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Employers' Surplus Lines Insurance Co. v. Global Reinsurance Corp.

February 6, 2008

EMPLOYERS' SURPLUS LINES INSURANCE COMPANY, PETITIONER,
v.
GLOBAL REINSURANCE CORPORATION -- UNITED STATES BRANCH (F/K/A GERLING GLOBAL REINSURANCE COPORATION -- UNITED STATES BRANCH), RESPONDENT.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge*fn1

OPINION & ORDER

On November 21, 2007, Employers' Surplus Lines Insurance Company ("Employers" or "Petitioner") sought to confirm an arbitration award issued by Michael D. Young, Esq. (the "Arbitrator") on November 9, 2007 against Global Reinsurance Company ("Global" or "Respondent"). On December 6, 2007, Global cross-petitioned this Court to vacate the arbitration award and remand the matter to the Arbitrator for a determination of damages pursuant to the Arbitrator's prior partial award. For the reasons set forth below, Employers' petition is GRANTED and Global's cross-motion to vacate is DENIED. The arbitration award issued by the Arbitrator on November 9, 2007 is confirmed and the Clerk will upon the Petitioner's request prepare a judgment.

I. FACTUAL BACKGROUND

A. The Reinsurance Contract

Employers*fn2 and Global*fn3 entered into a Certificate of Facultative Reinsurance*fn4 effective from January 7, 1969 through July 1, 1972 and later extended to January 1, 1973 (the "Certificate") whereby Global agreed to indemnify Employers for 20% of Employers' losses above $5 million (up to Employers' $20 million limit) under a policy of insurance issued by Employers to The Coca-Cola Company (including its subsidiary, Aqua Chem) ("Coke"). The Certificate contained a "follow the form" clause: "[T]he liability of [Global] . . . shall follow that of [Employers] and except as otherwise specifically provided herein, shall be subject in all respects to all terms and conditions of [Employers'] policy." Aff. of R. Patrick Bedell in Supp. of Resp't & Counter-Pet'r's Counter-Pet. to Vacate Arbitral Award ("Bedell Aff.") Ex. A ¶ 9. The follow-the-form clause provided that Global's obligations, as reinsurer, reflected Employers' obligations, as insurer, to Coke, the underlying insured. See Bedell Aff. Ex. B at 4. Further, the Certificate provided for final and binding arbitration in the event of "an irreconcilable difference of opinion as to the interpretation of this Contract." Bedell. Aff. Ex. A ¶ 16.

B. Arbitration Proceedings & First Motion to Confirm/Vacate the Partial Final Award

By demand dated July 8, 2005 (the "Demand"), Employers initiated arbitration seeking to recover a 20% share of Employers' loss payments above $5 million. Pet. Ex. C. By that time, Employers had paid $6,324,711.68 to Coke for certain asbestos claims. In its Demand, Employers alleged that Global failed to pay Employers, as required by the Certificate, 20% of the excess over $5 million of these asbestos claim payments, or $264,924.34. Pet. Ex. C

Pursuant to related proceedings before this Court,*fn5 the parties agreed to proceed before a sole arbitrator, Michael D. Young, Esq. In its post-mediation order, this Court maintained jurisdiction over related arbitrations, including the instant case. During the three-day arbitration hearing from November 6 to 8, 2006, the Arbitrator admitted 55 exhibits into evidence and six witnesses (three each for Employers and Global), including experts, testified and were cross-examined. Bedell Aff. Ex. D at 2.

On December 29, 2006, the Arbitrator issued a Partial Final Award and Statement of Reasons (the "Partial Final Award"), in which he made two separate liability findings based on his interpretation of the Certificate. First, he found that Global was liable to Employers for "losses incurred on an aggregate basis by Employers pursuant to its underlying excess umbrella insurance policy with [Coke]." Bedell. Aff. Ex. D at 5. Second, he found that Global was not liable to Employers for "the payment of defense costs by Employers to the underlying insured [i.e., Coke] when there was no indemnity payment made by the underlying insured [i.e., Coke] to a third party claimant." Bedell. Aff. Ex. D at 5. Put more simply, the award concluded that Global would be liable for Employers' payments of defense costs to Coke only where Coke had made a related indemnity payment to a third party claimant. With respect to this second liability finding only, the Arbitrator ordered Employers to submit "a schedule indicating the indemnity payments subject to the reinsurance and associated defense costs," so that the Arbitrator could determine damages. The Arbitrator also ordered further proceedings on Employers' entitlement, if any, to attorneys' fees and costs. Bedell Aff. Ex. D at 5.

Thereafter, on March 28, 2007, Employers petitioned this Court to confirm the Partial Final Award's first liability finding but to vacate the second liability finding, which limited Employers' recovery for defense costs paid by it to Coke. Global opposed Employers' petition as premature and argued that the Partial Final Award was not "final" pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 9 et seq. (the "FAA") because damages remained unresolved. Global's Mem. of Law in Supp. of Counter-Pet. to Vacate & in Opp. to Employers' Pet. to Confirm ("Global's Counter-Pet. & Opp.") at 4.

On June 27, 2007, this Court conferred in chambers*fn6 with the parties and expressed its concern that the petitions were premature. To avoid a decision on issues that the parties had contracted to arbitrate, which would have interfered with the arbitration, the Court declined to rule on either party's petition. Instead, by order dated July 11, 2007, the Court referred the parties to the Arbitrator "for further proceedings." The Court also ordered the parties to appear at a pretrial conference on October 25, 2007, should they be unable to reach a resolution in arbitration. Order, July 11, 2007.

C. Further Proceedings before the Arbitrator

On July 17, 2007, the Arbitrator conducted a teleconference with the parties to discuss the meaning of the remand. Employers asserted that this Court intended to instruct the Arbitrator to reconsider the Partial Final Award, while Global argued the Court intended the Arbitrator only to determine damages. Pet. Ex. A ¶ A.4. On October 1, 2007, the Arbitrator requested in an email that the parties "seek written instruction from Judge Baer as to his intention regarding the purpose of the remand," and expressed his concern that he lacked authority to reconsider the Partial Final Award. Bedell Aff. Ex. I. In a letter dated October 3, 2007, Employers sought from this Court an order that would permit the Arbitrator to reconsider any aspect of the Partial Final Award. Bedell Aff. Ex. K. The Court declined to issue Employers' proposed order and, instead, on October 10, 2007, endorsed Employers' letter with a direction to the parties to "try to resolve the concern voiced" by the Arbitrator. Bedell Aff. Ex. M. On October 11, 2007, the Arbitrator heard oral argument.

D. Arbitrator's Reconsideration of Partial Final Award & Issuance of Final Award

On November 9, 2007, the Arbitrator issued a Final Award. Bedell Aff. Ex. N. The Final Award retained the Partial Final Award's first liability finding-that under the Certificate Global was liable to Employers for losses incurred on an aggregate basis by Employers under the underlying excess umbrella insurance policy with Coke. However, the Arbitrator expanded the second liability finding to hold that Global was liable for Employers' payments of defense costs to Coke in all cases and not only where Coke had made a related indemnity payment to a ...


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