Allstate Ins. Co. v. Amerisure Mut. Ins. Co.

Issue Discussed: "Functus Officio" / Modification / Clarification; “Interim” v. “Final”

Submitted by Nicholas Rosinia

Date Promulgated: March 25, 2020

Issues Discussed: “Functus Officio” / Modification / Clarification; “Interim” v. “Final”

Submitted by Nicholas H. Rosinia [1]

Date Promulgated: March 25, 2020

Allstate Ins. Co. v. Amerisure Mut. Ins. Co., Nos. 19 C 4241 / 19 C 7080, 2020 U.S. Dist. LEXIS 53923 (N.D. Ill. Mar. 25, 2020)

Court: United States District Court for the Northern District of Illinois, Eastern Division

Issue Decided: Whether an arbitration panel’s Interim Final Award and/or only its subsequent Final Award were subject to confirmation.

Holding: In Allstate Insurance Company v. Amerisure Mutual Insurance Company, the United States District Court for the Northern District of Illinois held that (a) an arbitration panel’s Interim Final Award was not subject to confirmation because it did not constitute a final arbitration award, and the arbitration panel was thus not functus officio as to the issues addressed in that Award after its issuance; and (b) the arbitration panel’s Final Award constituted a final arbitration award and was therefore subject to confirmation.

Case Description: Amerisure Mutual Insurance Company (“Amerisure”) issued primary and umbrella insurance policies to F.B. Wright Company (“F.B. Wright”) between 1976 and 1979 and Armstrong Machine Works/Armstrong Video Productions (“Armstrong”) between 1979-1981 and again from 1982-1983. Allstate Insurance Company (“Allstate”) reinsured the umbrella policies issued to both companies pursuant to six facultative certificates. Both F.B. Wright and Armstrong later became the subject of numerous lawsuits arising from injuries allegedly caused by asbestos exposure. Amerisure initially defended and indemnified both companies pursuant its primary policies and, once those policies were exhausted, pursuant to its umbrella policies.

When Amerisure’s expense and indemnity payments reached the level at which Allstate’s facultative certificates would respond, Amerisure notified Allstate and began to submit reinsurance billings. Those billings showed that Amerisure was paying expenses outside of its umbrella policy limits, and was seeking reimbursement from Allstate on that basis. Believing this was contrary to the terms of the umbrella policies, Allstate demanded arbitration and sought a determination that it was not required to reimburse expenses in addition to the umbrella policies’ limits.

The parties then proceeded with arbitration. In its pre-hearing brief, Allstate sought an “Interim Award” that would (a) require Amerisure to provide information as to why it was paying defense costs outside of its umbrella policy limits (as well as what expenses those costs defrayed), and (b) declare Allstate had no obligation to reimburse Amerisure for defense costs in excess of the pre-1982 umbrella policies’ limits.

Following a hearing, the arbitration panel issued an “Interim Final Award” that found Amerisure was not required to pay defense costs outside of its pre-1982 umbrella policies’ limits. As a result, the arbitration panel found that Amerisure was not entitled to reimbursement from Allstate for expenses paid outside of those policies’ limits. The arbitration panel then established an “Expense Payment Protocol” through which the parties were directed to work together to resolve questions regarding the specific billed expenses and, if agreement could not be reached, raise any disputes for resolution by the arbitration panel.

The parties were unable to reach resolution under this Protocol, primarily due to differing interpretations of the Interim Final Award. Allstate believed that under this Award it was not obligated to reimburse any defense costs paid by Amerisure under its pre-1982 umbrella policies. Amerisure believed that under the Award Allstate was still obligated to reimburse expenses paid within the pre-1982 umbrella policies’ limits. In response to the parties’ disagreement, Allstate filed a motion to confirm the Interim Final Award in the Northern District of Illinois and sought a judgment denying Amerisure the right to reimbursement for any defense costs paid under the pre-1982 umbrella policies.

The parties also filed post-hearing briefs with the arbitration panel. Consistent with its court petition, Allstate argued that the arbitration panel should only issue a final award as to its obligations in connection with the 1982-83 umbrella policy. For its part, Amerisure sought an award of defense costs under of all of its umbrella policies and Allstate’s associated facultative certificates, with the caveat that it only sought reimbursement for expenses paid within the policy limits of its pre-1982 umbrella policies.

The arbitration panel then issued a Final Award, which provided Amerisure the right to reimbursement of expenses paid within the limits of its pre-1982 umbrella policies and outside the limits of its 1982-83 umbrella policy. Amerisure then moved to confirm this Final Award before the same court in which Allstate’s petition to confirm the Interim Final Award was pending.

Before the court, Allstate argued the Interim Final Award should be confirmed because it resolved all issues under the pre-1982 umbrella policies and facultative certificates (the “pre-1982 contracts”). Accordingly, Allstate argued this award constituted a final arbitration award and rendered the panel functus officio as to issues regarding the pre-1982 contracts after its issuance. In response, Amerisure argued that the Interim Final Award did not resolve the parties’ entire dispute under the pre-1982 contracts, and was therefore not a final arbitration award—rendering it ineligible for confirmation. Amerisure further argued that the Final Award did constitute a final arbitration award, and should therefore be confirmed.

The Court agreed with Amerisure. It found that the Interim Final Award did not dispose of all issues relating to the pre-1982 contracts because it “denied Amerisure’s claims under the pre-1982 contracts only to the extent that Amerisure sought defense costs in addition to limits.” 2020 U.S. Dist. LEXIS 53923 at *13. While the Interim Final Award had provided that “Amerisure’s claims for recovery of expenses billed under [the pre-1982 contracts] are denied,” the Court found that in the context of the order and the arbitration as a whole, this passage “referred only to Amerisure’s claims as to defense costs in addition to limits.” Id. at *13-14. This was largely because, the Court explained, Allstate’s pre-hearing brief had sought an Interim Award specifically directed at Amerisure’s request for reimbursement of expenses outside of its umbrella policy limits rather than its request for reimbursement of expenses at all. As a result, the Court concluded that the issue of whether Amerisure was entitled to reimbursement for expenses at all under its pre-1982 umbrella policies “had not yet been put before the panel” at the time of the Interim Final Award—such that this Award could not be deemed a final arbitration award on the issue. Id. at *16.

The Court noted that its conclusion was supported by the fact that the arbitration panel had issued the later Final Award, which included resolution of issues regarding the pre-1982 contracts. This, to the court, indicated the arbitration panel itself did not consider its Interim Final Award to have disposed of all issues regarding the pre-1982 contracts. The Court further explained that the Interim Final Award could not constitute a final arbitration award because “the panel did not decide . . . whether and in what amounts Allstate was liable to pay any defense costs within limits.” Id. at 22.

As a result, the court ruled that the Interim Final Award did not constitute a final arbitration award and the arbitration panel was not functus officio as to issues relating to the pre-1982 contracts after issuance of the Interim Final Award. The court further found that the arbitration panel’s Final Award constituted the final arbitration award. The court therefore rejected Allstate’s petition to confirm the Interim Final Award and granted Amerisure’s petition to confirm the Final Award.

[1] Nicholas H. Rosinia is Senior Counsel in the Insurance & Reinsurance Litigation Group at Foley & Larder LLP.