Nat’l Indemn. Co. v. IRB Brasil Resseguros S.A., No. 18-534-cv (2d Cir. Apr. 18, 2019)(Summary Order).

The Second Circuit vacated a district court order enforcing an arbitration award for a specific monetary amount because an underlying agreement between the retrocedent and the underlying cedent provided no basis, at present, for imposing liability for any particular amount on the retrocessionaire. 

An arbitration award was issued in a dispute between the retrocedent and retrocessionaire requiring the retrocessionaire to hold the retrocedent harmless and indemnify the retrocedent for the underlying cedent’s claim for a return of premium it paid to the retrocedent. In a separate court proceeding, where the retrocessionaire was voluntarily dismissed, the cedent and retrocedent entered into a settlement agreement on the issue of the return premium for a fixed sum. The cedent and retrocedent then sought to enforce that settlement against the retrocessionaire based on the arbitration award.

The circuit court held that the settlement agreement did not establish the liability of the retrocessionaire for the fixed sum. But the court was quick to reject the retrocessionaire’s argument that the settlement agreement exonerated the retrocessionaire from any possible further liability under the arbitration award. While the private agreement between the cedent and retrocedent could not succeed in imposing liability on the retrocedent, that agreement, according to the court, did not relieve the retrocessionaire of liability for the return premium. To interpret the settlement that way, as the court said, would “undermine and defeat the arbitration award.”

So, while the court did not enforce the award based on the settlement, the court made it clear that the retrocessionaire ultimately will have to pay up:

We see no reason why a future judgment finding liability of [the retrocedent] to [the cedent] for return of the premium (in a specified amount) should not serve as a basis, pursuant to the arbitration award, for the imposition of an indemnification obligation on [the retrocessionaire], assuming [the retrocessionaire] received the procedural protections to which an indemnitor is entitled in the suit establishing [the retrocedent’s) liability