Prior Arbitration Precludes Law Suit Ruling Upheld on Appeal

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Back on May 27, 2021, I wrote about a collateralized reinsurance dispute where the reinsurer sued the cedent in New York state court claiming that provisions of a trust agreement relieved the reinsurer of any further liability to the cedent. See Reinsurer’s Claims Precluded By Prior Arbitration Award. The motion court granted the cedent’s motion to dismiss the complaint and now that decision has been affirmed on appeal.

In White Rock Insurance Co. PCC Limited v. Lloyd’s Syndicate 4242, No. 15309-15309A (N.Y. App. Div. 1st Dep’t, Feb. 15, 2022), the appellate court affirmed the motion court’s ruling that the reinsurer’s complaint was precluded by the parties’ prior arbitration award. The court found that merely because the trust agreement did not have an arbitration clause did not mean that a different result was required.

The court ruled that the broad arbitration clause in the reinsurance contract, which provided that “[a]ll disputes and differences arising under or in connection with this Contract shall be referred to arbitration,” was sufficient to bring in the terms of the trust agreement. As the court held, “h]ere, there is a reasonable relationship between the reinsurance contract and White Rock’s argument that its liability under that contract is limited to the amount in the trust account.”

As it did before the motion court, the reinsurer argued that the trust fund was not before the arbitration panel. The court rejected this argument and found that “plaintiff’s conduct during the arbitration made clear that it acquiesced to the panel’s consideration of the trust agreement, as it submitted evidence regarding the trust agreement and argued that the contracts at issue, as well as the parties’ commercial relationship, included the trust agreement.” Ultimately, the court held that “the claims in the arbitration are part of the same transaction as the claims in this action.”

This decision demonstrates that broad arbitration clauses will incorporate related transactional documents even if those related documents do not have arbitration clauses themselves, especially where issues under the related documents are brought before the arbitration panel.

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