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Reinsurance Group Secures Confirmation of an Arbitration Award Including Grant of Attorneys’ Fees and Expenses In Favor of Ceding Insurer

October 9, 2012
By: Justin Fortescue

White and Williams (together with co-counsel Gibbons P.C.) recently achieved a hard-fought victory on behalf of a ceding insurance company. On September 24, 2012, the United States District Court for the Southern District of New York confirmed an arbitration award in favor of Century Indemnity Company. The opinion in Century Indemnity Company v. AXA Belgium, No. 11 Civ. 7263, 2012 WL 4354816 (S.D.N.Y. September 24, 2012) reaffirms that an arbitration award will only be disturbed in extraordinary circumstances and provides an example of a federal court upholding an arbitration panel’s authority to award attorney’s fees when confronted with bad faith conduct.  Christine Russell and Justin Fortescue represented Century both in the underlying arbitration and in the confirmation proceedings.

The dispute arose from Century’s efforts to collect overdue balances from AXA Belgium under multiple reinsurance contracts, including amounts due under a prior arbitration award. AXA Belgium’s central defense in the arbitration was that it was entitled to offset amounts it owed to Century with amounts Century’s affiliates allegedly owed to AXA Belgium’s affiliate under a separate contract of reinsurance (the QSRA). Century maintained that the QSRA had been terminated years earlier, such that no amounts were due. The arbitration took place over nine days, during which time the panel heard testimony from eleven witnesses and accepted voluminous documentary evidence into the record. 

Following the arbitration hearing, the panel issued two interlocutory awards. In award two – the only award substantively challenged by AXA Belgium—the panel agreed with Century that Century’s affiliates had no liability under the QSRA. The panel ordered AXA Belgium to make a number of payments to Century, created a protocol for the payment of future losses and ruled that AXA Belgium “did not deal honorably with Century . . . and, in particular, did not make a good faith effort to comply with the prior [award.]” As a result of the latter finding, AXA Belgium was ordered to pay a portion of Century’s attorney fees. Award two also stated that the panel would retain jurisdiction for a minimum of nine months and scheduled a one-day hearing to be held nine months from the date of the award in order to consider, in part, “whether any modifications to the award should be made.” 

Prior to the expiration of the panel’s jurisdiction, AXA Belgium asked the panel to revisit its decision with respect to Century’s cutoff of liability under the QSRA. In support of this request, AXA Belgium sought to introduce evidence that could have but was not used during the arbitration (e.g., documents produced in discovery but not otherwise used). The panel denied that petition and issued an award declaring interlocutory award two to be final. AXA Belgium thereafter filed a petition to vacate the award in the United States District Court for the Southern District of New York arguing: (1) by denying a rehearing, the panel refused to hear key evidence; (2) the panel manifestly disregarded governing law; and (3) the panel exceeded its authority. Century, on the other hand, filed a petition to confirm the award. 

At the outset of its analysis, the court noted that “arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.” Under this standard, the court had no trouble concluding that the arbitration hearing was fundamentally fair and that the panel’s award was not issued in manifest disregard of the law.[1]

The court similarly rejected AXA Belgium’s final argument—that the panel exceeded its authority by: (1) re-writing the QSRA contract; (2) refusing to conduct the one-day hearing contemplated by award two; and (3) imposing a punitive sanction on AXA Belgium. On the first issue, the court found that the panel did not re-write the QSRA contract, but rather, simply agreed with Century’s interpretation of certain language rather than AXA Belgium’s. On the second issue, the court held that the one-day hearing was intended to provide a means of overseeing compliance with the award, particularly the protocol the panel had implemented to govern future reinsurance billings. Lastly, the court rejected the notion that the panel’s award of attorney’s fees was outside the panel’s authority. In support of this decision, the court cited to Reliastar Life Ins. Co. of N.Y. v. EMC Nat. Life Co., 564 F.3d 81 (2d Cir. 2009), for the proposition that, where an arbitration clause is broad, an arbitration panel has authority to issue an award of attorney’s fees for bad faith conduct. 

Having found that the grounds set forth by AXA Belgium in support of its petition to vacate were “without merit,” the court entered an order confirming the award. 

[1] The court acknowledged that it is unclear whether manifest disregard of the law remains a proper basis for vacating an arbitration award following the Supreme Court’s opinion in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008). However, the court ruled that even if it were, AXA Belgium did not demonstrate a manifest disregard of the law. Thus, the opinion sheds no further light on whether manifest disregard is still a viable challenge to an arbitration award.

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