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AIG Global Trade and Political Risk Insurance Co. v. Odyssey American Reinsurance Corp.

September 21, 2006

AIG GLOBAL TRADE AND POLITICAL RISK INSURANCE COMPANY AND NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, PETITIONERS,
v.
ODYSSEY AMERICA REINSURANCE CORPORATION AND CLEARWATER INSURANCE COMPANY, RESPONDENTS.



The opinion of the court was delivered by: Chin, D.J.

MEMORANDUM DECISION

In this diversity case, petitioners AIG Global Trade and Political Risk Insurance Company ("AIG Global") and National Union Fire Insurance Company of Pittsburgh, PA ("National Union") move for an order pursuant to the Federal Arbitration Act (the "FAA"), 9 U.S.C. § 5, requiring Odyssey America Reinsurance Company ("Odyssey America") and Clearwater Insurance Company ("Clearwater") to appoint umpires from petitioners' slate of proposed candidates in two separate arbitrations. In the alternative, petitioners ask the Court to act in place of respondents and select umpires from petitioners' slate. Respondents, in turn, request that the Court order the parties to "start from scratch" by proposing new slates of umpire candidates, who are to be screened by the Court for "impartiality, disinterestedness, and neutrality," after which umpires will be selected by "coin toss." For the reasons that follow, respondents' requests are granted in part and denied in part; petitioners' requests are denied.

BACKGROUND

This dispute arises out of two distinct reinsurance arbitrations. The first was commenced by Odyssey America against National Union (the "Aerostaff Arbitration"), and the second was commenced by Clearwater against AIG Global (the "Trade Credit Arbitration").*fn1 Petitioners originally brought this suit in New York State Supreme Court on October 17, 2005, to compel the appointment of umpires for these arbitrations. On October 27, 2005, Odyssey America filed a notice of removal based on diversity of citizenship and fraudulent joinder. An amended notice of removal was filed on October 31, 2005, to correct an error in Odyssey America's place of incorporation. On January 12, 2006, all four parties entered into a stipulation and order to combine the two actions. The Court has subject matter jurisdiction based on complete diversity.*fn2 Below is a brief summary of the two arbitrations at issue.

A. The Aerostaff Arbitration

1. The Aerostaff Certificate

Pursuant to a Casualty Facultative Reinsurance Certificate (the "Aerostaff Certificate"), Odyssey America agreed to reinsure $750,000 of National Union's $1 million commercial auto policy insuring Aerostaff Services, Inc. ("Aerostaff"), plus loss adjustment expenses for losses during the period between January 15, 1999, and January 15, 2000. (Lewin Decl. ¶ 2(a); id. Ex. 1).*fn3 After National Union advised Odyssey America that it paid $1 million in loss to Aerostaff, and incurred expenses of $1,261,614 based on an October 21, 1999 claim, Odyssey paid $1,538,029.94 to National Union under the Aerostaff Certificate. (Id. Ex. 3). Approximately $790,000 of this payment represented Odyssey America's proportionate share of National Union's adjustment expenses. (Id. Ex. 3; Mem. of Law of Odyssey Am. Reinsurance Corp. & Clearing Ins. Co. Concerning Umpire Selection (hereinafter "Resp. Mem. Law") at 12 n.8). Odyssey America later learned that National Union had paid Aerostaff $12 million, not $1 million as originally thought. (Lewin Decl. Ex. 3; Resp. Mem. Law Ex. 20).

2. The Arbitration Demand

Odyssey America demanded arbitration on December 23, 2004, pursuant to Section O of the Aerostaff Certificate, based on Odyssey America's belief that a portion of the $12 million payment was made in settlement of a bad faith claim by Aerostaff against National Union.*fn4 (Lewin Decl. Ex. 3; Resp. Mem. Law at 12 n.8). In short, Odyssey America seeks a refund because it maintains that it paid more than its "proportionate share of National Union's adjustment expenses." (Resp. Mem. at Law 12 n.8).

National Union, for its part, disputes Odyssey America's position and declares that the expenses billed were proper under the Aerostaff Certificate. Further, National Union contends that Odyssey America actually owes National Union $174,000 in additional expenses, which National Union intends to seek in arbitration. (Lewin Decl. ¶ 5).

3. Selection of Arbitrators

a. The Selection Procedure

Section O of the Aerostaff Certificate provides that Any unresolved difference of opinion between the Reinsurer and the Company with respect to the interpretation or validity of this certificate or the performance of the obligations under this certificate shall be submitted to arbitration. Each party shall select an arbitrator within one month after written request for arbitration has been received from the party requesting arbitration. These two arbitrators shall select a third arbitrator within ten days after both have been appointed. Should the arbitrators fail to agree on a third arbitrator each arbitrator shall select one name from a list of three names submitted by the other arbitrator and the third arbitrator shall be selected by lot between the two names chosen. The arbitrators shall be impartial and shall be present or former officials of other property or casualty insurance or reinsurance companies. . . . (Id. Ex. 1 ¶ O; see Resp. Mem. Law at 12 & Ex. 20).

On February 7, 2005, both parties appointed arbitrators: National Union appointed Sylvia Kaminsky, Esq., and Odyssey America appointed Robert Reinarz. (Resp. Mem. Law at 13). To select the umpire, the arbitrators agreed that each side would propose three candidates, strike two candidates from the other side's list, and randomly select the umpire "by lot" from the remaining two candidates. (Lewin Decl. ΒΆ 9). The parties agreed that the method to select "by lot" entailed the selection of an odd or even number based on the last whole digit of the Dow Jones Industrial Average at its closing ...


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