US Supreme Court Clarifies That Courts Decide What Contract Governs Dispute

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The US Supreme Court has had a busy term deciding arbitration issues. In a second opinion in a matter of a week, the Court has addressed another arbitration issue that could affect insurance and reinsurance disputes. This time, the issue was conflicting contracts.

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A Brief Review of Reinsurance Trends in 2023

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In 2023, arbitrability and who must arbitrate continued to be litigated issues, with courts often sending the parties to arbitration consistent with public policy. Courts also addressed arbitrator bias, allocation, discovery of reinsurance information issues, jurisdiction, and direct right of action. And in one case, the court addressed a lost policy issue.

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Limitation on When Arbitration Can Be Brought For Arbitrator to Decide

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Who decides whether a contractual time limitation in a reinsurance contract on when an arbitration can be brought applies to bar arbitration? In a recent case, the Sixth Circuit Court of Appeals affirmed a district court’s decision sending the matter to arbitration for the arbitrators to decide on whether or how the limitation provision will be applied.

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Power to the Arbitrators

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In the beginning, arbitration was unfavored and the courts intervened with frequency. Then came the Federal Arbitration Act (“FAA”), which created a federal policy in favor of arbitration. This policy applies equally in federal or state court as long as the contract involves interstate commerce.

The courts, however, were still involved in gateway issues like whether there was a valid arbitration agreement entered into by the parties (arbitrability). But as case law on arbitrability developed, the courts found that where the parties delegated the authority to decide gateway issues like arbitrability to the arbitrator, it was then up to the arbitrator, and not the court, to determine those arbitrability questions in the arbitration. Sounds counterintuitive, but there you have it in a brief summary.

That brings us to a short decision by a New York intermediate appellate court highlighting this issue in an insurance arbitration context.

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