Reinsurance Newsletter - September 2013: Connecticut Federal Court Compels Arbitration In Fronting Dispute


Trenwick Am. Reinsurance Corp. v. Unionamerica Ins. Co.. No. 3:13cv94 (JBA), 2013 U.S. Dist. LEXIS 97518 (D. Conn. Jul. 12, 2013).

A Connecticut federal court compelled arbitration against a reinsurer and denied the reinsurer’s application to enjoin arbitration.  The dispute was between a signatory to a reinsurance assumption agreement, who claims that the reinsurer under reinsurance agreements between that reinsurer and another cedent was required under the reinsurance assumption agreement to pay certain amounts because of the original cedent’s failure to pay obligations under the reinsurance agreements.  Essentially, the fronting carrier defaulted and the real party in interest demanded arbitration for outstanding reinsurance recoverables.

Notably, while each of the underlying reinsurance agreements has an arbitration clause, the reinsurance assumption agreement does not; but the reinsurance assumption agreement was appended as a scheduled agreement to reach reinsurance contract.  After the signatory to the assumption agreement demanded arbitration against the reinsurer, the reinsurer brought this action to enjoin the arbitration.  A temporary restraint of the arbitration was granted pending a full hearing on the motion for an injunction.  This decision was on the motion to dismiss the complaint and compel arbitration.

In granting the motion to dismiss and to compel arbitration, the court rejected the argument that it was without jurisdiction to consider the issue or arbitrability.  Nevertheless, it found the issues in dispute arbitrable.  The court found that the reinsurer agreed to arbitrate with the signatory of the reinsurance assumption agreement based on Article I of the reinsurance agreement, which expressly references the schedule containing the assumption agreement.  The court noted precedent that a signatory to an arbitration agreement is estopped from avoiding arbitration with a nonsignatory when the issues the nonsignatory is seeking to resolve in arbitration are intertwined with the agreement the party has signed.  Because, held the court, collection of reinsurance balances under the terms of the reinsurance contracts was the object of the arbitration the dispute clearly fell within the scope of the arbitration clause.

The court also left a statute of limitations issue for arbitrators to decide as it was not expressly carved out of the arbitration agreement.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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