As with many reinsurance contracts, the contract at issue contained a provision stating that if a party failed to appoint an arbitrator within thirty days following receipt of a demand requesting it to appoint an arbitrator, the party demanding arbitration was entitled to appoint both “party-appointed” arbitrators. The importance of this provision cannot be dismissed as it gives the party demanding arbitration the ability to significantly influence the selection of the panel, as the two “party-appointed” arbitrators are vested with the power to select the umpire.

Historically, courts around the country have approached factual situations analogous to the situation in Ancon quite differently. Some cases have adopted a very strict view and enforced time requirements, even where the time delay was minor. For instance, the court in Universal Reins. Corp. v. Allstate Ins. Co., 16 F.3d 125 (7th Cir. 1993) enforced the language of a contract where a party “refuses or neglects” to appoint an arbitrator. A typographical error created a five-day delay in appointing an arbitrator outside of the time limit in the contract. The court determined that the error was “neglect” within the meaning of the contract. Other courts have been more forgiving in similar circumstances. For instance, in In Re Utility Oil Corp., 10 F.Supp 678 (S.D. N.Y. 1934), the court refused to strictly enforce the parties’ adverse selection clause where a party failed to name its arbitrator within the contract’s stated parameters when there was a dispute as to whether the dispute was arbitrable.

As the contract at issue in Ancon did not make time of the essence, the court found in favor of Ancon on the issue of arbitrator appointment. First, the court found that the line of cases cited by GE Re to support its position (including the above-described Universal Re case) to be less persuasive in the instant situation. In turn, the court was troubled that under GE Re’s analysis if Ancon’s designation had been as little as one minute late, Ancon would have forfeited its right to select an arbitrator. Since “time of the essence” was not included in the contract, the court clearly felt uncomfortable with strictly enforcing the adverse selection provision. Second, the court was persuaded that the error in appointing the arbitrator outside of the required time parameters was not due to bad faith. Third, the court noted that it did not see any prejudice for GE Re as a result of an appointment that was made a few days late. Finally, the court stated that the most important reason for finding in favor of Ancon was to secure a resolution of the parties’ disputes by an impartial panel such that both parties could have confidence in the outcome.

Although the Ancon decision provides some comfort to those who through inadvertence or administrative error fail to timely appoint a reinsurance arbitrator, there are still jurisdictions that will strictly enforce the contract and its terms for arbitrator appointment. When a question arises concerning a potentially tardy arbitrator appointment, parties would be wise to quickly and carefully consider which jurisdiction may provide the most favorable law on the subject.

Andrew S. Boris is a partner in the Chicago office of Tressler Soderstrom Maloney & Priess, LLP. His practice is focused on litigation and arbitration of insurance coverage and reinsurance matters throughout the country, including general coverage, professional liability, environmental, and asbestos cases. Questions and responses to this article are welcome at aboris@tsmp.com.