Lincoln General reinsured Clarendon National under a quota share reinsurance treaty. Lincoln gave notice of termination of the agreement, and Clarendon demanded that Lincoln provide collateral under a contractual provision requiring collateral if Lincoln’s Best rating became B++ or lower. Lincoln refused to provide collateral due to its purported termination of the treaty, and Clarendon demanded arbitration under the treaty. Lincoln sued in state court, seeking a declaration that it did not have to collateralize or arbitrate due to the termination of the treaty. Clarendon removed and moved to compel arbitration. The district court granted the motion, holding that a challenge to the validity of the contract as a whole was an arbitrable issue, whereas a challenge only to the arbitration provision would have been a judicial issue.
During the course of the dispute, Clarendon appointed an arbitrator, and had demanded that Lincoln do so. Lincoln refused, contending that it did not have to do so pending the dispute as to whether the dispute should be arbitrated. Clarendon then appointed a second arbitrator, under a provision allowing it to do so if Lincoln defaulted in appointing an arbitrator. Lincoln then belatedly named an arbitrator. The court confirmed Clarendon’s first appointment and Lincoln’s belated appointment, under a line of cases which decline to strictly enforce an appointment deadline if there is no prejudice from the delay in making an appointment. Lincoln General Ins. Co. v. Clarendon National Ins. Co., Case No. 08-0583 (USDC M.D. Pa. Aug. 15, 2008).