General Re Life Corporation v. Lincoln Nat. Life Ins. Co.

Issue Discussed: "Functus Officio" / Modification / Clarification

Submitted by Michele L. Jacobson, Beth K. Clark

Date Promulgated: March 31, 2017


General Re Life Corporation v. Lincoln Nat. Life Ins. Co., No. 3:15-cv-01860-VAB, 2017 WL 1230844 *1 (D. Conn. Mar. 31, 2017)

Court:  United States District Court for the District of Connecticut

Issue Decided: Whether an arbitration panel’s clarification of its final award which changed the relief awarded significantly was proper under the functus officio doctrine.

In General Re Life Corporation v. Lincoln Nat. Life Ins. Co., the United States District Court for the District of Connecticut held that, pursuant to one of three recognized exceptions to the functus officio doctrine, arbitrators are authorized to determine whether their final arbitration award contains an ambiguity and, if it does, clarify that ambiguity after the award’s issuance.

General Re Life Corporation (“Gen Re”) and Lincoln National Life Insurance Company (“Lincoln”) were parties to an Automatic Self-Administered YRT Reinsurance Agreement, effective January 1, 2002 (the “Treaty”) under which Gen Re reinsured a portion of Lincoln’s individual life insurance products.  Per the Treaty terms, Gen Re was authorized to unilaterally increase the reinsurance premiums so long as the new rates were based solely on a change in anticipated mortality.  The Treaty provided that, should Gen Re exercise this authority, Lincoln had the right to recapture the reinsured life insurance policies.

Effective April 1, 2014, Gen Re increased the Treaty rates per the above provisions.  In response, Lincoln claimed the increase was improper because it was not based on a mortality change and demanded arbitration.  Gen Re named Denis Loring as its party arbitrator and Lincoln named Thomas Zurek.  An arbitration ensued, and a panel majority ruled in favor of Gen Re and, in so doing, set forth a methodology for implementing Lincoln’s recapture rights in the event that Lincoln determined to exercise them.  The Panel retained jurisdiction over the parties dispute to resolve any differences in the calculations and payment of the amounts awarded in the Final Award.

After the Panel issued the Final Award, Lincoln exercised its right to recapture the reinsured business effective April 1, 2014 and the parties discussed the appropriate method to calculate the recapture payments under the Final Award.  The parties greatly differed in their proposed methodologies.  Gen Re’s methodology and calculations indicated that Gen Re owed Lincoln $5,484,106.  Lincoln’s claimed that Gen Re actually owed it approximately $18.5 million.

When it became evident that the parties could not reach agreement, Lincoln asked the arbitrators, via letter, to resolve their dispute.  Gen Re responded to Lincoln’s letter by, among other things, contending that Lincoln’s request was beyond the arbitrators’ authority because it sought a reconsideration of and change to the recapture methodology unambiguously ordered in the Final Award.

The Panel determined that it had authority to clarify the Final Award and a panel majority issued a “Clarification.”  The Clarification stated that the both parties were interpreting the Final Award in a manner inconsistent with the Treaty, which was not accord with Final Award’s terms or the panel’s intent.  After setting forth the relevant Treaty terms, the Clarification ordered that Gen Re could keep all premiums paid to it before April 1, 2014, including the portions that represented unearned premiums, but that it also would be responsible for paying claims for all covered deaths notwithstanding the date they occurred.  In addition, Gen Re was required to accept and pay new claims arising on or after April 1, 2014 if the premium covering the date of death had been paid to Gen Re before that date.

Thereafter, Gen Re filed a Petition with the United States District Court for the District of Connecticut to confirm the Final Award and Lincoln filed a Cross-Petition to confirm the Clarification.  The court ruled in Lincoln’s favor.  The court held that the arbitrators possessed the power to issue the Clarification and that power stemmed from one of three recognized exceptions to the functus officio doctrine.  Specifically, the Court held that, in addition to an agreement by the parties allowing an arbitration panel to revisit an award, the panel may do so under the following circumstances:  (1) it may correct a mistake apparent on the face of an award; (2) when an award does not adjudicate an issue submitted to the arbitrators, arbitrators may determine that issue subsequent to the award’s issuance to exhaust their function; and (3) when an award appears clear and final on its face but leaves doubt whether the submission has been fully executed, an ambiguity arises and arbitrators can clarify it.  The Court held that, in this case, the arbitrators properly acted under the third exception.  In so doing, they clarified the ambiguous recapture methodology by explaining what they “intended[ed] with respect to the final relief in the Final Award, maintaining [its] ‘spirit and basic effect” ….”

After concluding that the Panel acted within its authority, the Court further held that the Clarification was subject to confirmation because it met two requirements:  (1) the Final Award was found to be ambiguous; and (2) the Clarification did not substantively change the Final Award, it merely clarified the ambiguity.

After finding that the Final Award was ambiguous, the Court held that, although the Clarification may have appeared to modify the relief available to the parties under the Final Award, it was not inappropriate.  According to the Court, clarifications of awards that appear to alter the original award or its implication in order to make it consistent with the arbitrators’ intent are appropriate.   The Court implied the result may be different if, instead of addressing the awarded relief, the clarification appeared to alter a substantive issue decided in the Final Award.


[1] Michele L. Jacobson is a Partner and Beth K. Clark is a Special Counsel in the Insurance Industry Practice Group of Stroock & Stroock & Lavan LLP.