Armchair quarterbacking or second-guessing an outcome after an event has occurred is a skill displayed by many. The same is true following a reinsurance arbitration award. It is very easy to second-guess the arbitration award or wish that some evidence or testimony was presented differently. Anyone who has ever had an arbitration award that was less than satisfactory has spent hours replaying the arbitration and thinking about how things could have gone differently.
What if it turned out that critical evidence existed that might have changed the outcome of the arbitration, but that evidence was not made available during the proceeding? If the arbitration award has been confirmed is there anything that can be done about this newly-discovered evidence?
This question has recently arisen in a reinsurance dispute and at least two post-award efforts to change the outcome have been rejected by the court. In Arrowood Indem. Co. v. Equitas Ins. Ltd. the reinsurers had twice attempted to rectify what they believed was an unfair arbitration award result because an allegedly crucial piece of documentary evidence was withheld from production during the arbitration. That evidence, allegedly contemporaneous documentation that supported the reinsurers’ position and refuted the cedent’s interpretation of a critical clause in the reinsurance agreements, was discovered after the arbitration and after the award had been confirmed.
The dispute was over the cession of asbestos losses, which has resulted in numerous reinsurance disputes over the past decade. Here the question was whether the cedent’s interpretation of Common Cause Coverage and the effect of a First Advised Clause should be accepted. The arbitration panel found the meaning of the First Advised Clause to be ambiguous and accepted the cedent’s position that the clause had no application to the asbestos claims in the arbitration (the reinsurers contended that the claims had to be noticed to the cedent during the contract period while the cedent claimed that the clause only barred coverage for claims that had been first noticed to the cedent prior to the date of the policy). The award was confirmed in New York federal court and the case was closed.
Apparently, nearly a year later, the reinsurers obtained a document allegedly showing that the cedent’s interpretation of the First Advised Clause was disingenuous and that the reinsurers’ interpretation was correct. The reinsurers’ claimed that the documents was purposely withheld from production and sought to review and audit the cedent’s documents.
The reinsurers eventually brought two separate challenges based on this allegedly newly-discovered evidence. First, the reinsurers sought post-judgment discovery and relief from the court’s judgment confirming the arbitration award. Second, the reinsurers commenced a second arbitration seeking access to records and seeking reimbursement from billings post-award. The district court shut down both efforts. It ruled that post-judgment proceedings could not be used to collaterally attack an arbitration award for misconduct (not appealed) and enjoined the second arbitration as an end-around to challenging the first arbitration award. Thus, the court, in two separate rulings, found the reinsurers’ efforts to be collateral attacks on the merits of the arbitration award and neither was permissible.
The conundrum here is that the document triggering all this post-award activity was not discovered until almost a year after the award had been confirmed. Under the Federal Arbitration Act there is no mechanism for challenging an award based on misconduct after the award has been confirmed by the court. The Federal Arbitration Act has limited bases to seek to vacate an award and a relatively short time frame in which to do so. According to the court, that time-frame cannot be extended by alleged misconduct.
The federal policy favoring arbitration comes with limitations. There is no appeal. There are only limited grounds to challenge an arbitration award. The time-frame for challenging an award is very short. In court, the outcome could be different. Court orders and judgments may be appealed. Newly-discovered evidence may give rise to the ability to re-open a case.
Neither this case nor this commentary is a criticism of arbitration. The case merely points out one of the risks parties run when agreeing to resolve disputes outside of court. In the vast majority of cases the issues raised in here do not arise. But the frustration felt by the reinsurers here is palpable.