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COMMERCIAL UNION INS. CO. v. LINES

December 18, 2002

COMMERCIAL UNION INSURANCE COMPANY, PETITIONER,
V.
DAVID E.W. LINES, PETER C.B. MITCHELL, CHRISTOPHER J. HUGHES, AS JOINT LIQUIDATORS OF ELECTRIC MUTUAL LIABILITY INSURANCE COMPANY, LIMITED (IN LIQUIDATION), RESPONDENTS.



The opinion of the court was delivered by: Berman, District Judge.

ORDER

I. Introduction

On October 31, 2001, a three-member arbitration panel ("Panel") rendered an award ("Award") in a proceeding between Commercial Union Insurance Company ("Petitioner" or "Commercial Union") and David E.W. Lines, Peter C.B. Mitchell, and Christopher J. Hughes (collectively, "Respondents"), the joint liquidators of Electric Mutual Liability Insurance Company, Ltd. (in Liquidation) ("EMLICO").*fn1,*fn2 The Panel denied Commercial Union's request for rescission of certain contracts pursuant to which Commercial Union reinsured a portion of EMLICO's liabilities to General Electric Company ("GE").

On February 15, 2002, Petitioner moved in this Court for an order permanently enjoining further arbitration and vacating part of the Award ("Petitioner's Motion").*fn3 On March 8, 2002, Respondents cross-moved for an order confirming the Award, imposing sanctions on Petitioner for "act[ing] unreasonably, vexatiously and in bad faith in [attempting] to enjoin the ongoing arbitration," and sealing the record (of the arbitration and court proceedings) ("Respondents' Cross-Motion"). On March 20, 2002, Petitioner submitted a reply ("Petitioner's Reply") and, on March 26, 2002, Respondents submitted a reply of their own ("Respondents' Reply").

For the reasons set forth below, the Court (i) denies Petitioner's motion to enjoin the arbitration; (ii) denies Petitioner's motion partially to vacate the Award; (iii) grants Respondents' Cross-Motion to confirm the Award; (iv) denies Respondents' motion to impose sanctions; and (v) grants in part Respondents' motion to seal the record.

II. Background

EMLICO is a mutual insurance company which was formed in Massachusetts in 1927. Petitioner's Motion at 6. EMLICO's sole commercial policyholder is GE. Id. Commercial Union, an insurance company based in Massachusetts, issued contracts to EMLICO reinsuring a portion of EMLICO's liability to GE ("Reinsurance Contracts"). Id. at 5. Beginning in 1992, pursuant to the Reinsurance Contracts, EMLICO sought to recover from Commercial Union amounts it had paid to GE for asbestos and environmental clean-up claims. Shally Decl. ¶ 4.

EMLICO was domiciled in Massachusetts until June 1995, when, with the authorization of the Massachusetts and Bermuda insurance regulatory authorities, it reorganized its business operations and moved its domicile to Bermuda (i.e. it "redomesticated"). Shally Decl. ¶ 5; Petitioner's Motion at 6-7. On October 20, 1995, EMLICO filed a "winding-up petition" in the Supreme Court of Bermuda ("Bermuda Court") declaring insolvency. See Winding-Up Petition dated October 20, 1995, Ex. 10 to Shally Decl. On September 12, 1996, the Bermuda Court appointed Respondents, as "Joint Permanent Liquidators," to manage EMLICO's "winding up" process. See Order of the Bermuda Court dated October 20, 1995, Ex. 11 to Shally Decl.

Arbitration

In or about November 1996, Petitioner and Respondents agreed to submit their disputes under the Reinsurance Contracts to arbitration. See Letter to the Panel dated November 6, 1996, Ex. 24 to Shally Decl. Pursuant to the Arbitration Clause, the Panel "consisting of . . . executive officers of casualty insurance companies" was appointed. Arbitration Clause ¶ 1. "One arbitrator [was] chosen by [Commercial Union] and the other by [EMLICO]. The umpire [was] chosen by the two arbitrators." Id. ¶ 2. On April 28, 1997, the parties signed a confidentiality agreement with respect to the arbitration proceedings. See Stipulation and Agreement of Confidentiality dated April 28, 1997, Ex. 28 to Shally Decl. ("Confidentiality Agreement").*fn4

On July 1, 1997, the Panel determined that the arbitration should proceed in three phases. Interim Order of Panel dated July 1, 1997, Ex. A to Affidavit of Lawrence I. Brandes dated February 14, 2002 ("Brandes Aff."). In Phase I, the Panel would "hear Commercial Union's global defenses under the reinsurance contracts," and determine whether the "reinsurance contracts [were to] be rescinded." Id. In Phases II and III, the Panel would "determine [Commercial Union's] liability to EMLICO for asbestos [and] environmental clean-up claims." Shally Decl. ¶ 15.

By order dated October 31, 2001 ("Phase I Order"), denied Commercial Union's claim for rescission of the Reinsurance Contracts. Phase I Order, Ex. B to Brandes Affidavit, at 2. Commercial Union had argued that the Reinsurance Contracts should be rescinded principally because "redomestication to Bermuda and the formation of EMLICO, Ltd. were fraudulent. . . . [EMLICO] moved to Bermuda to avoid being liquidated in Massachusetts[,] because [EMLICO] and GE . . . believed a liquidation in Bermuda would be more advantageous to them and more disadvantageous to reinsurers." Petitioner's Motion at 2.

The Award states:

1) "While the Panel is in unanimous agreement that:

a) EMLICO deceived the Massachusetts Commissioner of Insurance and Bermuda authorities ...

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