In a recent decision of the United Stated District Court for the Southern District of New York, Global Int’l Reinsurance Co. v. TIG Ins. Co., 08 Civ. 7338 (JSR) (S.D.N.Y. Jan 20, 2009), the court granted a cedent’s petition to confirm an arbitration award and denied a reinsurer’s motion to vacate the award in part.

In 1998, Global International Reinsurance Company, Ltd. (“Global”), agreed to reinsure TIG Insurance Company (“TIG”) pursuant to a Loss Reserve Reinsurance Agreement (the “LPT Agreement”) with an aggregate limit of $315 million. Global’s exposure for certain losses was capped at $25 million by a sublimit. After a dispute arose concerning the scope of the sublimit, Global demanded arbitration against TIG in 2000. The arbitration panel ruled that the sublimit only applied to claims arising out of a particular business segment. The panel ordered the parties to adjust accounting for the LPT Agreement pursuant to its ruling and advised that disputes arising from the adjustments would be resolved during a second phase of the arbitration. In 2004, the parties entered into a settlement agreement dismissing with prejudice all claims raised but not resolved in the arbitration, but preserving Global’s right to dispute “any amount billed or underlying an amount billed,” subject to the terms of the settlement agreement. When a later dispute arose as to how certain losses should be allocated, Global demanded arbitration, seeking damages for TIG’s alleged breach of the LPT Agreement and the settlement agreement. The matter was submitted to a single arbitrator.

TIG later filed a pre-discovery motion for partial summary judgment. After four hours of oral argument, the arbitrator granted TIG’s motion in part, holding that Global had “released its right to audit and dispute the allocation of losses reported to TIG prior to January 1, 2003, pursuant to the [LPT Agreement].” Global petitioned the court to vacate that portion of the arbitrator’s award, arguing that it was denied a fundamentally fair hearing because the arbitrator resolved factual disputes without discovery or an evidentiary hearing, failed to apply the summary judgment standard set forth by the Federal Rules of Civil Procedure and otherwise exceeded his authority.

The court ruled that the arbitrator acted within his discretion in determining that certain documents were clear on their face, and that extrinsic evidence need not have been reviewed because it would have been irrelevant to the interpretation of the contract. As for the standard applied to TIG’s summary judgment motion, the court found no error, since the arbitration proceedings were not constrained by formal rules of evidence or procedure and the arbitration agreement at issue explicitly relieved the arbitrator of all judicial formality. Last, the court ruled that the arbitrator did not exceed his authority because he had the power under the arbitration agreement to reach the issue decided, and a re-examination of the merits of the underlying dispute is not permitted in confirmation or vacatur proceedings under the Federal Arbitration Act.

Click here to review a copy of the District Court’s decision.