Certain Underwriters at Lloyd’s London v. Century Indemnity Company
Issue Discussed: Preclusive effect of an arbitration award is for arbitrators to decide; Consolidation of arbitrations is an issue for arbitrators to decide
Submitted by Sylvia Kaminsky
Date Promulgated: March 6, 2020
Certain Underwriters at Lloyd’s London v. Century Indemnity Company
Issue Discussed: Preclusive effect of an arbitration award is for arbitrators to decide; Consolidation of arbitrations is an issue for arbitrators to decide
Submitted by Sylvia Kaminsky*
Dated Promulgated: March 6, 2020
Certain Underwriters at Lloyd’s London v. Century Indemnity Company/ Civil Action No. 18-CV-11056 (U.S.D.C., D. Massachusetts)
Court: United States District Court, District of Massachusetts
Case Description: Certain Underwriters at Lloyd’s London (“Underwriters”) provided reinsurance to Century Indemnity Company (“Century”) in effect between 1963 and 1970 under General Casualty Blanket and Excess of Loss Reinsurance Agreements. Century issued insurance policies to the Boys Scouts of America (“BSA”) from the 1960’s to the 1990’s. Beginning in the 1990’s, BSA submitted multiple claims to Century arising out of allegations of sexual molestation committed by individuals associated with the organization. Century defended and indemnified BSA for those claims and entered into a settlement agreement whereby each molestation claim would be allocated under the Century policy in effect on the date when the first alleged act of molestation occurred. Defense and indemnity payments for that claim would be paid under the policy. In billing its reinsurers, Century accumulated the payment allocated to each policy period and billed it as a single loss occurrence under the Reinsurance Contract in effect at that time. Underwriters disputed the allocation claiming that it was “counterfactual,” that the settlement was not the product of a reasonable and business-like investigation and that the accumulation into a single loss occurrence was improper. After a 4 day hearing before an arbitration panel, a unanimous panel ruled that Century had not demonstrated that the settlement agreement was a product of a reasonable and business-like investigation and accordingly, Underwriters were not bound to follow the settlement agreement. The Final Award held that the submitted Century billing was not covered under the Reinsurance Contracts. Thereafter, Century submitted new reinsurance billings allocating the payments across each of the Century policies in effect during the entire period into a single loss occurrence. Underwriters sought clarification from the panel precluding Century from re-billing the claims. In its Clarification Award the Panel accepted Underwriters’ challenge to the settlement agreement finding that the billed was based upon “two inter-dependent theories” – the accumulation of claims as a single occurrence and the allocation to the first date of alleged abuse. Finding that the failure of either prong of Century’s claim would result in failure of the billing in its entirety, the panel found in favor of Underwriters.
Underwriters sought to confirm the Final Award which Century did not challenge. An order was entered by the Court on November 16, 21018. On November 9, 2018 Century had served an arbitration demand seeking payment under a revised billing submitted to Underwriters in August 2018. After Underwriters refused to pay, Century moved the Court for an order compelling arbitration with respect to its revised billing. Underwriters sought to enforce the Final Award which was reduced to a judgment and to dismiss Century’s motion claiming, among other issues that the action was duplicative of the original arbitration action, that it is barred by the doctrine of res judicata and that the second arbitration demand is an impermissible collateral attack on the first award. Century responded that the new demand was not challenging the validity of the prior award but that it did not address the manner of the second billing. Further it argued that it was improper to ask the Court to determine the preclusive effect of the prior award.
Holding: The Court found Underwriters’ reliance on cases regarding impermissible collateral attacks on arbitration awards distinguishable in that the subsequent action in those matters in effect challenged the arbitration proceeding. Here the Court found that the issue is not whether Century is seeking to attack the proceedings that resulted in the award but whether that award precludes the arbitration of the second billing. The Court held that the preclusive effect of an arbitration award is an arbitrable issue that is not for the Court to resolve but a question for the arbitrators. The Court found no indication that the award was intended to have a prospective effect on future billings and therefore there was no basis to order compliance with the award rather than require the parties to proceed anew through arbitration. While the billing involved the same claims and the same contracts, the Court did not find that the award foreclosed Century from resubmitting the billing in a different format.
In addressing Underwriters additional arguments, the Court found that Century was an aggrieved party despite Underwriters claiming otherwise since they had named arbitrators with respect to the new demand. While Underwriters named 4 arbitrators in response to Century’s one demand in which Underwriters claimed that the separate contracts required separate arbitrations, the Court found that Underwriters have refused to proceed with arbitration in accordance with Century’s demand and therefore Century was aggrieved. It also found Century’s petition was not moot as there was an ongoing dispute between the parties regarding the appointment of arbitrators. In addressing the issue of consolidation of the proceedings, the Court held that this issue is one for the arbitrator to decide.
*Sylvia Kaminsky is an attorney and a certified ARIAS arbitrator and umpire. She is a member of the ARIAS Board of Directors and is the co-chair of the ARIAS Law Committee and the Arbitrators Committee.
