District Court Grants Respondents’ Motion Compelling Arbitration Of Parties’ Rights Under Reinsurance Contracts, Staying Pending Litigation Affirming A Prior Award

Sun Life Assurance Co. of Canada v. Liberty Mut. Ins. Co. et. al.

(United States District Court, Southern District California, December 9, 2009)

This action arises from a dispute between the parties over their obligations under two reinsurance contracts.The petitioner, Sun Life, seeks the confirmation of a prior arbitration award, whereas respondents contend that in seeking confirmation of the award Sun Life also seeks substantive rulings regarding the rights and liabilities of the parties that the arbitration panel did not address.Thus, respondents filed a motion to compel further arbitration and a stay of the litigation arguing that the determination of these substantive rulings are subject to the parties’ arbitration agreements and, therefore, must be arbitrated pursuant to the two reinsurance contracts.

In granting the respondents motion to compel further arbitrations and whether Sun Life owed any interest on the prior award, the court noted that, under the Federal Arbitration Act (FAA), arbitration agreements should be rigorously enforced.

Specifically, the court concluded that because it would have to interpret the reinsurance contracts to decide whether Sun Life owes interest and whether the relationship should be terminated, the issues must be decided via arbitration.The court also discounted Sun Life’s argument that the reinsurance contracts were affirmatively terminated when Sun Life paid the commutation amount and therefore there were no operative contracts requiring arbitration.The court, in citing 9th Circuit precedent, concluded that whether a contract has terminated and whether its arbitration clause therefore still applies is a question for the arbitrator, as it requires interpretation of the contract itself.On this basis and rationale, the court granted respondents motion compelling arbitration.

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Paul Steck and Jeffrey Kingsley