New York Court Rejects Bid To Compel Arbitration Of Reinsurance Dispute

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A New York federal district court denied Transatlantic Reinsurance Company’s petition to compel National Indemnity Company (“NICO”) to submit to arbitration. While the court’s order does not provide the basis for its ruling and only refers to the reasons set forth on the record, the issues were extensively analyzed in the parties’ briefing. The core issue was whether NICO, which was not a signatory to the reinsurance agreements between Transatlantic and AIG, should be compelled to arbitrate under those agreements’ arbitration provisions. Transatlantic argued that NICO was bound by the reinsurance agreements because it substituted itself for AIG by virtue of the Loss Portfolio Transfer wherein AIG to transferred NICO its asbestos-related liabilities which Transatlantic reinsured. According to Transatlantic, the principles of “direct benefits estoppel” required NICO to arbitrate under the reinsurance agreements in light of the benefits enjoyed by NICO as a result of those agreements.

The court rejected these arguments, evidently agreeing with NICO, which had challenged Transatlantic’s characterization of the Loss Portfolio Transfer and the reinsurance agreements. NICO argued it never agreed to arbitrate. Further, NICO maintained it was a third-party administrator acting on AIG’s behalf and did not substitute for AIG under the Loss Portfolio Transfer or any other agreement. NICO claimed it also did not receive any direct benefits under the reinsurance agreements, so the “direct benefits estoppel” theory was inapplicable. Finally, NICO pointed out that it was not a necessary party to the arbitration because Transatlantic could obtain complete relief without NICO being a party. Transatlantic Reinsurance Co. v. National Indemnity Co., Case No. 14 Civ. 2109 (ER) (USDC S.D.N.Y. July 22, 2014).


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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