On January 20, 2006, Century Indemnity Company filed suit in the United States District Court for the Southern District of New York against Clearwater Insurance Company ("Clearwater") seeking payment under a facultative reinsurance certificate that contained an arbitration clause. Century Indemnity Company v. Clearwater Insurance Company, Case No. 06 Civ. 0424 (S.D.N.Y. June 4, 2007). Clearwater moved to stay the litigation and compel arbitration. United States District Court Judge Shira A. Scheindlin granted Clearwater’s motion and ordered the parties to arbitrate their dispute.
The certificate’s arbitration clause provided that "Should an irreconcilable difference of opinion arise as to the interpretation of this Contract, it is hereby mutually agreed that, as a condition precedent to any right of action hereunder, such difference shall be submitted to arbitration . . . .” Judge Scheindlin noted that the Second Circuit had not yet decided whether an arbitration clause with this exact language was "broad" or "narrow," but that the Sixth Circuit had held that an identical arbitration clause was "narrow." Nonetheless, Judge Scheindlin held that it was not necessary to decide that issue because, even if construed as narrow, the parties’ dispute clearly involved "differences of opinion with respect to the interpretation of these provisions” and was "on its face within the purview of the clause.” Additionally, the court concluded that Clearwater did not waive its right to arbitrate since (i) a “relatively short period of time” had elapsed between the commencement of the litigation and the arbitration demand (five months), and between Century’s production of the certificate in its entirety and the demand for arbitration (three months); (ii) the litigation was not at an advanced stage; and (iii) Century did not demonstrate that it had been prejudiced.
Click here to read the District Court's decision.