In Harper Insurance Ltd. v. Century Indemnity Co., the District Court for the Southern District of New York denied the motion of a group of reinsurers to vacate an arbitration award requiring the reinsurers to promptly pay all disputed and undisputed claims, notwithstanding that the parties to the reinsurance agreement had not contracted for such provision. The London market reinsurers had entered into a reinsurance treaty with Century Indemnity Company, indemnifying the insurer for liabilities arising out of asbestos litigation. The treaty did not contain a “Reports and Remittances” clause dictating when claims should be paid, but provided that the “liability of the Reinsurers shall follow that of the Company in every case.” The treaty also included an “honorable engagement” clause, directing arbitrators adjudicating disputes to interpret the agreement to effect its general purpose.
Facing significant losses due to a flood of asbestos litigation, the reinsurers created a program whereby Century would have to meet documentation requirements before claims were paid. When payments became delayed, Century initiated arbitration. The arbitrators issued an interim order requiring the reinsurers to promptly pay 100% of all undisputed claims and 75% of any disputed claims, finding that such arrangement would effectuate the general purpose of the treaty. After several years of paying claims pursuant to this arrangement, the reinsurers moved to vacate the award when the arbitrators, who had retained jurisdiction to modify their order, rendered the award final. Citing the “honorable engagement” clause, the district court denied the motion to vacate and confirmed the award, holding that the arbitrators had the power to fashion the remedy, even though it included obligations not explicitly bargained for by the parties.