American Bankers Ins. Co. of Florida v. Nat’l Casualty Co. [Whether diversity jurisdiction must be seperately established for a motion to confirm an arbitration award]

Issue Discussed: Other

Submitted by Eric A. Haab, Peter B. Steffen

Date Promulgated: February 3, 2009

Issue Decided: Whether diversity jurisdiction must be separately established for a motion to confirm an arbitration award

In American Bankers Ins. Co. of Florida v. Nat’l Casualty Co., the United States District Court for the Eastern District of Michigan held that a motion to confirm an arbitration award with no monetary judgment could not be resolved in federal court because it failed to allege diversity jurisdiction, even though the dispute between the parties had already been before the same federal court on a procedural issue and the amount at issue in the arbitration, though not the award itself, exceeded $75,000. The petitioners could seek to have the award confirmed in a state court of competent jurisdiction.

Background

In the mid-1970s, the petitioners entered into two excess of loss casualty retrocessional agreements which provided for reinsurance by National Casualty Co. In 2005, a dispute among the parties reached the federal court for the first time, when the court dismissed National Casualty’s action for appointment of an umpire. Subject matter jurisdiction was not raised as an issue at that time.

The dispute proceeded to arbitration, following which the arbitrators issued a December 2007 award in favor of the petitioners, stating that the petitioners had no obligation to indemnify National Casualty for any of the unpaid losses or future claims at issue. In August 2008, the petitioners filed a motion to confirm the award before the same federal court that had heard the 2005 umpire appointment dispute. The respondent opposed the motion, alleging that the award did not satisfy the amount-in-controversy requirement of diversity jurisdiction.

Holding

The Federal Arbitration Act permits a federal court to confirm an arbitration award, but it does not provide an independent basis for subject matter jurisdiction. Thus, without another source of jurisdiction, the parties must establish diversity jurisdiction, which requires that the parties be citizens of different states and that the amount in controversy exceed $75,000.

The petitioners first claimed that the court retained jurisdiction from its 2005 decision regarding the umpire appointment. The court at that time, however, had merely interpreted the parties’ contract and did not order arbitration. The 2009 court also ruled that even though National Casualty argued in its 2005 action that the amount in controversy exceeded $75,000, the court could still determine sua sponte in 2009 that the amount did not meet the diversity threshold.

The petitioners next claimed that because the amount at issue in the arbitration was greater than $75,000, it did not matter for jurisdictional purposes that the award itself was for $0. The court disagreed, stating that when a party seeks to confirm an arbitration award, the amount in controversy is the amount of the award itself. The court relied on a Sixth Circuit opinion regarding a motion to vacate an award and was not convinced by the petitioners’ reliance on non-Sixth Circuit precedents.

Finally, the court noted that the petitioners were not without relief, because they could still seek to have the award confirmed in a state court of competent jurisdiction.

*Eric Haab and Peter Steffen are partner and senior associate, respectively, in the insurance/reinsurance group of Lovells LLP. They each represent cedents and reinsurers in disputes involving a wide variety of issues.