This is a presentation on Avoiding Undue Risks on Resinsurance Arbitration from Underwriting to Claims

1. GOLDBERG SEGALLA LLP
Philadelphia  New York  Buffalo  Rochester  Syracuse  Albany  White Plains  Long Island  Princeton  Hartford
Avoiding Undue Exposure on Arbitration
Clauses from Underwriting to Claims
Daniel W. Gerber Esq.
Goldberg Segalla LLP
dgerber@goldbergsegalla.com
www.goldbergsegalla.com

2. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT

3. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT

4. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses –
Arbitrator Issues
• What's an Honorable Engagement Anyway?
“The arbitrators shall interpret this Contract as an
honorable engagement and not as merely a legal
obligation; they are relieved of all judicial
formalities and may abstain from following the
strict rules of law.”

5. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses –
Arbitrator Issues
• How Flexible May Arbitrators Be?
– Rules of Evidence?
– Applicable Cases?
– Ambiguous Terms in Contract? i.e. 30 day
submission

6. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses –
Arbitrator Issues
• Do Arbitrators Have Boundaries?
“Although the arbitrators [are] not bound to follow legal
procedures strictly, they are not, because of such freedom,
released from the obligation to be guided by the basic
agreement of the litigants.” Garamendi v. California Comp.
Ins., 2005 Cal. App. Unpub. LEXIS 11799 (Cal. App.
Unpub. Opinions 2005). They must apply the contract.
Manifest Disregard of Law Doctrine – Hall Street
Associates v Mattel (US Supreme Court)

7. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses
• Broadly Interpreted
• Cover all disputes not specifically exempted
– Consider Scope
• Interpretation vs. Formation of Agreement
– Consider specificity
• Words “arbitration clause” can be enough

8. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses
• Interaction with “Service of Suit” Clause
– Two clauses usually held in harmony and
interpreted as specifying juridiction
– Service of Suit may trump on “failure to pay” as it
is more specific clause than “any dispute”
language of arbitration clause
– Failure to Pay vs. Enforcement

9. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses
• Interaction with Choice of Law Provisions
– Examine the jurisdiction’s arbitration’s procedure
as court’s may apply it by default when
ambiguous. In other words, procedural law may
apply in addition to substantive.

10. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration Clauses
• What then is the solution?
– Include a slightly more detailed arbitration clause in the
placement slips, perhaps largely boilerplate, familiar to the
parties, which leaves room for amendments to be made
when the actual treaty is finalized. If a dispute arises before
consummation of the treaty, or if the treaty is never drafted
and signed, the boilerplate provisions in the placement slip
will control.

11. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Arbitration in Run-Off
• Receivers often enjoy favored status in
liquidation court
– Great Variation with Three outcomes:
• Arbitration clause void (NY Rule)
• Receiver “stands in the shoes” of insolvent company
and can be compelled to arbitrate
• Hybrid

12. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Follow the Fortunes/
Follow the Settlements
• Purpose
– Prevent Second Guessing
– Promote Good Faith Settlements

13. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Follow the Fortunes/
Follow the Settlements
• Traditional Application
– Applied When There Is Good Faith
– Payment Made After Reasonable
Investigation
– Payment is not Ex Gratia

14. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Follow the Fortunes/
Follow the Settlements
• Will a Court Enforce the Doctrine in
Absence of Express Policy Terms?
– Maybe?
– Yes - Aetna v. Home Ins (SDNY 1995)
– No – North River Ins Co. v. Employers
Reinsurance (SD Ohio 2002)

15. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Follow the Fortunes/
Follow the Settlements
• Does the Doctrine Apply Where the
Cedant Acts in Bad Faith?
– No

16. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Follow the Fortunes/
Follow the Settlements
Does the Follow the Settlements Doctrine
Apply to a Reinsured’s Allocation of
Settlement Payments?
1995 ------- 1997
1998 ------- 2001

17. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
Follow the Fortunes/
Follow the Settlements
• Does the Follow the Settlements Doctrine
Apply to a Reinsured’s Allocation of
Settlement Payments?
– Allstate v. American Home (1st Dept. 2007)
• Multiple Occurences and Inconsistent Litigation
Position
– Granite State v. Ace American Reinsurance (1st
Dept 2007)
• Initial Disclaimer Under Pesticide Exclusion.
• Policies exhausted and exceeded
• Shifted Remainder to Disclaimed Policy

18. GOLDBERG SEGALLA LLP
NEW YORK  NEW JERSEY  PENNSYLVANIA  CONNECTICUT
A Final Word on
Arbitration Costs
• Cost vs. Benefit
• Arbitrator Selection (US Arias)
• Consider Mediation alternatives
• Honorable Engagement and Award of Fees
– Some courts hold clause trumps award of fees
and precludes it
– Courts may narrowly construe treaty that says
each side will bear its costs.

19. GOLDBERG SEGALLA LLP
Philadelphia  New York  Buffalo  Rochester  Syracuse  Albany  White Plains  Long Island  Princeton  Hartford
Avoiding Undue Exposure on Arbitration
Clauses from Underwriting to Claims
Daniel W. Gerber Esq.
Goldberg Segalla LLP
dgerber@goldbergsegalla.com
www.goldbergsegalla.com