Argonaut Insurance Company v. Century Indemnity Co.

Issue Discussed: Power of Arbitrators

Submitted by Paul Janaskie

Date Promulgated: September 6, 2007

Argonaut Insurance Company v. Century Indemnity Co., 2007 WL 2668889 (E.D. Pa. Sept. 6, 2007)

Issue Decided: Withdrawal of arbitration demand; consolidation of arbitrations; question of arbitrability versus question of arbitral procedure.

A federal district court has ruled that it lacks authority to resolve “a rather tangled web of arbitration demands” that has led “to multiple incomplete arbitration panels.” The court concluded that it could not “unravel this thicket” because the issue of whether a party may withdraw an arbitration demand is an issue of arbitral procedure for an arbitrator to resolve.

The case involved a reinsurance treaty calling for binding arbitration. Pursuant to the arbitration clause, each party appointed one arbitrator, and the two arbitrators then selected the third arbitrator. The clause further provided that, if a party refused or neglected to appoint its arbitrator within the time limit given in the treaty, then the other party selected the second arbitrator.

The cedent issued three separate arbitration demands to a reinsurer. Each arbitration demand concerned losses arising from a different insured. Several weeks later, the cedent issued a fourth arbitration demand to the reinsurer. This fourth demand was a consolidated arbitration demand involving multiple claims, including the three claims that were the subject of the three prior arbitration demands. The reinsurer appointed its arbitrators for the first three arbitration demands. When the cedent did not appoint its arbitrators for the first three arbitration demands, the reinsurer appointed a second arbitrator for each of those three arbitrations. The cedent responded that its fourth arbitration demand “superceded” the prior three arbitration demands and “to avoid any confusion going forward,” those three prior arbitration demands were withdrawn.

Before the court, the cedent and reinsurer agreed that under current judicial precedent the issue of consolidation of arbitrations is an issue for arbitrators, not a court. The parties asked the court to decide a narrower issue: which of the four panels should decide whether or not to consolidate the arbitrations?

The cedent took the position that the consolidation issue should be decided in the fourth arbitration because it had withdrawn the prior three arbitration demands. The reinsurer took the position that the court should order the first three arbitrations to proceed. The reinsurer contended that it had appointed its arbitrators for the first three arbitrations and therefore the cedent’s withdrawal was ineffective.

The court ordered all four arbitrations to proceed, and it refused to dismiss any of the arbitrations. The court held that the issue of the withdrawal of an arbitration demand is a matter of arbitral procedure to be decided by an arbitrator, not a court. The court reasoned that it was limited to resolving “gateway questions of arbitrability,” such as whether the parties are bound by a given arbitration clause or whether a particular dispute between the parties falls within their arbitration clause.

According to the court, the issue of withdrawal of an arbitration demand is not a gateway question of arbitrability. “The question of whether withdrawal is permitted, at what point, and in what manner, is a question of procedure arising out of the process of arbitration and not a question of arbitrability.”

The court stated that it had reached “a distinctly inefficient conclusion,” because all four arbitration panels must proceed. “This means that unless these two sophisticated business litigants can sensibly jointly design a procedural roadmap, the panels will have to agree upon a reasonable solution as to which panels must decide the issues.”

* Paul Janaskie is a partner in the Insurance and Reinsurance Practice Group of Hunton & Williams LLP. He represents cedents and reinsurers in a wide range of reinsurance and insurance coverage matters.