Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Belco Petroleum Corp.

Issue Discussed: Res Judicata / Collateral Estoppel

Submitted by Aluyah I. Imoisili, Jamie E. Sutton*

Date Promulgated: July 3, 1996

Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Belco Petroleum Corp., 88 F.3d 129 (2d Cir. 1996)

Court: United States Court of Appeals, Second Circuit

Issues Decided: Whether the preclusive effect of a prior arbitration should be decided by the court or through arbitration.

Key Holding

After the Peruvian government seized the insured’s oil exploration and development operations, the insured sought coverage from its confiscation, expropriation, and deprivation insurance carriers.  The insurers demanded arbitration against the insured, seeking rescission based on alleged the insured’s alleged misrepresentations at the time of issuance of the policies.  The arbitration panel rejected the rescission claim.  Years later, one of the insurers demanded arbitration to recoup a portion of proceeds the insured had received under a maritime policy with other carriers.  The insured then brought a federal court action seeking a declaratory judgment that the insurer’s claim was barred by res judicata, and should have been brought in the original arbitration.  In response, the insurer filed petition seeking to compel arbitration.  The insured contended that the preclusive effect of the first arbitration had to be determined by the court and not by the arbitrator.  The district court held that under federal law, the arbitrator, not the court should decide the issue of the preclusive effect of the prior arbitration.

The Second Circuit agreed.  The Second Circuit reasoned that because the insured’s claim of preclusion was a legal defense to the insurer’s arbitration claim, it was a component of the dispute on the merits that fell under their broad arbitration clause, which covered “[a]ll disputes which may arise under or in connection with this policy.”

Key Takeaways

The preclusive effect of a prior arbitration is an issue for the subsequent arbitrator, not a court, to determine.

* Aluyah I. Imoisili is a Partner and Jamie E. Sutton is an Associate at Greenberg Gross LLP, where they specialize in commercial litigation and arbitration.