Originally from World Arbitration And Mediation Review (WAMR)

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THIRD CIRCUIT EXPANDS THE ROLE OF ARBITRATORS IN CERTAIN UNDERWRITERS V. WESTCHESTER FIRE

In Certain Underwriters v. Westchester Fire, the U.S. Third Circuit
Court of Appeals held that the decision of whether disputes under several
“essentially similar” contracts should be consolidated for arbitration was a
procedural issue for an arbitrator to decide, rather than a judge.1
In Westchester, Westchester Fire Insurance Company (“Westchester
Fire”) contracted with Lloyds of London (“Underwriters”) to reinsure
certain asbestos insurance policies. The court noted early in the decision that
“reinsurance is insurance for insurance companies…whereby a reinsured
cedes some of the risk to a reinsurer…and shares its premium with the
reinsurer.” 2 This general reinsurance agreement, realized over the course of
approximately thirteen years, was accomplished in eight separate contracts,
each of which contained a similar arbitration provision. The eight
reinsurance contracts could be categorized into two separate programs; two
of the contracts were “essentially identical” to each other and were part of a
Special Contingency Treaty, while the remaining six “essentially identical”
contracts were part of a Comprehensive Catastrophe Treaty. According to
the court, the two different kinds of reinsurance contracts are treaty and
facultative. Unlike facultative reinsurance contracts which deal primarily
with “individual risks,” treaty reinsurance contracts “accept an entire block
of business and primarily deal with the ‘overall risk pool.’” 3
Westchester Fire submitted asbestos claims to Underwriters for
payment, but, according to Westchester Fire, Underwriters required
“onerous documentation and claim procedures before payment of asbestos
claims they [Underwriters] had reinsured.”4 Westchester Fire had previously
sent Underwriters two arbitration demand letters, one for the
Comprehensive Catastrophe Treaty and one for the Special Contingency
Treaty. Both letters stated that Westchester “hereby demands and initiates”
arbitration under both of the respective treaties.
Underwriters subsequently filed a Petition to both compel arbitration
and stay arbitration in the District Court of New Jersey. Underwriters
argued that since each of the contracts contained its own arbitration clause,
and because none of the contracts provided for the consolidation of
arbitration proceedings, the court should order eight separate arbitrations for