Liquidator Compelled To Arbitrate Hurricane Reinsurance Disputes

The federal policy favoring arbitration sometimes bumps up against state-based receivers where the receiver would rather the receivership court address reinsurance disputes than have the matter arbitrated. In the aftermath of Hurricanes Irma and Maria, which devastated Puerto Rico, reinsurance disputes arose over a cedent's allocation between the hurricanes and other aspects of the many claims ceded to reinsurers. In an anticipated ruling, the question of whether these disputes will be arbitrated or resolved in the receivership court has been answered.

In Integrand Assurance Co. v. Everest Reinsurance Co., No. 19-1111 (DRD) (D. P.R. Dec. 4, 2019), an insolvent cedent sought to invalidate the arbitration clause in several reinsurance agreements with several reinsurers and force the reinsurance disputes over Hurricane Irma and Maria claims into the state court governing the cedent's liquidation proceedings. The reinsurers, who all had the same or similar arbitration clauses, moved to dismiss the insolvent cedent's claims and compel arbitration. The district court granted the reinsurers' motions in full and compelled arbitration of all claims, including antitrust and state insurance law claims.

In granting the reinsurers' motions, the court noted that in several of the cases, the cedent had demanded arbitration and a dispute arose over whether the cedent's arbitrator was qualified under the arbitration clause. In a footnote, the court rebuked the insolvent cedent: “The Court is surprised that [the cedent] questions the validity of the arbitration provision considering [the cedent] acknowledged the applicability of the provision to the instant litigation when the company itself commenced arbitration proceedings against [two reinsurers] to claim payment under the reinsurance agreements. . . The Court will not authorize [the cedent] to play 'fast and loose' with the Court.” (citation omitted).

The court rejected the cedent's argument that the arbitration clause was ambiguous because it did not set forth a mechanism to resolve the objections to the designation of the cedent's arbitrator. The court pointed out that the Federal Arbitration...