A federal district court recently held that an ambiguity in a reinsurance contract’s arbitration provision regarding the structure of the arbitration and selection of arbitrators was for the arbitrators, not the court, to decide. Dorinco Reinsurance Co. v. Ace American Insurance Co., et al., No. 07-12622 (E.D. Mich. Jan. 23, 2008). In Dorinco, the parties’ dispute arose out of property damage caused to two Dow Chemical facilities as a result of Hurricanes Katrina and Rita. Dow Chemical sought coverage from its captive insurer, Dorinco. Dorinco settled its dispute with Dow Chemical and sought reimbursement from sixteen reinsurers that had provided reinsurance cover for the Dow Chemical policy. After the reinsurers refused payment, Dorinco initiated two arbitrations, one for the Hurricane Katrina claim and one for the Hurricane Rita claim.
The arbitration provision in the reinsurance contract at issue provided that any dispute arising under the agreement “upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen.” Dorinco asserted that this language required the reinsurers to resolve each claim before a single arbitration panel and to collectively appoint one arbitrator to each panel. The reinsurers, however, contended that each reinsurer was entitled to a separate proceeding a panel including its own party-appointed arbitrator. Dorinco filed a motion to compel the reinsurers to arbitrate each claim before a single, consolidated proceeding or, in the alternative, to direct the parties to select a single panel for purposes of determining consolidation.
The court ordered the reinsurers to appoint an arbitrator to the two panels sought by Dorinco, but submitted all other questions regarding the structure of the arbitrations to those panels for determination. Relying on the Supreme Court’s decision in Green Tree Financial Corp., v. Bazzle, et al., 539 U.S. 444 (2003), the court held that while a court may review an arbitration agreement to determine its validity or applicability, all other aspects of the arbitration agreement should be determined by arbitrators. Thus, where a party asserts that an arbitration agreement calls for a specific arbitration structure, the court may only determine whether that provision unambiguously expresses the parties' intent with respect to that structure. Because the court in Dorinco found that the arbitration agreement was ambiguous as to whether the arbitrations should be consolidated or whether each reinsurer was entitled to a separate proceeding and to select its own arbitrator, Green Tree mandated that this decision be left for the arbitrators to determine. Click here to review a copy of the district court's decision.