In re ROM Reinsurance Mgmt. Co. v. Cont’l Ins. Co.

Issue Discussed: Arbitrability/Scope of Arbitration

Submitted by Amy S. Kline

Date Promulgated: March 11, 2014

Issues Decided: Timeliness of an insurer’s demand for arbitration over asbestos claim payments was an issue to be decided by the court, rather than the arbitrators, where the arbitration clause between the insurer and reinsurers provided that “the arbitration laws of New York State shall govern such arbitration.”

– – – – – The New York Supreme Court, Appellate Division held that the timeliness of an insurer’s demand for arbitration over asbestos claim payments was an issue to be decided by the court, rather than the arbitrators, where the arbitration clause between the insurer and reinsurers provided that “the arbitration laws of New York State shall govern such arbitration.” Under the FAA, resolution of statute of limitations issues are presumptively reserved for the arbitrator. However, the court held that the unambiguous language in the arbitration clause at issue satisfied the exception to the presumption where the parties explicitly agreed to leave statute of limitations issues to the court. In April 2012, Continental Insurance Company (“Continental”), sought to recover unpaid balances for asbestos and pre-1989 environmental claims under multiple reinsurance agreements. Continent demanded arbitration upon its pool of reinsurers which was managed by ROM Reinsurance Management Company, Inc. (“ROM”). Each of the reinsurance agreements between the parties contained an arbitration clause which provided that “the arbitration laws of New York State shall govern such arbitration.” The reinsurers petitioned for a stay of arbitration, pursuant to Article 75 of the CPLR, to bar Continental from seeking to arbitrate two accounts that fell outside New York’s six-year statute of limitations period. Specifically, Continental sought amounts allegedly billed and denied ten years earlier with respect to Thorpe Insulation and J.T. Thorpe asbestos claims. Continental argued that “because the parties’ agreement did not explicitly state that New York law applied to the enforcement of the contract, the timeliness question must be decided by the arbitrators.” In opposition, the reinsurers argued that the parties did in fact elect to have New York law govern the contracts. The trial court denied ROM’s petition for a stay ruling that the language in the parties’ arbitration clause merely stated that controversies would be governed by New York law, but did not express an intent to have New York law govern their enforcement. The court held that “[a]s a result, all issues regarding the application of the statute of limitations shall be determined by the arbitrators.” On appeal, the Appellate Division reversed the lower court’s decision, with costs, and remanded the case for determination as to whether the claims were time-barred. The appellate court explained that, under the FAA, the “resolution of a statute of limitations defense is presumptively reserved to the arbitrator, not a court.” It was undisputed that the FAA governed the agreements; however, an “exception to this rule exists where parties explicitly agree to leave timeliness issues to the court.” Additionally, “[u]nlike the FAA, New York law ‘allows a threshold issue of timeliness to be asserted in court’ even absent an agreement to do so.” Both the appellate court and the lower court relied upon Diamond Waterproofing Systems, Inc. v. 55 Liberty Owners Corp., 826 N.E.2d 802 (N.Y. 2005), where the New York Court of Appeals held that an agreement that merely provided that “‘it shall be governed by the law of [New York]’ did not express an intent to have New York law govern enforcement.” The Diamond Waterproofing court ruled that “[a] choice of law provision, which states that New York law shall govern both ‘the agreement and its enforcement,’ adopts as ‘binding New York’s rule that threshold Statute of Limitations questions are for the courts.’ In the absence of more critical language concerning enforcement, however, all controversies, including issues of timeliness, are subjects for arbitration.” Unlike the lower court, the appellate court held that the arbitration clause at issue, providing that “the arbitration laws of New York State” shall apply, satisfied the “more critical language concerning enforcement” requirement of Diamond Waterproofing. Indeed, the appellate court observed that “[i]t is hard to imagine what the parties intended when they agreed that the ‘arbitration law of New York State shall govern such arbitration’ if they did not intend to have the CPLR apply to petitions to review arbitration awards.”

* Ms. Kline is a partner at Saul Ewing LLP.