When a party receives and arbitration demand and there is a dispute about whether there is an agreement to arbitrate between the parties, participating in the early stages of the arbitration may be problematic for a subsequent effort to dispute arbitrability. This issue can arise when there has been an assignment or transfer of a reinsurance agreement or the right to the reinsurance receivables to an assignee who seeks to arbitrate against the original counterparty. In a recent case, a New York state court had to address these issues.
In Employers Insurance Company of Wausau v. Dominion Insurance Receivable Inc., No. 653628/2022 (N.Y. Sup. Ct, N.Y. Co. Jun. 21, 2023), the assignee of reinsurance recoverables obtained from the Liquidator of an insolvent company brought an arbitration demand against the insolvent company’s retrocessionaire to recover recoverables the assignee claimed was owed. The retrocessionaire, while reserving all rights, participated in the early stages of the arbitration, including whether to consolidate the disputes arising from several agreements and provisionally appointing an arbitrator subject to its reservations over consolidation.
Some five months after the arbitration demand, the retrocessionaire petitioned to stay the arbitration because of language in the assignment agreement that gave exclusive jurisdiction to the court over disputes. The assignee countered with a motion to compel arbitration under the retrocessional agreement.
In denying the motion to stay and granting the motion to compel arbitration, the court held that the retrocessionaire’s participation in the arbitration selection process was sufficient to waive any right to challenge arbitrability in court. The court’s opinion outlined why the participation was a waiver and why the retrocessionaire’s reservations were unavailing. The court noted that the retrocessionaire’s selection in its June 10 ,2022 letter was only provisional as to the assignee’s agreement regarding consolidating arbitration under the retrocessional agreements into one arbitration proceeding and that the retrocessionaire shared along with its June letter its proposal for a proposed consolidation agreement, which itself states that the retrocessionaire “appointed … its party-appointed arbitrator on June 10, 2022.” The court found that the retrocessionaire’s actions were inconsistent with its claims that it did not participate in arbitration.
The court held that it need not determine whether a valid agreement to arbitrate existed because of the retrocessionaire’s participation in the arbitrator selection process. The court rejected the retrocessionaire’s argument— that even if there were a waiver, it “withdrew that waiver when it filed this action” — finding countless cases compelling arbitration where the requisite level of participation has already occurred, not to mention the clear statutory text of CPLR 7503(b) (“Application to stay arbitration. Subject to the provisions of subdivision (c), a party who has not participated in the arbitration and who has not made or been served with an application to compel arbitration, may apply to stay arbitration on the ground that a valid
agreement was not made or has not been complied with or that the claim sought to be arbitrated is barred by limitation under subdivision (b) of section 7502″).
The lesson here is that even preliminary participation in arbitration may waive the right to dispute arbitrability.
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