Lyndon Property Insurance Co. v. Founders Insurance Company, Ltd.

Issue Discussed: Power of Arbitrators

Submitted by Eric A. Haab, Jennifer L. Travers

Date Promulgated: November 24, 2008

Issue Decided: Interpretation of contractual forum selection provision is a procedural issue appropriate for the arbitrators, not the court.

In Lyndon Property Ins. Co. v. Founders Ins. Co., Ltd., the parties asked the court to determine which district court was the proper venue to hear a dispute arising from arbitration. The court determined that the reinsurance agreement at issue (the “Agreement”) had conflicting choice of forum provisions, and that this procedural issue was appropriate for the arbitrators, not the court.

Background

Founders Insurance Company (“Founders”) reinsured Lyndon Property Insurance Company (“Lyndon”). Pursuant to the Agreement, the parties entered into an arbitration to resolve a disagreement regarding the amount of money Founders needed to set aside in reserve. Lyndon, a Missouri company, and Founders, a Bermuda-based company with its headquarters in Colorado, agreed to accommodate the arbitration panel’s umpire’s schedule and conduct the arbitration in Massachusetts. After the arbitration hearing, the panel ordered Founders to post prejudgment security. After Founders failed to comply, Lyndon filed a suit to enforce the order in the District Court of Massachusetts.

Holding

In response to Lyndon’s Massachusetts suit, Founders filed a motion to dismiss arguing that the Agreement required a Missouri court to hear the action and that Massachusetts lacked personal jurisdiction over Founders. The court reviewed the relevant provisions of the Agreement, finding that the provisions seemed to conflict on which venue would be appropriate.

The arbitration clause of the Agreement stated that an arbitration award “may be entered in any court of any proper jurisdiction and may be enforced in any such court.” Another provision of the Agreement, however, stated the Agreement should be interpreted and construed pursuant to the laws of Missouri and that the reinsurer agreed to submit to jurisdiction in Missouri.

The court stated that “the ultimate issue is how the choice of forum provisions of the Agreement, which seemingly conflict, are to be interpreted.” The court began its analysis by stating that contract construction requires that “each term of a contract should be given (as best the court is able) the common sense effect that was intended by the parties.” Founders argued that the Agreement provided “exclusive jurisdiction to the courts of Missouri to resolve all disputes involving the interpretation of the terms of the Agreement (including disputes over the proper choice of forum).” Lyndon disagreed, and argued that the submission-to-jurisdiction provision was not inconsistent with the forum selection clause relating to arbitration, as the submission-to-jurisdiction provision only pertained to non-arbitrable disputes.

The court found both parties’ arguments to be “plausible” and “common sense readings” of the Agreement. The court, however, declined to accept either party’s view of which state provided the proper forum. The court stated that “the role of the federal court in arbitration disputes [is confined] to issues of arbitrability and the confirmatory (and largely ministerial) approval of an award.” It further indicated that “procedural questions which grow out of the dispute and bear on its final disposition” should be left for arbitration. Basing its decision on First Circuit precedent, the Court ruled that the interpretation and reconciliation of the Agreement’s forum selection provisions is a procedural issue, and therefore, an issue appropriate for the arbitrators to decide, not the court. Accordingly, the Court granted Founders’ motion to dismiss and remanded the issue back to the arbitration panel.

*Eric Haab and Jennifer Travers are partner and associate, respectively, in the insurance/reinsurance group of Lovells LLP. They each represent cedents and reinsurers in disputes involving a wide variety of issues.