Court Rules Reinsurer Cannot Set Aside Arbitration Agreement

TIG Insurance Company v. Global International Reinsurance Company (Southern District of New York, August 11, 2009)

Global International Reinsurance Company agreed to indemnify TIG Insurance Company for certain losses. TIG performed an internal audit for losses prior to 2003 to ensure claims were properly coded. Global did not object to the protocol employed by TIG.

The audit showed a number of claims were indeed miscoded. TIG represented to Global that the errors had been remedied. The parties entered into a settlement agreement that dismissed with prejudice all claims raised but not resolved in the ongoing arbitration proceedings. The agreement also stated that an arbitrator in any subsequent arbitrations was "relieved of all judicial formality" and was not bound by the "strict" rules of law.

Global sought to amend the settlement agreement and review the allocation of pre-2003 losses. Global eventually served a demand for arbitration and alleged, in part, that TIG miscoded the pre-2003 claims in bad faith, fraudulently concealed its errors in order to induce Global to sign the settlement agreement. TIG moved for summary judgment in the arbitration. The arbitrator issued a one line decision granting TIG’s motion. Global sought judicial review.

The court noted the heavy burden on a movant seeking to set aside an arbitrators decision stating, [b]ut having chosen to forego the procedural punctiliousness and reviewable reasoning of a court of law, the loser is hard-pressed to complain if there is even a colorable justification for the result."

In the end, the court held that Global was limited by the arbitrator’s decision. The issues were presented to the arbitrator and Global had the opportunity present its arguments. Accordingly, the court essentially concluded that Global simply could not disregard the arbitration agreement because it did not like the result.

For a copy of this decision, click here

By Brian R. Biggie and Daniel W. Gerber