Don’t Cry For Me – Reinsurance Judgment Against Argentina Vacated

Legacy reinsurance liabilities against certain non-US reinsurers that have gone into insolvency or have been absorbed by non-US governments remain an issue for many US ceding companies. Some US ceding companies have fought long and hard to win arbitrations, enter judgments and then try to enforce those judgments against the non-US reinsurers or their governments. Success in doing this has been up and down. A recent case goes into great detail in addressing one cedent’s journey to enforce judgments against Argentina.

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Without a Contractual Relationship, Claims Against Reinsurers Fail

To sustain a claim against reinsurers there has to be a contractual relationship between the party making the claim and the reinsurers. That is the prevailing rule in all jurisdictions, subject to rare exceptions. Nevertheless, policyholders, when left without a recovery from their insurer, will try to make out a claim directly against their insurer’s reinsurers. Typically, this effort meets with little success as we described in a blog post back in 2020.

Earlier this year, in a complicated credit insurance/reinsurance transaction involving a special purpose vehicle, a policyholder left without an insurance recovery tried again to recover its loss from its insurer’s reinsurers. The result was the same.

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Georgia Supreme Court Reverses and Remands Appellate Court Order Reversing Order Confirming Arbitration Award

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There is a whole world of automobile service contracts sold by car dealers that are sometimes “reinsured” by affiliated reinsurers. Many disputes have arisen out of these deals and many of these disputes are arbitrated.

In a recent case in Georgia, an arbitration award in an auto service contract dispute was issued and confirmed by the court. On appeal, the court of appeals vacated the arbitration award based on manifest disregard of the law. The Georgia Supreme Court took the case on certiorari and reversed the court of appeals and remanded the matter.

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Arbitrator Disclosure and Vacating Awards

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The issue of whether an arbitration award can be vacated based on bias or prejudice because of an alleged non-disclosure by the arbitrator has long plagued commercial arbitration. Many arbitration codes and organizations promote robust and fulsome disclosures by arbitrators, yet there are always occasions where the losing party claims that the arbitrator was biased or prejudiced and that the alleged nondisclosure was at the root of the problem.

The courts, however, have found that to vacate an award, there has to be a showing of actual bias or prejudice that affects the award. The courts have also found that while more forthcoming disclosure should have occurred, the alleged nondisclosure, by itself, is often not close enough to support vacatur of the award.

In a recent case, this scenario played out again in the context of a property appraisal under an insurance policy.

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The Limits on Challenging an Arbitration Award in an Insurance Dispute

Losing parties in arbitrations often seek to vacate the arbitration award claiming that the arbitrator was guilty of misconduct or manifestly disregarded the law. Convincing a court to vacate an arbitration award is not easy and is not typically successful. Under US law, particularly the Federal Arbitration Act (“FAA”), there is no appeal from an arbitration award and the bases to vacate the award are narrow and limited. See FAA, § 10.

In a recent Summary Order, the Second Circuit Court of Appeals, reiterated these principles, although the court did grant some relief to the party seeking vacatur.

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