Compelling Arbitration After Assignment

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Reinsurance disputes sometimes become complicated when the original parties to the reinsurance contract are no longer involved. Enforcing arbitration rights also becomes more complicated when contracts are assigned or where a receiver is involved. Who has the right to compel arbitration and was the arbitration demand properly served are questions that arise. In a recent case, a New York State motion court addressed some of these issues.

In Darag Deutchland AG v. Logo, LLC, No. 654800/2021 (N.Y. Sup. Ct., N.Y. Co., Mar. 3, 2022), a dispute arose over reinsurance recoverables arising from retrocessional agreements. The petitioner acquired the liabilities of a retrocessionaire from a defunct company that obtained the liabilities through a loss portfolio transfer. The respondent acquired the claim from the liquidator of the retrocedent. The retrocedent’s successor demanded arbitration against the retrocessionaire’s successor. The retrocessionaire’s successor claimed that there was no arbitration agreement between the successors and that service of the arbitration demand was ineffective.

In ruling in favor of arbitration (and the retrocedent’s successor) in a cryptic decision, the court found that service of the arbitration demand by registered mail was effective when the postal authorities first attempted to deliver the mail and that New York favors and encourages arbitration.

There is not a lot to unpack here, but it is telling that the small amount of recoverables led the liquidator to sell it off to a third party to seek arbitration. Typically, the New York liquidator would bring the counterparty into the liquidation court rather than arbitrate given the case law in New York holding that liquidation abrogates the arbitration clause. But when the rights are assigned, it is no longer the liquidator seeking the recovery so it appears that the arbitration clause was back in play (and enforced).