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In re Arbitration Between National Union Fire Insurance Co. of Pittsburgh, PA

United States District Court, S.D. New York

June 8, 2017

In the Matter of the Arbitration Between NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Petitioner,


          VALERIE CAPRONI, United States District Judge:

         These cross petitions to compel arbitration present the unusual circumstance of parties agreeing that they have a binding arbitration clause and agreeing that the arbitration clause applies to their dispute but nevertheless filing petitions and cross-petitions in federal court rather than proceeding to arbitration.

         In 1986, National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) entered into a reinsurance agreement with Federal Insurance Company (“Federal”). According to Federal, it acted as a “front” for a syndicate or pool of reinsurers known as the Pinehurst Accident Reinsurance Group (“PARG”). National Union contends that Federal is required to reinsure it for excess workers' compensation claims totaling approximately $3.85 million. National Union petitioned to compel arbitration pursuant to Section 4 of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 4. Dkt. 1. Federal cross-petitioned to compel arbitration, also pursuant to Section 4 of the FAA. Dkt. 18. The parties agree that they are required to arbitrate their dispute over the workers' compensation claims. The primary bone of contention is whether PARG will have a role in the arbitration and, if it does, the parameters of that role. Whether this issue will ever arise, whether PARG's involvement will raise an issue of arbitrability that should be resolved by the Court, and whether the arbitrator will ever rule on it, is entirely speculative at this juncture and, therefore, need not be decided. For the reasons that follow, National Union's petition is GRANTED and Federal's cross-petition is GRANTED IN PART. The parties are directed to commence arbitration.


         As noted above, the parties first entered into a relevant agreement in 1986. They executed a “placement slip” that includes the essential terms of their agreement and a list of standard clauses applicable to the relationship, including “arbitration.” Declaration of Damian F. Salonick (Dkt. 21) (“Salonick Decl.”) Ex. A. The parties executed another placement slip in 1988. Salonick Decl. Ex. B. In 1989, they entered into a more complete agreement, called a treaty. Salonick Decl. Ex. C. Both placement slips and the Treaty provide for Federal to reinsure certain excess workers' compensation policies issued by National Union, subject to terms and conditions not relevant here. While the parties dispute which agreement governs their relationship, they agree that all three agreements include arbitration clauses. The parties also agree on the essential terms of the arbitration clause.[1]

         National Union submitted the workers' compensation claims at issue to Federal in 2014, Declaration of Seema A. Misra (Dkt. 4) (“Misra Decl.”) ¶¶ 5-7, Ex. 3, and Federal denied the claims in late 2014. Misra Decl. Ex. 3. In April 2016, National Union demanded arbitration.

         Misra Decl. Ex. 4. The parties negotiated the terms of the arbitration in a series of email exchanges, the details of which are not pertinent. As is relevant here, they agreed that their dispute was arbitrable and that it should be heard by a panel of three arbitrators, one arbitrator selected by each party and a mutually-agreed-upon neutral umpire. Misra Decl. Exs. 8, 9.

         Discussions broke down over the terms of a questionnaire to be sent to the umpire candidates. Federal proposed to identify the members of PARG in the questionnaire as interested entities. Misra Decl. Ex. 13. National Union disagreed. Misra Decl. Ex. 14. After further back-and-forth, the parties were unable to resolve their disagreement and so National Union filed its petition to compel. Dkt. 1. According to National Union, Federal is attempting to substitute PARG as the respondent to the arbitration. National Union's Mem. (Dkt. 3) at 5-7, 14. It seeks an order compelling Federal “to proceed immediately to [] [a]rbitration on its own, i.e., not conditioned on the substitution or addition of non-party PARG or any of its twenty-three (23) members.” Pet. (Dkt. 1) at 4.

         Recognizing that the parties' tactical jousting may have led to a miscommunication, Federal responded by email: “I [counsel for Federal] have read your filing and believe [National Union] has totally misunderstood our position. We have never denied that Federal is the signatory to the National Union reinsurance treaty nor that it is primarily liable under that Treaty. We understand and agree that as a formal matter, Federal will have to seek indemnity from other member[sic] of the PARG Pool and that the PARG Pool is not liable to National Union in the first instance.” Declaration of David E. Spector (“Spector Decl.”) (Dkt. 22) Ex. L. Not willing to take “yes” as an answer, National Union responded that it would dismiss the petition if Federal confirmed that “(1) Federal is the sole respondent in the arbitration; and (2) neither Federal nor PARG will attempt to substitute, add, or involve PARG, or any of its members . . . in the arbitration.” Spector Decl. Ex. L (emphasis added).

         Federal then filed a cross-petition to compel on December 13, 2016. Cross-Pet. (Dkt. 18.) Federal seeks a declaration that the “[1989 Treaty] reflects the intent and meaning of the words of the [1986 placement slip]”; an order “directing the parties to proceed to arbitration . . ., including arbitration of which entities are the real parties in interest in the arbitration”; and an order appointing the parties' chosen umpire, Mr. Charles Ehrlich, as the umpire in the arbitration. Cross-Pet. at 8-9. National Union filed a consolidated reply and opposition on January 6, 2017. Dkt. 31. Federal replied on January 25, 2017. Dkt. 35. The Court held oral argument on May 19, 2017.


         The Federal Arbitration Act, 9 U.S.C. §§ 1 et seq., embodies a strong “national policy favoring arbitration.” AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 346 (2011) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)); see also Ross v. Am. Express Co., 547 F.3d 137, 142 (2d Cir. 2008). For that reason, “any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration . . ., ” Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983), and courts should “construe arbitration clauses as broadly as possible, ” David L. Threlkeld & Co. v. Metallgesellschaft Ltd. (London), 923 F.2d 245, 250 (2d Cir. 1991) (quotation marks and citation omitted). Pursuant to the FAA, a district court must grant a motion to compel arbitration if a valid arbitration agreement exists and if the scope of the agreement governs the issues in the case. See Buchman v. Weiss, No. 08-CV-5453 (RJS), 2009 WL 2044615, at *2 (S.D.N.Y. July 15, 2009) (quoting Nat'l Union Fire Ins. Co. of Pittsburgh, Pa. v. Belco Petroleum Corp., 88 F.3d 129, 135 (2d Cir. 1996)). “In this Circuit, courts follow a two-part test to determine the arbitrability of claims. In deciding whether claims are subject to arbitration, a court must consider (1) whether the parties have entered into a valid agreement to arbitrate, and, if so, (2)

         whether the dispute at issue comes within the scope of the arbitration agreement.In re Am. Express Fin. Advisors Sec. Litig., 672 F.3d 113, 128 (2d Cir. 2011) (citing ACE Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 28 (2d Cir. 2002)). In reviewing a motion to compel arbitration, the Court “applies a standard similar to that applicable for a motion for summary judgment.” Bensadoun v. Jobe-Riat, 316 F.3d 171, 175 (2d Cir. 2003).

         This is the rare case in which the parties agree more than they disagree, and the parties' common ground suffices to resolve the case at this stage. The relief requested by National Union is not contested by Federal. As Federal explains, it has “twice confirmed that it ‘is the signatory to the National Union reinsurance Treaty' and that it ‘is the sole respondent in the arbitration.'” Federal's Mem. at 1. After National Union ignored this concession, Federal repeated it: “Federal has never suggested that PARG be a formal party to the arbitration . . . . Indeed, Federal made the opposite clear.” Federal's Reply Mem. (Dkt. 35) at 2. Plainly then, Federal concedes that it must proceed to arbitration “not conditioned on the substitution or addition of non-party PARG or any of ...

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