Civ. No. 04-74 (JNE/JGL).
March 14, 2005
Stephen Stublarec, Esq., Latham Watkins, and Aaron D. Van Oort, Esq., Faegre Benson LLP, appeared for Petitioner ReliaStar Life Insurance Company.
David Kroeger, Esq., Jenner Block, LLP, appeared for Respondent Canada Life Assurance Company.
Steven C. Schwartz, Esq., Clifford Chance, LLP, and John McDonald, Esq., Meagher Geer, P.L.L.P., appeared for Respondents Clarica Life Insurance Company and Manufacturers Life Insurance Company.
Donna Williams, Esq., Baker McKenzie, appeared for Respondent Continental Assurance Company.
John M. Anderson, Esq., Bassford Remele P.A., appeared for Respondent QBE Management Group, Ltd.
Larry Zelle, Esq., and Daniel J. Millea, Esq., Zelle, Hofmann, Voelbel, Mason Gette, LLP, appeared for Respondent Certain Underwriters upon Syndicates 861 and 1209 at Lloyd's, London.
This dispute arises out of a retrocessional reinsurance program between ReliaStar Life Insurance Company (ReliaStar) and eight retrocessionaires. The case is before the Court on ReliaStar's motion to compel a single arbitration between ReliaStar on one side and six of the eight retrocessionaires on the other, namely Canada Life Assurance Company (Canada Life), Clarica Life Insurance Company (Clarica), Continental Assurance Company (Continental), Manufacturers Life Insurance Company (Manulife), QBE Management Group, Ltd. (QBE), and Certain Underwriters upon Syndicates 861 and 1209 at Lloyd's, London (the Syndicates), (collectively, Respondents). Also before the Court are Canada Life's, Clarica's, Manulife's, QBE's and the Syndicates' motions for separate, two-party arbitrations. Continental has filed a motion to dismiss. For the reasons set forth below, the Court grants Canada Life's, Clarica's, Manulife's, QBE's and the Syndicates' motions and denies ReliaStar's and Continental's motions.
A retrocessionaire is a reinsurer's reinsurer.
ReliaStar settled with one of the two remaining retrocessionaires, American Healthcare Indemnity Company (AHIC), and it has no dispute with the other, SCOR Vie (SCOR).
ReliaStar provides reinsurance to life, health, and workers' compensation insurers. To mitigate its exposure on potential claims, ReliaStar purchases its own reinsurance, known as retrocessional coverage. At issue in this case is retrocessional coverage obtained by ReliaStar from Respondents in the form of a multi-layer program. Under the program, each Respondent participated at a different level of coverage and at a different percentage share. The following chart shows Respondents' participation:Layer AHIC SCOR The Clarica Manulife Canada QBE Continental (settled) (no dispute) Syndicates Life $1.5 million excess 6.5% 5% 88.5% of $500,000 $3 million excess 30% 5% 60% 5% of $2 million $20 million excess 50% 3.75% 6.25% 23.75% 16.25% of $5 million $25 million excess 25% 5% 30% 30% 10% of $25 million $30 million excess 20% 10% 35% 30% 5% of $50 million $20 million excess 10% 25% 65% of $80 million
In formulating its participation in the program, each Respondent independently negotiated with ReliaStar or its broker, Guy Carpenter, a Catastrophe Excess of Loss Reinsurance Contract (CELRC) along with an Interests and Liabilities Agreement (IL). Respondents' CELRCs are essentially the same, though several Respondents negotiated certain changes. Notwithstanding the differences, Respondents' CELRCs contain the same arbitration provision and the same commutation/sunset provision. Each Respondent's IL delineates its individual participation.
The parties agree that the arbitration provision is valid and enforceable, and that the arbitral process will determine the outcome of their underlying disputes. These underlying disputes stem from the terrorist attacks of September 11, 2001, and specifically involve whether Respondents should pay ReliaStar's claims arising from September 11 on a four events or occurrences basis or on a single event or occurrence basis. The dispute before this Court is whether the arbitration provision covers Respondents together as a group of retrocessionaires thereby compelling a single arbitration, or whether the arbitration provision entitles each Respondent to a separate arbitration with ReliaStar.
Section 4 of the Federal Arbitration Act provides:
A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court . . . for an order directing that such arbitration proceed in the manner provided for in such agreement. . . . The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement.9 U.S.C. § 4 (2000). Under this section, the Eighth Circuit Court of Appeals has stated that federal courts must "enforce arbitration agreements as they are written" and that "absent a provision in an arbitration agreement authorizing consolidation, a district court is without power to consolidate arbitration proceedings." Baesler v. Cont'l Grain Co., 900 F.2d 1193, 1195 (8th Cir. 1990). To determine whether a contract authorizes consolidation, regular principles of contract interpretation apply. Conn. Gen. Life Ins. Co. v. Sun Life Assurance Co. of Can., 210 F.3d 771, 774 (7th Cir. 2000) ("[I]n deciding whether the contract does authorize [consolidation] the court may resort to the usual methods of contract interpretation just as courts do in interpreting other provisions in an arbitration clause.").
Under Minnesota law, the interpretation of an unambiguous contract presents a question of law. Trondson v. Janikula, 458 N.W.2d 679, 681 (Minn. 1990). The initial question of whether a contract is ambiguous is a question of law to be decided by the trial court. Lamb Plumbing Heating Co. v. Kraus-Anderson of Minneapolis, Inc., 296 N.W.2d 859, 862 (Minn. 1980). A court must construe a contract as a whole and attempt to harmonize all of its clauses. Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn. 1990).
The Court now turns to the arbitration provision contained in the CELRCs, which provides:
As a precedent to any right of action hereunder, if any dispute shall arise between the parties to this Contract with reference to the interpretation of this Contract or their rights with respect to any transaction involved, whether such dispute arises before or after termination of this Contract, such dispute, upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within thirty days after the receipt of written notice from the other party requesting it to do so, the requesting party may appoint two arbitrators. If the two arbitrators fail to agree in the selection of a third arbitrator within thirty days of their appointment, each of them shall name two, of whom the other shall decline one and the decision shall be made by drawing lots. All arbitrators shall be active or retired disinterested officers of insurance or reinsurance companies or Underwriters at Lloyd's, London, not under the control of either party to this Contract.
. . . .
The decision in writing of any two arbitrators, when filed with the parties hereto, shall be final and binding on both parties. . . . Each party shall bear the expense of its own arbitrator and shall jointly and equally bear with the other party the expense of the third arbitrator and of the arbitration.
According to Respondents, a plain reading of this provision reveals that no consolidation clause is contained therein. Respondents contend that under Baesler, this deficiency ends the Court's inquiry. See Baesler, 900 F.2d at 1195 (holding that a district court cannot order consolidation of arbitrations unless the contract contains an express agreement to consolidate); see also Conn. Gen., 210 F.3d at 773 (collecting cases).
Nonetheless, ReliaStar contends that because Respondents are party to the same retrocessional coverage program and they have signed similar CELRCs, they are therefore party to the same "Contract." ReliaStar reasons that because Respondents are party to the same "Contract," the language in the arbitration provision, "if any dispute shall arise between the parties to this Contract," provides for consolidation. In support of this position, ReliaStar directs the Court's attention to another provision contained in each Respondent's CELRC, the commutation/sunset provision. This provision describes collective action on the part of Respondents as follows:
The Company [ReliaStar] shall advise the Reinsurers of any outstanding occurrences following the terms of its reinsurance of its original reinsured during that contract year which have not been finally settled and which may cause a claim under this Contract and no liability shall attach hereunder for any claim arising from occurrences not reported to the Reinsurers within the appropriate time frame.
The Company or the Reinsurers may then, or any time thereafter, request that Reinsurers' liability with respect to one or more of such unsettled claims be commuted. Upon such request, the Reinsurers and the Company shall review such a claim and shall attempt to reach a settlement by mutual agreement. If the Reinsurers and the Company cannot reach a settlement by mutual agreement, then the Reinsurers and the Company shall mutually appoint an independent actuary (F.S.A./F.C.A.S. or A.S.A./A.C.A.S.) who shall investigate, determine and capitalize the present value of any such unsettled claims. In the event the Reinsurers and the Company cannot reach an agreement on an independent actuary, each party shall appoint an actuary. The two chosen actuaries shall then select a third actuary. If either party refuses or neglects to appoint an actuary within 30 days of their appointment, each of them shall name three individuals, of whom the other shall decline two, and the decision shall me made by drawing lots.
According to ReliaStar, this provision is evidence that Respondents and ReliaStar intended be a part of a single "Contract."
After reviewing the record and the relevant agreements, the Court concludes that there is no authority within the agreements for the Court to order a single arbitration. First, the Court agrees with Respondents that the arbitration provision does not contain an express consolidation clause. Second, given that several Respondents negotiated changes to their CELRCs, the Court is not convinced that Respondents and ReliaStar were party to the same "Contract." Moreover, even though the commutation/sunset provision demonstrates that Respondents and ReliaStar contemplated at the time of contracting that there would be multiple reinsurers participating in this program, it more importantly highlights the absence of such language in the arbitration provision. Given the clear confines of a district court's authority where matters of arbitration are concerned, the Court cannot import language into the parties' arbitration provision even to achieve what may be a sensible result. The Court is sympathetic to ReliaStar's concern that multiple arbitrations may result in conflicting awards. However, this is not ReliaStar's first experience with a retrocessional coverage program and the need for and use of a consolidation clause in an arbitration provision is not a novel proposition. See, e.g., Conn. Gen., 210 F.3d at 773-74.
ReliaStar argues that Connecticut General stands for the proposition that the Court may construe an arbitration provision to achieve a practical result. ReliaStar's reliance on Connecticut General is misplaced. Unlike the case at bar, the contract in that case contained an arbitration provision that included an explicit consolidation clause. See Conn. Gen., 210 F.3d at 774. Moreover, the Court cannot help but recognize that ReliaStar, as a party involved in the Connecticut General case, was familiar with the language of consolidation clauses and the need for their presence in arbitration provisions.
Because the parties' agreements do not provide for consolidation in the arbitration provision, the Court denies ReliaStar's motion to compel a single arbitration. Accordingly, the Court grants Canada Life's, Clarica's, Manulife's, QBE's and the Syndicates' motions to compel separate, two-party arbitrations.
Lastly, the Court turns to Continental's motion to dismiss ReliaStar's petition to compel arbitration. Having concluded that ReliaStar's motion to compel a consolidated arbitration is without merit, the Court denies Continental's motion as moot.
Based on the files, records, and proceedings herein, and for the reasons stated above, IT IS ORDERED THAT:
1. ReliaStar's Motion to Compel Arbitration [Docket No. 40] is DENIED.
2. QBE's Cross-Motion to Compel an Individual Arbitration [Docket No. 41] is GRANTED.
3. Clarica's Motion to Compel Separate Arbitration [Docket No. 50] is GRANTED.
4. Continental's Motion to Dismiss or Alternatively for Summary Judgment [Docket No. 53] is DENIED AS MOOT.
5. Canada Life's Motion to Compel Two-Party Arbitration [Docket No. 58] is GRANTED.
6. The Syndicates' Motion to Compel Two-Party Arbitration [Docket No. 62] is GRANTED.