A federal judge in the District of Connecticut recently analyzed whether the arbitration provision in a reinsurance agreement was extinguished by a subsequent commutation agreement. The case involved an agreement between the reinsurer, Trenwick America Reinsurance Corporation, and its reinsured Commercial Casualty Insurance Company of Georgia (CCIC). The reinsurance agreement had a “cut through” provision, permitting a direct action by CCIC’s insureds against Trenwick if CCIC became insolvent. In 2004, CCIC became insolvent, and eight years later, one of CCIC’s insureds invoked the cut-through provision and billed Trenwick directly for a claim. Shortly thereafter, Trenwick and the estate of CCIC entered into a commutation agreement under which all reinsurance obligations between Trenwick and CCIC were commuted and extinguished. After Trenwick failed to pay the claim, the insured demanded arbitration, and Trenwick filed suit in federal court seeking to enjoin the arbitration.
The court refused to enjoin the arbitration and granted the insured’s motion to compel arbitration, rejecting Trenwick’s argument that the commutation agreement extinguished the arbitration provision. The court ruled that whether the insured’s claims are subject to arbitration is a question for the arbitrator. It is up to the arbitrator to decide whether the contract containing the arbitration provision was terminated and the effect, if any, of the commutation agreement on the arbitration provision. The court ruled that because the insured was not a party to the commutation agreement, that agreement’s effect on the insured’s rights must necessarily be determined by interpreting the original reinsurance agreement, which is the responsibility of the arbitrator. Trenwick America Reinsurance Corp. v CX Reinsurance Co. Ltd., Case No. 3:13cv1264 (USDC D. Conn. May 23, 2014)