Mountain Valley Property (MVP) purchased from Applied Underwriters a comprehensive insurance package that included multiple lines of insurance. As part of the package it entered into a three-year Reinsurance Participation Agreement (RPA) with AUCRA, a company related to Applied Underwriters. The RPA contained a mandatory arbitration clause and a Nebraska choice-of-law clause.
MVP sued Applied Underwriters and its related companies, asserting that the package was overpriced and that it was charged unlawful fees in premiums and in amounts claimed to be due under the RPA.
The United States District Court for the District of Maine referred the claims against AUCRA to arbitration for a determination of their arbitrability. The arbitrator ruled that the case was not arbitrable and had to be adjudicated in court.
The arbitrator noted that a Nebraska statute provides that a written contract to submit to arbitration a controversy thereafter arising between the parties is enforceable, except when the written contract "is an agreement concerning or relating to an insurance policy."
Section 1012(b) of the McCarran-Ferguson Act, 15 U.S.C.
§§1011-1015 provides, "No Act of Congress shall be
construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . .
unless such Act specifically relates to the business of insurance."
Therefore, the arbitrator concluded, the Federal Arbitration Act, which provides generally that arbitration clauses in contracts are enforceable, is "reverse-preempted" by the Nebraska statute.
AUCRA moved to vacate the arbitration award. That motion was denied. AUCRA appealed the denial of the motion to vacate.
In Mountain Valley Property, Inc. v. Applied Risk Services, Inc., __ F.3d __, 2017 WL 2981798 (1st Cir. 2017), the court did not determine whether the decision of the arbitrator was correct. It held that it was enough under the Federal Arbitration Act that the arbitration award did not demonstrate a manifest disregard for the law.
Showing posts with label arbitration appeal. Show all posts
Showing posts with label arbitration appeal. Show all posts
Thursday, July 27, 2017
Wednesday, September 16, 2015
U.S. District Court holds arbitration clause allowing arbitrator to rule on claim based on equitable theory allows her to rule on equitable grounds
Ace American Insurance Company insured a boat owned by John Puccio. The boat sank in severe weather. Ace American denied coverage.
The dispute was submitted to arbitration as required by the terms of the policy. The arbitrator awarded Puccio damages under the policy, plus attorney's fees and costs as 93A damages.
Ace American filed a complaint in court seeking to vacate or modify the arbitration award. It argued that the arbitrator exceeded her authority by failing to apply a wear and tear provision of the insurance policy. The provision excluded "any loss or resulting damage from . . . wear and tear, gradual deterioration, weathering, neglect, lack of reasonable care or due diligence in the maintenance of the insured Vessel."
The arbitrator concluded that even if wear and tear contributed to the boat's sinking, the insurer "could not possibly have assumed that a 1998 boat was in new condition when it insured the [boat] . . . for 2012." She reasoned that if the provision were enforceable in this case, the insurer could "comfortably insure boats beyond a certain age without any expectation of ever having to pay." She concluded that this would "border on fraud," and that therefore the provision could not exclude coverage for Puccio's claim. She found that Ace American's reliance on the provision was an unfair and deceptive practice under ch. 93A.
Ace American argued in the United States District Court for the District of Massachusetts that the arbitrator exceeded her authority by resolving the dispute on equitable grounds never submitted to her.
In Ace Am. Ins. Co. v. Puccio, 2015 WL 3540838 (D. Mass.), the court disagreed. The arbitration clause of the policy gave the arbitrator the authority to resolve "any controversy or claim . . . based in [any] . . . legal or equitable theory . . . arising out of or related to this policy, the interpretation, enforcement, or breach thereof, or the handling of any claim involving this policy." It did not limit the arbitrator's power to consider equitable grounds in interpreting the policy.
The court also noted that the arbitrator's decision not to apply the wear-and-tear provision was, at least arguably, an act of interpreting the contract.
I take no position on whether the arbitrator's decision was good law. But I do note that this decision highlights why I dislike arbitration generally. Decisions of arbitrators can be overturned by a court only in very limited circumstances. If an arbitrator has a bad day and issues a bad decision, you generally can't appeal it. If a judge has a bad day and issues a bad decision, you can appeal it.
The dispute was submitted to arbitration as required by the terms of the policy. The arbitrator awarded Puccio damages under the policy, plus attorney's fees and costs as 93A damages.
Ace American filed a complaint in court seeking to vacate or modify the arbitration award. It argued that the arbitrator exceeded her authority by failing to apply a wear and tear provision of the insurance policy. The provision excluded "any loss or resulting damage from . . . wear and tear, gradual deterioration, weathering, neglect, lack of reasonable care or due diligence in the maintenance of the insured Vessel."
The arbitrator concluded that even if wear and tear contributed to the boat's sinking, the insurer "could not possibly have assumed that a 1998 boat was in new condition when it insured the [boat] . . . for 2012." She reasoned that if the provision were enforceable in this case, the insurer could "comfortably insure boats beyond a certain age without any expectation of ever having to pay." She concluded that this would "border on fraud," and that therefore the provision could not exclude coverage for Puccio's claim. She found that Ace American's reliance on the provision was an unfair and deceptive practice under ch. 93A.
Ace American argued in the United States District Court for the District of Massachusetts that the arbitrator exceeded her authority by resolving the dispute on equitable grounds never submitted to her.
In Ace Am. Ins. Co. v. Puccio, 2015 WL 3540838 (D. Mass.), the court disagreed. The arbitration clause of the policy gave the arbitrator the authority to resolve "any controversy or claim . . . based in [any] . . . legal or equitable theory . . . arising out of or related to this policy, the interpretation, enforcement, or breach thereof, or the handling of any claim involving this policy." It did not limit the arbitrator's power to consider equitable grounds in interpreting the policy.
The court also noted that the arbitrator's decision not to apply the wear-and-tear provision was, at least arguably, an act of interpreting the contract.
I take no position on whether the arbitrator's decision was good law. But I do note that this decision highlights why I dislike arbitration generally. Decisions of arbitrators can be overturned by a court only in very limited circumstances. If an arbitrator has a bad day and issues a bad decision, you generally can't appeal it. If a judge has a bad day and issues a bad decision, you can appeal it.
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