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Arrowood Indemnity Co. v. Equitas Insurance Limited

United States District Court, S.D. New York

May 14, 2015

ARROWOOD INDEMNITY COMPANY, formerly known as ROYAL INDEMNITY COMPANY, Petitioner,
v.
EQUITAS INSURANCE LIMITED, CERTAIN UNDERWRITERS AT LLOYD'S OF LONDON, (and Syndicates set forth on Schedule A), Respondents.

Robert Lewin, Michele L. Jacobson, Beth K. Clark, STROOCK & STROOCK & LAVAN LLP, New York, NY, for petitioner Arrowood Indemnity Company, formerly known as Royal Indemnity Company.

Lloyd A. Gura, Amy J. Kallal, Andrea Fort, MOUND COTTON WOLLAN & GREENGRASS, New York, NY, for respondents Equitas Insurance Limited, Certain Underwriters at Lloyd's of London, et al.

OPINION AND ORDER

DENISE COTE, District Judge.

Respondents Equitas Insurance Limited and Certain Underwriters at Lloyd's of London ("Underwriters") seek relief from a final judgment pursuant to Federal Rule of Civil Procedure 60(b)(3), as well as post-judgment discovery, alleging misconduct by petitioner in procuring an arbitration award confirmed by this Court in January 2014. Petitioner Arrowood Indemnity Company ("Arrowood") opposed these motions on February 6, 2015, and they were fully submitted on February 13, 2015. For the following reasons, Underwriters' motions are denied.

BACKGROUND

Arrowood and Underwriters are both in the business of insurance, and Underwriters provides "reinsurance" services. Reinsurance allows insurers to transfer their risk of losses under a policy or policies to another insurer. In the 1960s, Arrowood entered into a reinsurance agreement with Underwriters. In general terms, this was an "excess of loss" agreement, under which Underwriters agreed to indemnify Arrowood for losses pursuant to certain of Arrowood's insurance policies if those losses exceeded a specific fixed amount, or "retention."

The parties' agreement was embodied in a complex contractual reinsurance program called the "Global Slip." Negotiations for the first iteration of the Global Slip took place in late 1966, and that contract was effective from January 1, 1967 to December 31, 1968. It was thereafter replaced by substantially similar agreements containing new contractual language.

One provision of the Global Slip covered losses incurred under Arrowood's casualty insurance policies - that is, insurance policies covering injury - if those losses exceeded $1 million. In order to recover casualty insurance, Arrowood had to satisfy contractual terms under one of three types of coverage; of particular relevance here is "Common Cause Coverage, " which provides for losses arising from "occurrences" during the term of the contract that are the "probable common cause or causes" of more than one claim. The Common Cause Coverage provision includes a clause stating, in pertinent part, that "this Contract does not cover any claim or claims arising from a common cause, which are not first advised during the period of this Contract" (the "First Advised Clause").

In the 1980s, Arrowood began incurring liabilities as a result of asbestos injury claims submitted by its policyholders. At Underwriters' insistence, it billed its claims to Underwriters on an individual and per-year basis, which imposed a $1 million retention for its total recovery per year. In 2008, after almost 25 years of this billing practice, and after its review of the contractual language at issue, Arrowood presented a number of its asbestos claims to Underwriters under the Common Cause Coverage provision. Underwriters contended that the First Advised Clause required any Common Cause claims to be noticed during the original contract period, namely the years 1967 and 1968. They denied Arrowood's claim.

The parties commenced arbitration in October 2010, presided over by a three-arbitrator panel (the "Panel"). Underwriters presented numerous arguments, including that a different binding agreement existed between Arrowood and Underwriters, that certain coverage was limited to employer liability claims, and that the First Advised Clause precluded recovery under the Common Cause Coverage. Arrowood argued that the First Advised Clause was intended only to prevent recovery on known losses whose "common cause" occurred before the term of the original contract. Extensive discovery and document production followed; Arrowood produced over 300, 000 pages of documents, including contemporaneous evidence of the parties' understanding of the First Advised Clause during contract negotiations. Arrowood did, however, object to the production of documents relating to "other reinsurers" and "other claims, " and accordingly did not produce them.[1] Among other things, Arrowood stated that "there [was] not a single fact to support" Underwriters' interpretation of the First Advised Clause.

Arbitration proceedings took place in New York City in March and April of 2013. During the eight-day hearing, numerous exhibits were presented and numerous witnesses testified to the meaning of the First Advised Clause. In its decision of April 4, 2013, the Panel agreed that Arrowood's interpretation was more reasonable, setting forth its reasoning in some detail and observing that Underwriters "presented no evidence" by which the Panel might conclude otherwise. It rejected all of Underwriters' other arguments with respect to the asbestos claims and accordingly awarded Arrowood $44, 808, 973. On October 30, 2013, Arrowood sought confirmation of its award in the Southern District of New York. The parties subsequently notified the Court that they had entered a stipulation by which Underwriters would not oppose the confirmation. The judgment issued on January 21, 2014 and the case was closed.

Months later, Underwriters began communicating with other reinsurers who were party to the Global Slip and who had prevailed in their arbitration proceedings against Arrowood. On December 19, 2014, Underwriters obtained a document, produced by Arrowood in a different action, that allegedly puts the lie to Arrowood's argument in theirs. According to Underwriters, this document - a letter created by a reinsurance broker in 1987 (the "Letter") - "sets out in unequivocal terms the very same interpretation of the First Advised Clause that Underwriters propounded to the arbitration panel." The Letter was written to a third-party reinsurer and was written to assist in a contemporaneous 1987 claim, not one of those at issue in the instant arbitration. It described in some detail the broker's then-understanding of the reasons for and history of the First Advised Clause.

Underwriters consider the Letter responsive to Underwriters' discovery request for documents concerning Common Cause Coverage and the First Advised Clause. On December 29, they sent a letter to Arrowood expressing concern that the Letter had not been produced during arbitration and requesting immediate access, under the Global Slip's audit clause, to all documents related to Common Cause Coverage and the First Advised Clause. In reply, Arrowood explained that it considered the Letter - written to a third party pursuant to a claim not at issue in the arbitration - one of the documents Arrowood had ...


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