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TIG Ins. Co. v. Global Int’l Reinsurance Co., Ltd.

Issue Discussed: Summary Adjudication

Submitted by Robert W. DiUbaldo

Date Promulgated: August 7, 2009

 

TIG Ins. Co. v. Global Int’l Reinsurance Co., Ltd., 640 F.Supp.2d 519 (2009)

Court: U.S. District Court for the Southern District of New York

Issue Decided:  Whether an arbitrator has the authority under the FAA to resolve a matter on a summary adjudication basis, before discovery is conducted and without hearing witness testimony?

Global International Reinsurance Company, Ltd. (“Global”) agreed to reinsure TIG Insurance Company (“TIG”) for certain losses pursuant to a Loss Reserve Reinsurance Agreement (the “Agreement”).  The parties disputed the scope of the Agreement’s sublimit, and submitted the matter to arbitration.  While the panel issued an award regarding the sublimit, the award did not fully resolve the dispute. As required by the panel’s decision, TIG conducted an audit to ensure that the claims and losses ceded to Global were properly coded in accordance with the panel’s ruling.  In connection with that audit, TIG prepared a written protocol that set forth the procedure for allocating losses, which was provided to both Global and the panel.  The audit established a value for certain claims and addressed the coding of the same for purposes of the sublimit.  TIG then submitted a quarterly loss report to Global that incorporated the results of the audit and outlined the claims for which TIG sought coverage.  Global did not object to or reserve its rights with respect to the quarterly loss report.

The parties ultimately entered into a settlement agreement that dismissed with prejudice all claims raised but not resolved in the parties’ ongoing arbitration proceeding.  The settlement also incorporated the panel’s ruling on the sublimit.  After settlement was consummated, Global sought to amend the settlement agreement to permit Global to review the allocation of certain losses.  Global eventually conducted its own audit of TIG’s records, and asserted that various claims were miscoded and should not have been presented by TIG as being subject to the Agreement’s sublimit.  Thereafter, Global demanded arbitration against TIG arguing, inter alia, that TIG had miscoded and misallocated certain claims in bad faith and fraudulently concealed its coding and allocation errors in order to induce Global to enter into the settlement.

Before discovery in the arbitration was conducted, TIG moved for summary adjudication on Global’s fraud and bad faith claims.  Global opposed the motion and, after oral argument was held (without witness testimony), the arbitrator granted summary judgment in TIG’s favor.  The basis for the arbitrator’s ruling was that the prior settlement entered into between the parties released Global’s right to audit and dispute TIG’s claims and related coding/allocation.

Global petitioned the U.S. District Court for the Southern District of New York to vacate the arbitrator’s award pursuant to Sections 10(a)(3) and 10(a)(4) of the Federal Arbitration Act, arguing that it was improper for the arbitrator to grant summary adjudication of the dispute without a fully developed factual record and the benefit of discovery or witness testimony.  Alternatively, Global argued that vacatur was proper because the arbitrator’s decision was in “manifest disregard of the law”.  TIG cross-petitioned to confirm the award.

The Court ruled in TIG’s favor and confirmed the subject award.  Although the arbitrator had granted TIG’s motion prior to the exchange of discovery, and without witness testimony, the Court found that the arbitrator had sufficient latitude to “determine procedures for the arbitration” and resolve the matter “with only a summary hearing and with restricted inquiry into the factual issues.”  The Court further found that the proceeding was fundamentally fair, as the arbitrator heard extensive argument before reaching the decision, and Global was given the ability to respond to TIG’s motion with briefing, documentary evidence and affidavits from certain individuals with knowledge of the relevant issues.  Last, the Court ruled that the award did not “manifestly disregard the law”, because the doctrine did not apply to Global’s challenge to the arbitrator’s evidentiary determinations and because Global was aware of the basis upon which TIG had coded and allocated losses prior to settlement, thus defeating any claim for fraudulent inducement.

 

[1] Rob DiUbaldo is a Partner at Carlton Fields Jorden Burt, whose practices focuses on insurance, reinsurance and commercial litigation and arbitration.