Insurance Company of North America and INA Reinsurance Company (“INA”) reinsured Public Service Mutual Insurance Company (“PSMIC”) pursuant to a series of excess of loss reinsurance contracts, effective from 1971 to 1986 (the “Reinsurance Contracts”). In 2005, PSMIC settled a claim against its insured, Deleet Merchandising Corporation, at a site in Newark, New Jersey (the “Deleet claim”) and allocated the loss pro-rata over fifteen insurance policies PSMIC had issued to Deleet between 1971 and 1986. PSMIC then billed its reinsurers, including INA, for the Deleet claim based upon this allocation.
INA disputed PSMIC’s billing, contending that its pro-rata allocation of the Deleet claim was improper, unreasonable and contrary to the case law that INA contended controlled the dispute, namely the New Jersey Supreme Court’s decision in Carter-Wallace v. Admiral Ins. Co., 154 N.J. 312 (1998). PSMIC demanded arbitration pursuant to the arbitration clauses in the Reinsurance Contracts, each of which provided that a dispute arising thereunder “shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen.” The arbitration clauses further provided that “[i]f either party refuses or neglects to appoint an arbitrator within thirty days after receipt of written notice from the other party requesting it to do so, the requesting party may appoint two arbitrators.” Both PSMIC and INA appointed an arbitrator and then selected Roger Moak as the umpire.
Prior to the ultimate hearing, INA’s party-appointed arbitrator resigned from the panel for health reasons. INA contended that, pursuant to the Second Circuit’s decision in Marine Products v. MT Globe Galaxy, 977 F.2d 66 (2d Cir. 1992), the arbitration must “commence anew,” and appointed another party-appointed arbitrator to serve in the new arbitration proceeding. PSMIC demanded that existing arbitration go forward with INA’s replacement arbitrator and ultimately selected another arbitrator as INA’s panelist when INA refused to proceed. The umpire ultimately ordered the parties to seek judicial determination of the issue.
In finding for INA, the court rejected PSMIC’s argument that the court lacked authority under the Federal Arbitration Act (“FAA”) to stay or enjoin the pending arbitration in favor of a new proceeding. The court found it had authority under Section 4 of the FAA to stay or enjoin an arbitration proceeding upon the death or resignation of an arbitrator. Further, the court held that under the “general rule” set forth by Marine Products, where one member of a three-person arbitration panel dies (or resigns) before the rendering of an award and the arbitration agreement does not anticipate that circumstance, the arbitration must commence anew with a full panel. Accordingly, the court ruled that the arbitration must start over, with each party having the ability to select its own party-appointed arbitrator.