Nandorf, Inc. v. Applied Underwriters Captive Risk Assur. Co., No. 18-cv05285, 2019 U.S. Dist. LEXIS 161473 (N.D. Ill. Sept. 23, 2019).
An Illinois federal court addressed whether the arbitrator or a court should decide whether a dispute between a reinsurer and a cedent was arbitrable. The cedent sued to enjoin arbitration on various grounds, and the reinsurer filed a motion to compel arbitration. The reinsurance contract between the parties contained a broad arbitration provision covering all disputes arising from or relating to the contract, with any dispute to be determined exclusively in the British Virgin Islands, governed by substantive Nebraska law.
The court first determined that it could not compel arbitration in the British Virgin Islands because it lacked the power to compel arbitration outside of the Northern District of Illinois. Accordingly, the court converted the reinsurer’s motion to compel into a motion to dismiss the cedent’s suit. Next, the court carefully analyzed the arbitration provisions of the reinsurance contract, the American Arbitration Association Rules, and decisions from numerous other federal district and appellate court setting forth a “consensus view” that the question of arbitrability could be delegated to arbitrators. Applying this consensus view, the court determined that the parties had clearly and unequivocally delegated the question of arbitrability to the arbitrator.
The court then rejected the cedent’s argument that Nebraska’s Uniform Arbitration Act (NUAA) reverse-preempted the Federal Arbitration Act (FAA), which would render the reinsurance contract’s arbitration provisions unenforceable. The court noted a split of authority, with the Fourth Circuit and Nebraska and California state courts holding that the NUAA preempted the reinsurance contract’s arbitration provisions, while the Third and Sixth Circuits, as well as various federal district courts, held that the NUAA did not preempt the same provisions. The court determined that letting the NUAA preempt the express terms of the reinsurance contract would run afoul of the Supreme Court’s determination in Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52 (1995). The court also ruled that choice of law clauses in contracts containing arbitration provisions should be read to encompass substantive state principles without including special rules limiting the authority of arbitrators.