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Century Indemnity Co. v. AXA Belgium

September 24, 2012


The opinion of the court was delivered by: Jesse M. Furman, United States District Judge


On October 14, 2011, Petitioners Century Indemnity Company, ACE INA Insurance ("ACE INA"), ACE American Insurance Company, and ACE Property and Casualty Insurance Company (collectively, "Petitioners" or "ACE") commenced this action, petitioning the Court pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958 (the "Convention"), 9 U.S.C. §§ 201-208, to confirm three arbitral awards (the "Awards") against Respondent AXA Belgium ("Respondent"). (Docket No. 2). On December 5, 2011, Respondent cross-petitioned to vacate the Awards under the Convention and the Federal Arbitration Act ("FAA"), 9 U.S.C. §§ 1-16. (Docket No. 19). In addition to filing these petitions, the parties have filed three motions to seal documents in light of a confidentiality agreement covering the arbitration. (Docket Nos. 13, 32, 48).

For the reasons stated below, the petition to confirm the arbitration awards is GRANTED, the cross-petition to vacate the arbitration awards is DENIED, and the motions to seal are DENIED.


This case arises out of four reinsurance contracts, all of which contain binding arbitration clauses. (Pet'rs' Reply Mem. of Law Ex. 1 Art. 20; id. Ex. 2 Art. 19, id. Ex. 3 Art. VIII; id Ex. 4 Art. XIII).*fn1 Under two of the contracts, abbreviated Treaty 3083 and Treaty 1001 (Layers 1, 2, and 3) (together the "Treaty contracts"), Respondent's predecessor, Royale Belge Incendie Reassurance ("Royal Belge"), provided reinsurance to predecessors and affiliates of Petitioner Century Indemnity Company. (Pet'rs' Mem. of Law at 2; Resp't's Mem. of Law at 1; Pet'rs' Reply Mem. of Law Exs. 1, 2). Under the third contract, the Managing General Agency ("MGA") Agreement, Royale Belge authorized another former affiliate of Petitioner ACE, Montgomery and Collins ("M&C"), to write insurance and reinsurance on its behalf. (Pet'rs' Mem. of Law at 2-3; Pet'rs' Reply Mem. of Law Ex. 3). M&C procured reinsurance on Royale Belge's behalf from a predecessor of Petitioner ACE INA Insurance, the INA Insurance Company of Canada ("INA Insurance"), pursuant to the fourth relevant contract, the Quota Share Reinsurance Agreement ("QSRA"). (Pet'rs' Mem. of Lawat 3; Resp't's Mem. of Law at 1-2; Pet'rs' Reply Mem. of Law Ex. 4). The end result of these contracts, and the subsequent mergers of various parties to them, is that Petitioners and Respondent have overlapping liability to one another for certain insurance and reinsurance obligations. Under the terms of the Treaty contracts, overlapping amounts owed can be offset against one another. (Pet'rs' Reply Mem. of Law Ex. 15 at 10; Resp't's Answer/Cross-Pet. Ex. 1 Art. 18; Resp't's Answer/Cross-Pet. Ex. 2 Art. 18).

For several years, Petitioners experienced difficulty recovering payments due from Respondent under the Treaty reinsurance agreements. (Pet'rs' Mem. of Law at 3). In 2007, an arbitration panel addressed a prior dispute related to Layer 1 of Treaty 1001 and issued an award in ACE's favor, which was confirmed without opposition by the United States District Court for the Eastern District of Pennsylvania. (See Pet'rs' Reply Mem. of Law at 4; id. Exs. 5, 6). Additional disputes arose over enforcement of that award, leading ACE to initiate contempt proceedings against Respondent in the Eastern District of Pennsylvania, which the parties later agreed to submit to arbitration. (Pet'rs' Reply Mem. of Law at 5; id. Ex. 13 at 7-8). In 2009, following continuing disputes over payments under Treaty 3083 and Layers 2 and 3 of Treaty 1001, Petitioners commenced new arbitration proceedings against Respondent seeking payment of reinsurance payments they claimed were owed, security to ensure future payments, and a declaration rejecting their liability to Respondent for offsetting reinsurance claims pursuant to the QSRA. (Pet'rs' Mem. of Law at 3; Pet'rs' Reply Mem. of Law at 5). AXA Belgium responded with counter-arbitration demands that included its own claims for payment and initiated two new arbitrations, one under the MGA Agreement and QSRA and one under Treaty 1001 Layer 1. (Pet'rs' Reply Mem. of Law Ex. 13 at 5-8). Respondent disputed its liability for amounts that Petitioners claimed were owed and asserted that it was entitled to offset any amounts due to Petitioners under the Treaties against amounts due from Petitioners pursuant to the QSRA. (Pet'rs' Reply Mem. of Law at 6; Resp't's Mem. of Law at 2).

In its counter-arbitration demands, Respondent also sought to consolidate all of the arbitrations, including the arbitration over the enforcement of the Treaty 1001 Layer 1 arbitration award. (Pet'rs' Reply Mem. of Law at 5; id. Ex. 13 at 4). The arbitration over the Treaty 3083 dispute moved most quickly and was the first in which the parties appointed and accepted a panel of three arbitrators (the "Panel"). (Pet'rs' Mem. of Law at 5). Petitioners consented to the consolidation of the Treaty 1001 Layers 2 and 3 arbitrations with the Treaty 3083 arbitration, but objected to further consolidation. (Id.). Over Petitioners' objections, however, the Panel ordered consolidation of all of the arbitrations, including the arbitration over the enforcement of the Treaty 1001 Layer 1 arbitration award. (Id.).

One of the key disputes before the Panel was the proper interpretation of the termination provision in the QSRA. That provision states in full:

This Agreement may be terminated as of December 31 in any year by either party giving the other not less than three hundred sixty-five (365) days written notice.

In the event of termination [INA Insurance] shall remain liable on policies effective prior to termination, and for losses occurring prior to the expiration of the policies insuring them.

Three years after the effective date of termination the value of all then unsettled losses shall be agreed between [INA Insurance] and [Royale Belge]. [INA Insurance] shall pay [Royale Belge] the sum thus established, and [INA Insurance] shall have no further liability with respect to reinsurance ceded hereunder.

If no agreement can then be reached on the value of unsettled losses, this Agreement shall continue in force until all such liabilities have been settled or until agreement can be reached. (Pet'rs' Reply Mem. of Law Ex. 4 Art. XIII). Petitioners argued that the QSRA had been terminated as of December 31, 1985, and that the cut-off language was triggered at that time. (Pet'rs' Reply Mem. of Law at 12). Respondent contended that the QSRA had not been terminated. (Id. Ex. 13 at 18). The parties agreed, however, that no agreement had been reached on the value of "unsettled losses," so that, in the event the QSRA had been terminated, Petitioners remained liable for such losses. (Pet'rs' Reply Mem. of Law at 12; id. Ex. 13 at 18).

Significantly, however, the parties disagreed on the meaning of the term "unsettled losses." Petitioners took the position that "unsettled losses" meant those losses that had been reported but not settled as of December 31, 1988, three years after the termination of the QSRA. (Id. Ex. 12 at 55-57; id. Ex. 14 at 13-15). Respondent argued that as long as no agreement on the valuation of such losses was reached, "unsettled losses" included those reported after December 31, 1988. (Id. Ex. 13 at 16-18; id. Ex. 15 at 8-9). The parties agreed, however, that Petitioners continued advancing money to cover claims pursuant to the QSRA on the condition that they would later seek reimbursement from Respondent. (Pet'rs' Mem. of Law at 6; id. at3 n.3; Resp't's Mem. of Law at 2). This arrangement ended on May 15, 2007, when Petitioners formally terminated the MGA Agreement, allegedly "for cause," following Respondent's nonpayment of amounts Petitioners claimed were owed under the QSRA. (Pet'rs' Reply Mem. of Law Ex. 11).

In the months before the arbitration hearing, the parties submitted two rounds of position statements, conducted extensive document and deposition discovery, identified hundreds of evidentiary exhibits, and submitted two rounds of pre-hearing briefing. (Pet'rs' Reply Mem. of Law at 7; id. Exs. 7-10, 12-15). Pursuant to an order by the panel, a few days before the hearing, the parties made a final exchange of exhibits that might be used at the hearing. In particular, Petitioners identified 81 additional documents, while Respondent identified 450. (Pet'rs' Reply Mem. of Law at 8). When pressed to explain the large number of potential additional exhibits identified so close to the hearing date, Respondent's counsel replied that although it was unlikely to use all of the documents at the hearing, "the Panel's order was clear that if we did not make this identification now, our client would have been precluded from introducing the same during our case-in-chief." (Id. Ex. 16 at 1).

The hearing began on January 10, 2011, and lasted for nine days. (Pet'rs' Reply Mem. of Law at 8; id. Ex. 17). During that time, the Panel heard testimony from eleven witnesses - seven called by Respondent and four called by Petitioners. (Pet'rs' Reply Mem. of Law at 8). Counsel for both parties were also permitted to make opening and closing arguments, admit exhibits into evidence, submit deposition designations, and propose final awards. (Id. at 8-9). On the final day of the hearing, the Umpire opened and closed the proceedings by stating the Panel's understanding that the parties had completed their evidentiary submissions. (Id. Ex. 17 at 2178, 2336). Neither party objected to that understanding, asked to submit additional evidence, or argued that it had not been afforded an opportunity to present certain evidence. (Id. Ex. 17 at 2178-82, 2336).

On February 28, 2011 and March 17, 2011, the Panel issued interlocutory awards ("Award One" and "Award Two" respectively). (Id. Ex. 31; Resp't's Answer/Cross-Pet. Ex. 10). Both awards noted that the Panel had conducted "a final hearing on the merits." (Pet'rs' Reply Mem. of Law Ex. 31at 1; Resp't's Answer/Cross-Pet. Ex. 10 at 1). In Award Two - the only award substantively challenged in this case - the Panel unanimously found that the QSRA was terminated effective December 31, 1985. (Resp't's Answer/Cross-Pet. Ex. 10 ¶ 1). A Panel majority also found that ACE INA's liability under the under the treaty was cut off as of December 31, 1988, and that the cut-off provision of the QSRA should be applied to all losses as of May 15, 2007, the date that Petitioners ceased fronting funds on Respondent's behalf and formally terminated the MGA Agreement. (Id. ¶¶ 1-2; see also Pet'rs' Reply Mem. of Law Ex. 11). The Panel then unanimously laid out a schedule of payments and a protocol for the presentation of accounts and losses. (Resp't's Answer/Cross-Pet. Ex. 10 ¶¶ 3-13). The Panel also found that AXA Belgium "did not deal honorably with Century or Ace INA and, in particular, did not make a good faith effort to comply with the prior Treaty 1001 Layer 1 Award," and, on that basis, awarded Petitioners the lesser of $250,000 or attorney's fees and expenses. (Id. ¶ 14).

In addition, the Panel announced in Award Two that it would "continue its jurisdiction for a minimum of nine months from the date of this Award." (Id. ¶ 16). During that nine-month period, the parties were directed "to refer to the Panel for resolution any dispute (including entitlement to interest on late payments) concerning compliance with or arising out of this Award" and to "meet and confer to discuss and potentially agree on an expedited, efficient alternative dispute resolution procedure to be used in the future with respect to disputes governed by this Award." (Id. ¶ 16(a), (b)). The Panel scheduled a "one day hearing" approximately nine months from the date of Award Two to consider: "a. Whether any modifications to this Award, including the protocols expressed or adopted herein, should be made. b. Whether there is any need for the Panel to retain its jurisdiction for an additional period of time. c. Any additional requests for relief by the parties." (Id. ¶ 17). Finally, the Panel stated that Award Two "is issued without prejudice to the Panel's continuing jurisdiction and discretion to modify it and/or to issue future interlocutory awards or a final award as justice and equity may require regarding any of the matters addressed herein." (Id. ¶ 18).

The Panel later scheduled the one-day hearing for November 1, 2011, and asked the parties to confer and agree upon a schedule for pre-hearing submissions. (Resp't's Answer/Cross-Pet. Ex. 11). On August 8, 2011, Respondent's new counsel submitted a Petition to Modify Award Two (the "Petition to Modify"), asking the panel to reverse its determination that ACE INA's liability under the QSRA was cut off on the grounds that neither the parties nor the Panel had identified the governing law of a specific jurisdiction to support the Panel's findings and that certain documentary and testimonial evidence that supported Respondent's position had not been presented to the Panel. (Id. Ex. 12). Specifically, Respondent sought to introduce documents exchanged by the parties during the negotiations over the QSRA termination provision, and testimony from Francois Gelot, the INA executive who signed the QSRA, related to the intended operation of the provision and the meaning of "unsettled losses." (Id. Ex. 12 ¶¶ 19-32). Upon receipt of the Petition to Modify, the Panel asked the parties to agree to a briefing schedule, but shortly thereafter limited any additional briefing "only [to] the discrete issue of whether grounds exist to warrant the re-opening of this case (akin to whether there would be grounds for a new trial in the judicial context)." (Id. Ex. 15). The parties agreed that there were no issues, other than those raised in Respondent's Petition to Modify, that needed to be addressed or resolved at the November 1, 2011 hearing, and further agreed that it was unnecessary for the Panel to retain jurisdiction other than to resolve the Petition to Modify and issue a Final Award. (Pet'rs' Reply Mem. of Law Ex. 34).

After the Panel received additional briefing on the "discrete issue" it had identified, it cancelled the November 1, 2011 hearing, and on October 13, 2011, issued a Final Award signed by Petitioners' party arbitrator and the Umpire, with a dissenting opinion from Respondent's party arbitrator. (Resp't's Answer/Cross-Pet. Exs. 18, 19). The Final Award made Awards One and Two final and, in doing so, denied Respondent's Petition to Modify. (Id. Ex. 18). The Panel majority explained that its denial was based on the fact that the issue Respondent contested in the Petition to Modify was joined at the outset of the proceedings, that Respondent had in fact addressed the issue itself in its briefs and argument, and that Respondent had failed to provide a valid excuse for not introducing the evidence at the January 2011 hearing. (Id.). The Panel also explained that its continuing jurisdiction following Award Two was designed to protect Petitioners in light of Respondent's problems complying with prior arbitral awards, and that its continuing jurisdiction did not leave the evidentiary record open or permit re-hearing of the substantive issues considered at the January 2011 hearing. (Id.). Respondent's party arbitrator filed a dissenting opinion that ...

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