American United Life Insurance Co. v. Travelers Indemnity Company et al

Filing 49

ORDER granting AUL's petition to compel arbitration and denying Travelers' petition to compel an actuarial panel. Travelers is instructed to comply with the procedures set forth in Article 16 within ten days of this ruling's filing date. Signed by Judge Warren W. Eginton on 8/18/15.(Ladd-Smith, I.)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
AMERICAN UNITED LIFE INSURANCE :
COMPANY,
:
:
v.
:
:
THE TRAVELERS INDEMNITY
:
COMPANY, TRAVELERS CASUALTY :
AND SURETY COMPANY AND THE :
STANDARD FIRE INSURANCE
:
COMPANY (collectively, Travelers)
:

3:14cv1339 (WWE)

MEMORANDUM OF DECISION ON CROSS PETITIONS TO COMPEL ARBITRATION

Plaintiff American United Life Insurance Company (“AUL”) has filed a petition to
compel arbitration pursuant to a reinsurance contract with Travelers. Specifically, AUL
asserts that arbitration is necessary to resolve whether a prior arbitration award has
preclusive effect as to the valuation of certain claims. AUL invokes Article 16 of the
reinsurance contract, which provides that “any dispute between the Company and the
Reinsurer arising out of, or relating to the formation, interpretation, performance or
breach of this Contract, whether such dispute arises before or after termination of this
Contract, shall be submitted to arbitration.”
Travelers has filed a cross-petition, arguing that the valuation of the claims
should be determined by an actuary panel pursuant to Article 6 of the reinsurance
contract. Article 6 provides that the “sole remedy to resolve disputes involving the
determination of the Reinsurer’s liability” for losses shall be appointment of an actuary
or an actuary panel to “investigate, determine and capitalize the present value” of the

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claimed losses.
Background
In a prior Final Decision, the arbitration panel considered whether Travelers was
entitled to commutation payment for certain claims. The panel found that commutation
was mandatory; set forth that Travelers could use certain valuation methods for the
“Open Sunset/Non Tabular Claims;” and set a 120-day deadline from the date of the
decision for Travelers to deliver AUL valuation quotes. The decision also provided: “To
the extent any individual Open Sunset/Non Tabular claim is not addressed in any such
quotation(s) delivered, or is valued at an amount less than applicable retention, its
commutation value shall be zero.” Thus, according to the Final Decision, Travelers
had until April 22, 2014, to provide AUL with quotations for the Open Sunset/Non
Tabular claims.
On March 7, Travelers provided quotations for seven claims. AUL maintains that
Travelers did not provide quotations for all of the Open Sunset/Non-Tabular claims.
AUL asked Travelers for more information to substantiate the provided quotes. On
April 21, Travelers refused to supply more information and demanded an actuary
proceeding pursuant to Article 6 to determine the amounts AUL should pay to
Travelers.
In response, AUL demanded an arbitration pursuant to Article 16 due to its
contentions that Travelers was in breach of contract by failing to supply information as
to the quotations in accordance with contractual provision Article 22, and it had acted in
bad faith in providing the quotations. AUL also set forth that it required a determination

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on whether an actuary panel should be empanelled pursuant to Article 6 and the extent
of jurisdiction of that panel.
Discussion
Courts confronted with a dispute between parties subject to arbitration must
"construe arbitration clauses as broadly as possible." S.A. Mineracao de TridadeSamitri v. Utah Int’l. Inc., 745 F.2d 190, 194 (2d Cir. 1984). "Arbitration should be
ordered unless it may be said with positive assurance that the arbitration clause is not
susceptible of an interpretation that covers the asserted dispute." McMahan Securities
Co. L.P. v. Forum Capital Markets L.P., 35 F.3d 82, 88 (2d Cir. 1994). In evaluating a
motion to compel arbitration, "any doubts concerning the scope of arbitrable issues
should be resolved in favor of arbitration.” Moses H. Cone Memorial Hosp. v. Mercury
Constr. Corp., 460 U.S. 1, 24-25 (1983).
The Court should consider: (1) whether the parties agreed to arbitrate; and (2)
whether the scope of the arbitration clause covers the plaintiff’s claims. See Genesco,
Inc. v. T. Kakiuchi, 815 F.2d 840, 845 (2d Cir. 1987). Arbitration “is a matter of consent,
not coercion.” Volt Info. Sciences, Inc. v. Bd. of Trs. of Leleand Stanford Jr. Univ., 489
U.S. 468, 479 (1989).
Here, the parties agreed to the arbitration provision at issue. The Court must
determine whether the dispute is covered by the arbitration provision.
Procedural questions that grow out of the dispute and bear on the final
disposition and questions of whether the “necessary prerequisites to arbitration” have
been met are presumptively for the arbitrator rather than the court to decide. Republic
of Ecuador v. Chevron Corp., 638 F.3d 384, 393-94 (2d Cir. 2011); see also Howsam v.
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Dean Witter Reynold, Inc., 537 U.S. 79, 84 (2002). Thus, the presumption is that the
arbitrator should decide allegations of waiver, delay or a similar defense to arbitrability.
Moses H. Cone Memorial Hopital, 460 U.S. at 24-25.
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Whether an Actuary or Arbitration Panel Should be Empanelled

The instant dispute between AUL and Travelers arises from AUL’s (1) assertion
of the preclusive effect of the prior arbitration decision, which thereby precludes
Travelers from seeking and enforcing quotations on all of the Open Sunset/Non-Tabular
Claims; (2) whether Travelers breached its Article 22 obligations; and (3) whether an
actuary panel should be appointed. Travelers asserts that the dispute should be
resolved by the Article 6 actuary panel, which is the sole remedy for issues that concern
commutation.
The Court agrees with AUL that the dispute should be referred to an arbitration
panel to determine the threshold issue of whether an Article 6 actuarial panel or Article
16 arbitration panel should be convened to resolve the pending issues. In so ruling, the
Court is guided by the contractual plain language. The extent of jurisdiction afforded to
the Article 6 actuarial panel requires interpretation of the contractual provisions. Article
16 specifically provides that “any dispute between the Company and the Reinsurer
arising out of, or relating to the formation, interpretation, performance or breach of this
Contract, whether such dispute arises before or after termination of this Contract, shall
be submitted to arbitration.” Accordingly, the Court will grant AUL’s petition on this
ground.

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2.

Whether Travelers Has Forfeited the Right to Name Article 16 Umpire
Candidates

AUL argues that Travelers has forfeited its right to name Article 16 candidates
and that the Court should select an umpire from among the three candidates nominated
by AUL pursuant to the authority of Section 5 of the FAA.1 Travelers disputes that it
has forfeited its right to select an umpire.
Article 16 provides that each party shall choose one arbitrator and the two
arbitrators shall choose an impartial third arbitrator prior to instituting the hearing. It
states further that “[i]f the two arbitrators are unable to agree upon the third arbitrator
within thirty (30) days of their appointment, the third arbitrator shall be selected from a
list of six individuals by a judge of the federal district court” within the jurisdiction where
the arbitration will take place.
AUL asserts that Travelers agreed to a deadline of September 5, 2014, to submit
its list of three umpire candidates but failed to do so. AUL requests that the Court enter
an order appointing Paul C. Thomson, Raymond J. Lester or Stephen A. Hartigan as
umpire for the Article 16 arbitration. Section 5 of the FAA allows the district court to

Section 5 provides: “If in the agreement provision be made for a method of
naming or appointing an arbitrator or arbitrators or an umpire, such method shall be
followed; but if no method be provided therein, or if a method be provided and any party
thereto shall fail to avail himself of such method, or if for any other reason there shall be
a lapse in the naming of an arbitrator or arbitrators or umpire, or in filling a vacancy,
then upon the application of either party to the controversy the court shall designate
and appoint an arbitrator or arbitrators or umpire, as the case may require, who shall
act under the said agreement with the same force and effect as if he or they had been
specifically named therein; and unless otherwise provided in the agreement the
arbitration shall be by a single arbitrator.”
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“spur the arbitral process forward, rather than to let it stagnate into endless bickering
over the selection process,” but Section 5 also respects the parties’ agreement by
requiring compliance with agreed upon procedures when possible. Pac. Reinsurance
Mgmt. Corp. v. Ohio Reinsurance Corp., 814 F.2d 1324, 1329 (9th Cir. 1987). A party’s
“failure to avail” occurs when one party refuses to comply with the procedures set forth
for selection of an umpire or arbitrator. In re Salomon Inc., 68 F.3d 554, 560 (2d Cir.
1995).
In this instance, upon review of the correspondence between the parties, the
Court finds that Travelers’ failure to submit the list of umpires for selection is attributable
to its efforts to settle the valuation dispute without resort to an actuary or arbitration
panel. On September 5, Travelers representative David Raim sent AUL representative
David Spector an email that attached a “settlement communication.” That same day,
AUL’s Spector responded by submitting its three umpire candidates and indicating that
the settlement communication would be considered. Raim answered that he was
surprised that AUL’s response to his communication was to resubmit names for umpire
in light of the prior settlement communication. He stated further that Travelers believed
that an Article 16 proceeding was inappropriate, but that, if AUL insisted, Travelers
would submit the list of candidates. Ten days later, Spector had not responded, and
Raim asked AUL when to expect a response. Spector answered that he hoped to get
back to him soon; later that day, he sent Raim the filing that had been filed in district
court and requested that Raim accept service on behalf of Travelers. Accordingly, this
case does not implicate an impasse due to Travelers’ failure to avail itself of the
designated procedures. Rather, Travelers had communicated to AUL its intent to
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provide a list of candidates if AUL indicated that such procedure was still necessary in
light of the effort to settle the dispute. Waiver requires a voluntary relinquishment of a
known right. RCM Securities Fund, Inc. v. Stanton, 928 F.2d 1318, 1329 (2d Cir. 1991).
Thus, Travelers has not voluntarily relinquished its right to submit its list of candidates.
See RLI Ins. Co. v. Kansa Reinsurance Co., Ltd., 1991 WL 243425, *3 (S.D.N.Y. 1991).

Accordingly, with due respect to the parties’ agreement, the Court will instruct
Travelers to comply with the procedures set forth in Article 16. See Global Reinsurance
Corp.–U.S. Branch v. Certain Underwriters at Lloyd’s, London, 465 F. Supp. 2d 308,
312 (S.D.N.Y. 2006) (courts should attempt to implement arbitration clause as written);
RLI Ins. Co.,1991 WL 243425, *4 (instructing parties to follow terms of agreement
rather than appointing umpire). Travelers will have ten days from the issuance of this
ruling to provide its list of umpire candidates.
CONCLUSION
For the foregoing reasons, the Court GRANTS AUL’s petition to compel
arbitration pursuant to Article 16 and DENIES Traveler’s petition to compel an actuarial
panel pursuant to Article 6. In compliance with this ruling, Travelers is instructed to
comply with the procedures set forth in Article 16 within ten days of this ruling’s filing
date.
Dated this 18th day of August, 2015 at Bridgeport, Connecticut.

/s/Warren W. Eginton
Warren W. Eginton
Senior U.S. District Judge
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