Employers Insurance Company of Wausau v. Century Indemnity Company

Issue Discussed: Power of Arbitrators

Submitted by Andrew A. Magwood

Date Promulgated: April 4, 2006

Issues addressed: Authority of Arbitrators to Decide Procedural Questions

The United States Court of Appeals for the Seventh Circuit recently held that whether a reinsurer could be required to participate in a joint arbitration with its reinsured and other reinsurers was a procedural matter to be decided by the arbitrator.

Wausau reinsured Century under various reinsurance agreements. Century paid losses under some of its reinsured policies and demanded a consolidated arbitration with Wausau and other reinsurers. While Wausau conceded that its reinsurance agreements with Century obligated it to arbitrate, it claimed that it was not required to participate in a joint arbitration with the other reinsurers. Wausau argued that it was entitled to a separate arbitration for both its first and second reinsurance agreements and that these arbitrations should be separate from any arbitration with any other reinsurer. The District Court held that Wausau was required to appoint an arbitrator according to its agreements and submit the question of consolidation to the arbitration panel. The Court affirmed the order of the District Court.

The Court, relying on Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002); and cases from the First and Fourth Circuits (Shaw’s Supermarkets, Inc. v. United Food and Commercial Workers Union, Local 791, 321 F.3d 251 (1st Cir. 2003); Dockser v. Schwartzberg, 433 F.3d 421 (4th Cir.2006), held that consolidation was not an issue of “arbitrability;” or a threshold question to be determined by the courts before the arbitration proceeds on its merits. Instead, this was merely a “procedural” question which was not to be decided by the courts but should be submitted pursuant to their agreement, to the arbitrators. The Court explained, “It does not involve whether Wausau and Century are bound by an arbitration clause or whether the arbitration clause covers the [disputed] policies. Instead, the consolidation question concerns grievance procedures–i.e., whether Century can be required to participate in one arbitration covering both the Agreements, or in an arbitration with other reinsurers.”

The Court noted that at the arbitration, because the arbitrators had the authority to decide procedural issues, Wausau could raise the issue of having two separate arbitrations and Century could raise the issue of consolidating arbitration with its other reinsures. Accordingly, the Court refrained from determining how many arbitrations should be held, and required Wausau to appoint an arbitrator and submit the issue of consolidation to the arbitration panel.

* Mr. Magwood practices insurance law and is licensed in Connecticut and California. Prior to starting his own practice, he was associate counsel in the General Counsel’s office of St. Paul Travelers – Bond, and previously, litigated insurance coverage and “bad faith” cases at a leading regional insurance coverage firm.