General Re Life Corporation v Lincoln National Life Insurance

Issue Discussed: Whether an arbitration panel can clarify a final award when it does not address a contingency that later arises or when the award is susceptible to more than one interpretation.

Submitted by Sylvia Kaminsky

Date Promulgated: November 28, 2018

Case:  General Re Life Corporation v Lincoln National Life Insurance, 909 F. 3d 544 (2d Cir. 2018)

Issue Discussed: Whether an arbitration panel can clarify a final award when it does not address a contingency that later arises or when the award is susceptible to more than one interpretation.

Court:  Second Circuit Court of Appeals

This case addresses whether the doctrine of functus officio precludes an arbitration panel from clarifying how the parties were to calculate the amount of the award after it had been issued.

Lincoln National Life Insurance Company (‘Lincoln”), the cedent, entered in to an Automatic Self-Administered YRT Reinsurance Agreement (“Agreement”) with General Re Life Corporation (“Gen Re”), the reinsurer, which allowed General Re to increase premiums if the increase was founded on a “change in anticipated mortality.”  Lincoln had the right to recapture the business which meant it no longer had reinsurance after the recapture became effective rather than pay the increased premiums if Gen Re exercised its right to raise the premium. After Gen Re exercised its right to increase the premiums, Lincoln elected to arbitrate the rate increase provided for in the Agreement.  In July 2015, the arbitration panel issued a final award (‘Award”) finding that Gen Re was entitled to increase the premiums under the contract.  If Lincoln chose to recapture the business after the arbitration, the recapture would be effective as of April 1, 2014 and all post-April 1, 2014 premium and claim transactions would be unwound.  The Award directed the parties to work together to calculate the amount owed and stipulated that if any disagreement arose, the dispute shall be submitted to the panel for resolution. The Award was silent as to how the recapture would impact premium or claim transactions occurring prior to April 1, 2014.  In October 2015, the parties disagreed over whether Gen Re was entitled to keep premiums that were paid but not earned prior to April 1, 2014.  Gen Re took the position that it was entitled to keep the premiums paid before April 1, 2014 but was liable to pay any reinsured claim not paid prior to April 1, 2014.  It maintained that because the Award did not make any provision for the unearned premiums there need not be any further discussion of that point.  Lincoln’s position was that Gen Re was required to refund all unearned premiums and pay claims for deaths that occurred prior to April 1, 2014.

Lincoln requested the arbitration panel to resolve the dispute.  Gen Re objected to Lincoln’s request arguing that it was beyond the authority of the arbitrators since it sought reconsideration of and a fundamental change to the recapture methodology unambiguously ordered by the panel.  The panel rejected Gen Re’s arguments and issued a clarification of its Award on November 19, 2015 stating that the Award contained ambiguities requiring clarification and that the parties were in fact reading the Award in a manner inconsistent with the language of the Agreement. The panel stated that when read in the context of the parties’ Agreement, the Award permitted Gen Re to retain the unearned premiums but also required it to be liable for claims for which it retained premium.  The clarification stated that the Award was not intended to change the terms of the Agreement

Gen Re moved to confirm the original Award and Lincoln cross-moved to confirm the Award issued after the panel clarified its original award.  The District Court affirmed the Award as clarified.  Gen Re appealed to the Second Circuit claiming that the panel exceeded its power in issuing the clarification because, having already issued its Award, it was now functus officio.  The doctrine of functus officio dictates that once the panel has fully exercised it authority to adjudicate the issues submitted to it, its authority over those questions is ended and the panel has no further authority, other than by agreement of the parties, to redetermine those issues.

The Second Circuit, in joining the Third, Fifth, Sixth, Seventh and Ninth Circuits, recognized an exception to functus officio where an arbitral award “fails to address a contingency that later arises or when the award is susceptible to more than one interpretation.”  Specifically, the Second Circuit ruled that arbitration panels are permitted to clarify final awards as long as three conditions are satisfied: 1) the final award is ambiguous; 2) the clarification merely clarifies the award rather than substantively modifying it; and 3) the clarification comports with the parties’ intent as set forth in the agreement that gave rise to the arbitration. It found that the panel’s award in this proceeding was ambiguous as to the disposition of the unearned premiums.  In rejecting Gen Re’s argument that the clarification fundamentally changed the remedy provided for in the Award, the Court held that the clarification was to be applied in a manner consistent with the Agreement which remained unchanged by the clarification.  The Court further stated that the clarification, providing that Gen Re was to retain unearned premiums as of the date of recapture and requiring that it remain liable to pay claims prior to April 1, 2014 for which it retained premium, only serves to clarify the Award and not rewrite it.  Accordingly, the clarification was proper and not barred by the functus officio doctrine.


*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.