Reinsurer’s Claims Precluded By Prior Arbitration Award

When parties participate in an arbitration and obtain a final award, usually that is the end of the dispute. But sometimes there are collateral agreements involved and the losing party may try to bring litigation based on those collateral agreements to obtain a different form of relief. In a recent case in New York involving protected cell reinsurer, a complex reinsurance agreement, and a related trust agreement, the reinsurer brought an action seeking to enforce certain provisions of the trust agreement after the parties received a final arbitration award under the reinsurance agreement.

In White Rock Insurance Co. PCC Limited v. Lloyd’s Syndicate 4242, No. 652867/2020 (N.Y. Sup. Ct., N.Y. Cty May 18, 2021), the protected cell reinsurer brought suit against the cedent seeking a declaration that certain provisions of a trust agreement extinguished its liability to the cedent. The cedent moved to dismiss the litigation based on a prior arbitration proceeding between the parties and the final arbitration award issued by the arbitration panel. The dispute was over the reinsurer’s liability to the cedent to pay losses even though the collateral in the trust fund had been released by the cedent to the reinsurer prior to the loss payment request.

In granting the motion to dismiss and confirming the final arbitration award, the court held that the prior arbitration and the final arbitration award precluded this litigation. The court noted that the arbitration panel’s finding, that the collateral release did not change the reinsurer’s obligation to pay losses as they became due under the reinsurance contract in spite of the shortfall in the collateral in the trust fund, went to the heart of the issue in this litigation. The court pointed out that the reinsurer specifically argued that the trust fund provisions relieved it of its obligations to the cedent and asked the arbitration panel to rule on the trust fund provisions even though the trust fund did not have an arbitration clause. The court held that the arbitration panel clearly considered the trust fund issues raised in the litigation in reaching its determination.

This is how the court phrased it:

The fact that the Trust Agreement (contrary to the Reinsurance Agreement) lacked an arbitration clause is simply not material as the parties, and specifically [the reinsurer], asked the Prior Arbitration panel to address both agreements in the Prior Arbitration. Having been unsuccessful in its arguments, [the reinsurer] cannot now have a second bite at the apple in this proceeding (citations omitted).

Collateralized reinsurance agreements rely on trust funds (as do other reinsurance agreements) and the trust fund agreement tends to go hand-in-hand with the reinsurance agreement. When both are put in front of an arbitration panel and when the terms and conditions of the trust fund agreement are argued to the arbitration panel, it is difficult to later claim that the trust fund agreement was not considered by the arbitration panel. Of course, the specifics matter, but in this case, the court found that the reinsurer had raised the same issues and was not going to allow the reinsurer to relitigate what the reinsurer lost in the arbitration.