ANCON Insurance Company (UK) Limited v. GE Reinsurance Corporation

Issue Discussed: Arbitrator Selection / Challenges / Judicial Intervention

Submitted by John R. Cashin

Date Promulgated: March 30, 2007

ANCON Insurance Company (UK) Limited v. GE Reinsurance Corporation, No. 06-2106 CM, 480 F.Supp.2d 1278 (D.Kan. 2007)

On a motion for Summary Judgment before a US Magistrate Judge the interpretation and application of the so-called adverse selection clause was contested in ANCON v. GE Reinsurance (“GE Re”). The plaintiff, ANCON, sought an order compelling arbitration against the defendant, GE Re, and confirming the appointment of plaintiff’s party arbitrator. GE Re also sought an order compelling arbitration, but sought the court’s appointment of its nominee as ANCON’s party appointed arbitrator and a declaration voiding the purported appointment of ANCON’s original nominee.

Under various reinsurance contracts ANCON provided reinsurance coverage to GE Re over the period 1982 through 1985. The reinsurance agreements provided for arbitration of disputes by a tripartite panel with each party selecting its own arbitrator and the two arbitrators so appointed selecting the umpire. The arbitration provisions also contained the following language: ‘‘If either party refuses or neglects to appoint an arbitrator within thirty days after the receipt of written notice from the other party requesting it to do so, the requesting party may appoint two arbitrators.’’ On Feb 2, 2006 GE Reinsurance demanded arbitration and addressed its demand to Cavell Management Services Limited (“Cavell”) which ANCON had engaged in 2003 to handle the run-off of its business. Cavell received the demand on Feb 7, 2006 but did not notify ANCON of the demand until Feb 17, 2006. Cavell had also mistakenly date stamped the demand as received on Feb 13, 2006, while the signed Federal Express receipt bore the Feb 7, 2007 date of delivery.

On March 13, 2006 ANCON’s counsel electronically transmitted a letter to GE Re’s counsel stating the name of its appointed arbitrator. After receiving the letter GE Re’s counsel confirmed through Federal Express that Cavell received the arbitration demand on Feb 7, 2006. GE Re’s counsel then advised ANCON’s counsel that its purported appointment should have been made by March 8, 2006 and was, therefore, untimely and that GE Re had appointed two arbitrators. On March 22, 2006 ANCON sued GE Re in the District Court of Kansas. On April 6 GE Re filed a counterclaim to compel arbitration but seeking an order confirming its right to appoint two arbitrators under the terms of the arbitration agreement’s adverse selection clause. The parties filed cross-motions for summary judgment to determine whether GE Re was entitled to designate ANCON’s party appointed arbitrator.

ANCON argued that the court should confirm its appointed arbitrator regardless of the fact that the appointment was untimely by five days. Stating that the overriding purpose of the arbitration agreement was to have a fair and balanced panel to hear the dispute, ANCON asserted the adverse selection clause is subservient to this goal. ANCON reasoned further that if the parties intended that time were to be of the essence, they could have expressly made it so in the agreement. In support of its arguments, ANCON cited a set of out of district cases, notably from the Southern District of New York(S.D.N.Y.). [See: In re Utility Oil Corp., 10 F. Supp. 678 (S.D.N.Y. 1934); Lobo & Co. v. Plymouth Navigation Co. of Monrovia, 187 F. Supp. 859 (S.D.N.Y. 1960); Compania Portorafti Commerciale, S.A. v. Kaiser Int’l Corp., 616 F. Supp. F. Supp. 236 (S.D.N.Y. 1985); New England Reins. Corp. v. Tennessee Ins. Co., 780 S. Supp. 73 (D. Mass. 1991); Texas E. Transmission Corp. v. Barnard, 285 F.2d 536 (6th Cir. 1960).]

GE Re argued that the adverse selection provision should be strictly enforced to give effect to the purpose of the Federal Arbitration Act which is to give the same effect to the terms of an arbitration agreement as to the terms of other contracts. GE Re also cited several out of district cases in support of its position. [See Universal Reins. Corp. v. Allstate Ins. Co., 16 F.3d 125 (7th Cir. 1993); Evanston Ins. Co. v. Gerling Global Reins. Corp., No. 90-3919, 1990 WL 141442 (N.D. Ill. Sept. 24, 1990); Employers Ins. Of Wausau v. Jackson, 527 N.W.2d 681 (Wis. 1995); Nat’l Planning v. Achatz No. 02-0196, 2002 WL 31906336 (W.D.N.Y. 2002).]

The court found the rationale articulated in the cases relied upon by ANCON to be better reasoned and far more persuasive than the rationale of the cases relied upon by GE Re. With references to the holdings of two SDNY cases (In Re Utility Oil and Lobo & Co.), the Magistrate determined that where the party has acted in good faith, “the parties agreement should be interpreted and enforced with its dominant purpose in mind which is to secure resolution of the parties’ dispute by an impartial arbitration panel such that both parties have confidence in the outcome. A strict ‘hypertechnical’ enforcement of the agreement would lead to a result in which ANCON would have little confidence.”

Further, the court was unpersuaded that GE Re was in any way prejudiced by such an outcome as GE Re will receive what it bargained for, a tripartite panel consisting of GE Re’s appointed arbitrator, ANCON’s appointed arbitrator and a third chosen by the first two.

* John R. Cashin is General Counsel – Group Reinsurance at Zurich Financial Services, Zurich, Switzerland. He is an ARIAS Certified Arbitrator. At Zurich his responsibilities include insurance regulation, reinsurance claims, reinsurance litigation, arbitration and contract wording. He joined Zurich in 2004 from the law firm of Stroock & Stroock & Lavan LLP in New York City. Prior to his law firm practice he served as Deputy Superintendent of the New York State Insurance Department and spent twenty years in the reinsurance brokerage business.