HDI Global SE v. Lexington Ins. Co., No. 16 Civ. 7241 (CM), 2017 U.S. Dist. LEXIS 18677 (S.D.N.Y. Feb. 7, 2017).

A New York federal court granted a cedent’s motion to stay litigation and compel arbitration over whether a facultative certificate covered a loss arising out of a public authority light rail development project. The substantive question, which the court held was for the arbitrators to decide, was whether the loss in question was covered by the policy actually issued by the cedent to the policyholder and whether that policy was facultatively reinsured by the certificate. The facts indicate that the certificate was to cover a specific policy form with a negligence trigger issued by the cedent to the policyholder and that the cedent may have issued a different policy form.

The reinsurer’s successor-in-interest brought the lawsuit seeking a declaration that the reinsurance certificate was void for lack of mutual assent. The cedent moved to stay the litigation and compel arbitration under the FAA.

In granting the cedent’s motion, the court relied on section 4 of the FAA and the factors discussed in the federal substantive law on arbitration derived from section 4. The court found that there was no question that the reinsurer signed the facultative certificate and that the certificate had an arbitration clause. The court found the reinsurer’s argument, that because of the dispute over the underlying form of contract the court should determine whether the reinsurance contract existed, was without merit.

The substantive issue, held the court, was for the arbitrators to determine, not the court. Because the reinsurer did not plead facts challenging the validity and enforceability of the arbitration clause itself, the court found that the parties must arbitrate their dispute. Where there is no issue over the formation of the reinsurance contract, the dispute over the underlying policy must be answered by the arbitrators.

The case is consistent with the federal policy in favour of arbitration.