US Court Confirms Arbitration Award in Major Reinsurance 'Follow the Settlements' Dispute
TL;DR
- US District Court confirms multimillion-dollar arbitration award in a reinsurance dispute.
- Case addresses the effect of missing 'follow the settlements' clauses in reinsurance contracts.
- Challenge based on arbitrator's undisclosed testimony and authority is rejected.
- Decision has implications for reinsurance market approaches to contract silence and arbitrator disclosure.
Overview
The United States District Court for the District of Vermont has fully confirmed an arbitration award in a high-stakes reinsurance dispute involving the application of the 'follow the settlements' doctrine. The ruling provides guidance on the handling of reinsurance contracts that lack express settlement-following clauses, and on the significance of disclosure of arbitrator background.
What Happened
The dispute involved ICI Mutual Insurance Company and its reinsurers, Hamilton Managing Agency Limited and Antares Managing Agency Limited, centering on a Directors and Officers/Errors and Omissions liability policy with a prior acts exclusion.
Following a policyholder's restatement of financials, ICI Mutual paid out its $100 million policy and sought indemnity from reinsurers under a contract layer. The reinsurers denied liability, mainly arguing the prior acts exclusion and the absence of a binding 'follow the settlements' clause.
An arbitration was held. The arbitrator, Andrew Maneval, had undisclosed prior testimony supporting implied 'follow the fortunes' obligations-an issue later raised by the reinsurers, but not pursued to recusal. After hearings, the arbitrator declined to imply a 'follow the settlements' clause, instead applying a reasonableness standard derived from industry practice and the contract's honorable engagement clause.
Reinsurers challenged the award in federal court, citing arbitrator partiality, excess of authority, and disregard of New York law. The court rejected all grounds, finding no basis to vacate the award and confirming that concerns about arbitrator disclosure had been waived by the reinsurers.
Context
The 'follow the settlements' and 'follow the fortunes' doctrines require reinsurers to honor settlement decisions by cedents unless unreasonable or in bad faith, but their applicability can turn on contract wording.
Disclosure of arbitrator background and potential conflicts is a recurring concern in arbitration; courts often require objections to be timely raised lest they be deemed waived.
Why It Matters
- The decision clarifies that arbitrators may rely on industry standards and contract context when explicit 'follow the settlements' language is absent.
- It underscores the risks of litigating arbitrator impartiality after the fact, emphasizing the importance of thorough vetting and timely objections.
- The ruling is likely to inform approaches to drafting reinsurance slips and handling post-award judicial challenges.
Sources
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Court confirms arbitration award in reinsurance "follow the settlements" battle
insurancebusinessmag.com