Why Reinsurance Arbitration or Mediation Is More Efficient Than Litigation

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The battle between whether reinsurance disputes should litigated or arbitrated (or mediated) continues even though most reinsurance disputes are subject to arbitration provisions in the reinsurance contracts. There are arguments on both sides, of course, and no one can argue that arbitration has not become more like litigation.

While I favor arbitration and mediation (for reinsurance and other commercial disputes), periodically a case comes along (and there are many) that looks like it is campaigning to be the poster case for why arbitration and mediation is more efficient than litigation. I recently posted a blog about a case that arose 10 years after a reinsurance transaction where the court refused to dismiss the complaint. https://wordpress.com/post/schifferlc.com/1770. Well, that case now has another decision, somewhat along the same lines.

The collateral litigation costs are mounting for both parties while the parties have not come close to getting to the substantive issues. These types of motions (while not unheard of) are frowned upon in arbitration, where the goal is to get to a hearing as soon as practicable to resolve the dispute.

In Sparta Insurance Co. v. Pennsylvania General Insurance Co., No. 21-11205-FDS (D. Mass. Jan. 13, 2023), both sides moved for judgment on the pleadings claiming that the pleadings and the contracts clearly demonstrated that they should prevail without further litigation. If you recall, this was the case where one company purchased what they thought was a “clean shell” from the other company, but legacy claims got in the way.

If true, this would be the most expeditious and efficient way to end the dispute. The problem is that the judge (essentially for the second time) denied both sides’ motions. In denying the seller’s motion, the court noted that the same arguments were raised in the prior motion to dismiss. The court found that the documents the seller relied upon were not sufficient to trigger dismissal of the complaint. Thus, said the court, the documents “do not make the bare allegations of the complaint entirely implausible.”

In denying the purchaser’s motion, the court held that judgment on the pleadings was inappropriate because if the seller’s allegations were true, the buyer failed to present claims that would trigger the seller’s duty to indemnify under the stock-purchase agreement. The court also refused to assume certain facts that would preclude a finding of a novation that would alter the obligation of the seller to handle the underlying claims (the seller claimed it passed the claims-handling obligations on to another company).

The bottom line is the court held that judgment on the pleadings was not an appropriate vehicle for either side’s motions. So now we will all wait for the invariable summary judgment motions after discovery has taken place and maybe, just maybe, in a few years the case will be tried.

Using arbitration and mediation likely would alter this attenuated timeline and help to resolve the dispute more expeditiously and efficiently.