Amerisure Mutual Insurance Company v. Everest Reinsurance Company
Filing
49
[REDACTED] OPINION and ORDER Granting Movant's 2 MOTION to Confirm Final Arbitration Award and Denying Respondent's 23 MOTION to Vacate Final Arbitration Award. Signed by District Judge Matthew F. Leitman. (Monda, H)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
AMERISURE MUTUAL INSURANCE
COMPANY (f/k/a Michigan Mutual
Insurance Company),
Case No. 14-cv-13060
Hon. Matthew F. Leitman
Movant,
v.
EVEREST REINSURANCE COMPANY
(f/k/a Prudential Reinsurance Company),
Respondent.
_________________________________/
OPINION AND ORDER GRANTING MOVANT’S MOTION TO
CONFIRM ARBITRATION AWARD (ECF #2) AND
DENYING RESPONDENT’S MOTION TO VACATE
ARBITRATION AWARD (ECF #23)
INTRODUCTION
This is a reinsurance coverage dispute between Movant Amerisure Mutual
Insurance Company (“Amerisure”), and its reinsurer, Respondent Everest
Reinsurance Company (“Everest”).
After a nine-day, highly-contentious
arbitration hearing, an arbitration panel awarded Amerisure over $14 million.
Amerisure now moves to confirm the arbitration award (see ECF #2); Everest
moves to vacate it. (See ECF #23.) For all of the reasons stated below, the Court
GRANTS Amerisure’s motion and DENIES Everest’s motion.
RELEVANT FACTUAL BACKGROUND AND PROCEDURAL HISTORY
A.
The Parties and the Direct Access Treaty
Amerisure is a property and casualty insurance company.
In 1979,
Amerisure purchased “reinsurance” from Everest. “‘In essence, reinsurance is
insurance for insurance companies,’ whereby a reinsured (here, [Amerisure]),
cedes some of its risk to a reinsurer (in this case, [Everest]), and shares its premium
with the reinsurer.” Certain Underwriters at Lloyd's London v. Westchester Fire
Ins. Co., 489 F.3d 580, 582 n. 1 (3d Cir. 2007) (quoting Cont'l Cas. Co. v.
American Nat'l Ins. Co., 417 F.3d 727, 729 n. 1 (7th Cir. 2005)). Amerisure
purchased its reinsurance from Everest under a series of treaties.
1
The treaty in place between July 1979 and July 1988 is referred to as the
“Direct Access Treaty.” (See ECF #28-1.) This treaty was amended several times
while it was in force. (See the “Endorsements,” id. at 3-27, Pg. ID 242-266.)
The Direct Access Treaty provided that “with respect to each occurrence,”
Everest would indemnify Amerisure for the amount of “net loss under [the]
casualty business of [Amerisure] … in excess of the ‘Company Retention.’” (Id. at
40, Pg. ID 279.) The Direct Access Treaty defined an “occurrence” as “each
accident or occurrence or series of accidents or occurrences arising out of one
event.” (Id. at 43, Pg. ID 282.) The “Company Retention” was a $500,000 “per
occurrence” deductible that Amerisure had to satisfy before it was entitled to
indemnification from Everest. (Id. at 40, Pg. ID 279.)
B.
The Direct Access Treaty Contained Exclusions From Coverage and
Exceptions to Those Exclusions
The original version of the Direct Access Treaty included five specifically-
numbered exclusions from coverage.1 (Id. at 40-41, Pg. ID 279-280.)
These
exclusions provided that Everest would not indemnify Amerisure for losses arising
out of, among other things, “insurance written by [Amerisure’s] aviation unit,”
1
These five enumerated exclusions appear in the “Exclusions” section of the
Direct Access Treaty under the heading “Liability Other than Auto.” (See ECF
#28-1 at 40, Pg. ID 279.) The Direct Access Treaty also included a standalone
sixth exclusion for “[t]rucks used for transporting explosives or munitions” under a
separate heading titled “Automobile Liability.” (Id.)
2
insurance related to the “handling and shipping” of explosives, and bodily injuries
arising out of riots. (Id.)
The original version of the Direct Access Treaty also contained an exception
to the listed exclusions. This exception provided that an otherwise-applicable
exclusion would not bar indemnification if the trigger for the exclusion was merely
an incidental part of the insured’s overall operations:
If [Amerisure] provide[s] insurance for an insured with respect
to any premises, operations or products listed in one or more of
the exclusions and such premises, operations or products
constitute only a minor and incidental part of the total premises,
operations or products of the insured such exclusion(s) shall not
apply.
(The “Generally-Applicable Incidental Exception to the Treaties’ Exclusions,” id.
at 41, Pg. ID 280.)
Effective July 1, 1987, the parties adopted an endorsement to the Direct
Access Treaty. (See the “1987 Endorsement,” id. at 6-7, Pg. ID 245-246.) The
1987 Endorsement added four new specifically-numbered coverage exclusions
beyond the five exclusions listed in the original treaty. The newly-added ninth
exclusion precluded indemnification for certain asbestos-related losses if either (1)
Amerisure knew that its insured’s operations presented a risk of asbestos exposure
or (2) the insured’s asbestos exposure was generally recognized (the “Asbestos
Exclusion”). But this new exclusion provided that it did not apply to (and would
not preclude indemnification for) certain specified asbestos-related activities if
3
those activities were merely incidental to an insured’s operations (the “Incidental
Exception Language in the Asbestos Exclusion”). The entire text of this exclusion
was as follows:
SECTION 2 – EXCLUSIONS, is amended to include the following:
[….]
9. Bodily injury (including occupational disease) and/or
property damage arising from the manufacture, removal,
installation, storage, mining, handling or transportation of
asbestos if the insured’s operations, at the time of the policy
issuance, present known and/or generally recognizable asbestos
exposures; however, this exclusion shall not apply to the
removal, installation, storage, handling or transportation of
asbestos if such removal, installation, storage, handling or
transportation is incidental to the insured’s operations:
The term “incidental” as used in this exclusion is intended to
recognize the fact that certain insureds (such as, but not limited
to, plumbing, carpentry, etc.) will infrequently, but regularly,
encounter asbestos within the scope of their operations – even
though their operations, as such, do not involve the
manufacture, removal, installation, storage, mining, handling,
or transportation of asbestos. This Exclusion does not apply to
such “incidental” operations.
(Id. at 6-7, Pg. ID 245-246.)
The 1987 Endorsement expressly provided that all of the Direct Access
Treaty’s “other terms and conditions” – i.e., those not specifically modified or
deleted in the endorsement – “shall remain unchanged.” (Id. at 9, Pg. ID 248.) The
1987 Endorsement did not purport to modify or delete the Generally-Applicable
Incidental Exception to the Treaties’ Exclusions. Thus, the modified version of the
4
Direct Access Treaty contained both the Incidental Exception Language in the
Asbestos Exclusion and the Generally-Applicable Incidental Exception to the
Treaties’ Exclusions.
C.
The Woods Treaties
In 1988 and 1989, Everest provided reinsurance to Amerisure under a series
of six additional contracts that the parties refer to as the “Woods Treaties”
(together with the Direct Access Treaty, the “Treaties”). (See ECF ## 28-2 – 287.)
The Woods Treaties expressly stated that Amerisure was permitted to
aggregate individual losses in order to satisfy its $500,000 deductible. (See, e.g.,
ECF #28-2 at 13, Pg. ID 307.) Except for this difference, the Woods Treaties and
the Direct Access Treaty were similar in all respects relevant to this dispute. For
example, the Woods Treaties contained virtually the same Asbestos Exclusion
included in the 1987 Endorsement to the Direct Access Treaty.2 The Woods
Treaties also contained the Incidental Exception Language in the Asbestos
Exclusion and the Generally-Applicable Incidental Exception to the Treaties’
Exclusions. (See id. at 7-8, Pg. ID 301-302.)
2
The Woods Treaties contained one additional sentence in the Asbestos Exclusion
that was not included in the 1987 Endorsement: “However, the term incidental
does not contemplate the Reinsured knowingly writing operations classified as
asbestos removal or installation.” (ECF #28-2 at 7, Pg. ID 301.) This difference is
not relevant to the motions before the Court.
5
D.
The Treaties’ Arbitration and Choice of Law Provisions
The Treaties all contained arbitration provisions that required the parties to
submit “any dispute arising out of [the treaties] … to the decision of a board
comprised of two arbitrators and an umpire....” (Direct Access Treaty at 34-35, Pg.
ID 273-274; see also the Woods Treaties at ECF #28-2 at 19-20, Pg. ID 313-314.)
The arbitration provision in the Direct Access Treaty stated that “the laws of the
State of Michigan shall govern any arbitration proceedings.”
(Direct Access
Treaty at 34, Pg. ID 273.) The Woods Treaties did not contain any choice-of-law
provision. (See, e.g., ECF #28-2 at 19-20, Pg. ID 313-314; ECF #28-3 at 18, Pg.
ID 343; ECF #28-4 at 19-20, Pg. ID 373-374; ECF #28-5 at 17-18, Pg. ID 402403; ECF #28-6 at 18-19, Pg. ID 432-433; ECF #28-7 at 17-18, Pg. ID 461-462.)
E.
Everest Denied Indemnification for Amerisure’s Asbestos-Related
Losses, and Amerisure Demanded Arbitration
During the terms of the Treaties, Amerisure provided insurance coverage to
a steam trap manufacturer, [Company X] (“[Company X]”). [Company X] and
one of its affiliates, [Company Y], manufactured products that included parts
containing asbestos. Certain individuals made claims against [Company X] and
[Company Y] for asbestos-related injuries that were allegedly caused by these
products.
In 2006, Amerisure notified Everest that [Company X] and [Company Y]
had received these claims. (See ECF #32-17, Pg. ID 1996-1197.) Over the course
6
of several years, Amerisure indemnified [Company X] and [Company Y] for
some of these claims (the “Amerisure Asbestos Losses”). When considered in the
aggregate, the dollar amount of the Amerisure Asbestos Losses far exceeded the
$500,000 Company Retention under the Treaties. (See, e.g., ECF #32-20, Pg. ID
1221-1222.) But it appears that the dollar amount of each individual claim for
which Amerisure indemnified [Company X] and [Company Y] was less than the
Company Retention.
In 2009, Amerisure sought indemnification from Everest for the Amerisure
Asbestos Losses. Everest rejected Amerisure’s claim on May 3, 2010. (See the
“Denial Letter,” ECF #32-19 at 3-4, Pg. ID 1218-1219.) In the Denial Letter,
Everest asserted that the Direct Access Treaty “required” Amerisure to satisfy its
$500,000 deductible “on a per occurrence” basis. (Id. at 3, Pg. ID 1218.) In other
words, Everest contended that Amerisure could not aggregate the individual losses
that comprised the Amerisure Asbestos Losses into a single “occurrence” in order
to exceed the Company Retention and thereby qualify for indemnification.
Everest also asserted that the Asbestos Exclusion, as included in the 1987
Endorsement and in the Woods Treaties, precluded indemnification for the
Amerisure Asbestos Losses. (See id.) Everest contended that [Company X] “was
a manufacturer of asbestos containing products, and such products necessarily
presented known or generally recognizable asbestos exposures.” (Id.) Everest also
7
asserted that the Incidental Exception Language in the Asbestos Exclusion did not
apply because Amerisure’s insured, [Company X], produced asbestos-containing
products: “As an insurer of a manufacturer of asbestos containing products,
Amerisure cannot avail itself of the ‘incidental’ exception which is limited to
incidental/infrequent ‘removal, installation, storage, handling, or transportation’ of
asbestos during an insured’s operations. Manufacturing operations are not included
in the exception.” (Id.; emphasis in original.)
Amerisure demanded arbitration on October 10, 2011. (See ECF #32-20,
Pg. ID 1221-1222.) In its arbitration demand, Amerisure wrote that it had “made
certain payments pursuant to [its insurance policies with] [Company X] [] and will
make additional payments in the future.” (Id. at 2, Pg. ID 1221.) Amerisure
sought indemnification from Everest in the amount of $3,210,153 (for the
Amerisure Asbestos Losses it had already paid) and for amounts to be paid in the
future. (See id.)
F.
Everest and Amerisure Appointed Their Party Arbitrators and Selected
Roger Moak as Umpire for Their Arbitration
Amerisure and Everest each appointed one arbitrator to the three-member
hearing panel (the “Panel”). Amerisure chose Andrew Maneval (“Maneval”), and
Everest chose James White (“White”). The parties then proceeded to choose a
neutral “umpire” to complete the Panel. While the Treaties specified that the two
party-selected arbitrators would jointly choose the umpire, it appears that Everest
8
suggested a different process. (See, e.g., ECF ## 41-3, 41-4, Pg. ID 2155, 21572159.)
Everest proposed that the parties simultaneously exchange lists, each
identifying six umpire candidates. (See ECF #41-4 at 3, Pg. ID 2158.) The parties
would then confer and determine if any umpires were included on both lists. (See
id.) If the parties listed twelve different umpire candidates, conflict questionnaires
would be sent to all twelve, and the parties would then re-confer and complete a
“ranking” procedure to select the umpire. If there were any candidates listed by
both parties, only those candidates would be sent a questionnaire, and the parties
would then complete the “ranking” procedure to select the umpire. (See id.)
It is unclear from the record before this Court whether Amerisure agreed to
this “ranking” procedure in its entirety. However, Amerisure did send a list of six
proposed umpires to Everest on February 17, 2012. (See ECF #33-13, Pg. ID
1438.)
One of the umpires Amerisure listed was Roger Moak (“Moak”), an
experienced umpire in the insurance/reinsurance industry. (See id.)
On February 29, 2014, counsel for Amerisure and Everest jointly e-mailed
Moak, informed him that he had been nominated as an umpire candidate, and
asked that he fill out a questionnaire addressing, among other things, his prior
dealings with the parties, their counsel, and their party-selected arbitrators. (See
ECF #41-5, Pg. ID 2161-2169.) Moak completed the questionnaire and disclosed
that he had previously been appointed as an arbitrator “in an arbitration against
9
Everest,” but that the case had settled prior to arbitration. (Moak’s Completed
Questionnaire, ECF #31-12 at 2, Pg. ID 795.) Moak also disclosed that he had
never served on an arbitration panel with Maneval, that he had participated in
arbitrations with White, and that he had previously served as an umpire in cases
involving Amerisure’s counsel. (See id. at 3-4, Pg. ID 796-797.) Ultimately, the
parties selected Moak as the umpire and informed Moak of his selection in a joint
communication from Maneval and White. (See ECF #28-9, Pg. ID 483-484.)
There is no evidence in the record before the Court that Moak was ever told how
he had been selected to serve as the umpire and/or told anything about the role of
either party in his selection.
G.
The Panel Granted Everest a Multiple-Month Adjournment and
Reopened Discovery
The arbitration hearing was scheduled to begin in June 2013. On May 17,
2013, Everest requested an adjournment. (See ECF #32-23, Pg. ID 1230-1238.)
Everest told the Panel that “a recent development drastically reshape[d] the issues
in this matter.” (Id. at 1, Pg. ID 1230.) Everest said that it received documents
from [Company X] which “establish[ed] that [Company X] represented a ‘known
and/or generally recognizable’ asbestos exposure as of 1987” and therefore
precluded Amerisure’s claim for indemnification by operation of the Asbestos
Exclusion.
(Id.)
Everest requested that the arbitration be delayed and that
discovery be reopened on this issue. Amerisure vigorously opposed Everest’s
10
“extraordinary request” and urged the Panel to “summarily reject[]” it. (ECF #3224 at 1, Pg. ID 1240.) By “majority vote,”3 the Panel granted Everest’s motion,
albeit, in Moak’s words, “most reluctantly.” (ECF #32-25, Pg. ID 1244.)
H.
Moak Made Additional Disclosures at the Start of the Hearing
Following Everest’s additional discovery, the arbitration hearing began on
April 24, 2014. That same day, Everest’s counsel asked Moak to disclose on the
record whether he had been nominated as an umpire by either side, or their
counsel, in any other matter. (See the “Arbitration Transcript,” at 307, ECF #41-2
at Pg. ID 2152.) Moak responded that Everest’s request was unprecedented and
improper. (See id.) Moak also said that he was not necessarily aware in any given
case which party actually nominated him. (See id.) Everest’s counsel said that he
“realize[d]” that Moak “might know and [] might not know” who nominated him,
and that Moak “probably [did] not” know who nominated him in any specific case.
(Id.)
Moak nonetheless attempted to list the arbitrations in which attorneys from
the law firms representing Everest and Amerisure were involved and had
potentially nominated him. (See id. at 307-310, Pg. ID 2152.) Moak further said
that he thought “he [had] been nominated in a couple of cases in which Mr.
3
Because the decision to adjourn the arbitration hearing and reopen discovery was
made by a “majority vote,” and not by a “unanimous vote,” it appears that Maneval
dissented from this ruling.
11
Maneval is an arbitrator but I didn’t – I wasn’t retained. And I may have been
nominated in a couple of cases in which Mr. White was an arbitrator and I wasn’t
retained. But I didn’t have time to do the research necessary to figure all that out.”
(Id. at 309, Pg. ID 2152.)
Before the hearing began, Moak made a further disclosure about interactions
he had with the two party-selected arbitrators, Maneval and White:
I omitted to disclose at the outset that several weeks ago Mr.
Maneval and I went to the Metropolitan Museum together
based on my fulfilling a pledge I made to him that I would take
him to the Metropolitan Museum and give him a tour of the
American wing, which is an invitation to anybody else. Many
members of the ARIASA club have had that tour, and I love
doing it. So you are all invited.
The other thing is Mr. White and I shared a limo he arranged, a
limo service he arranged and he didn’t let me reimburse him for
it, but I did pay for the bell man. I treated for the bell man.
[…] Now the record is as complete as I can make it.
(Id. at 457-458, ECF #41-2 at Pg. ID 2153.)
I.
The Key Issues in Dispute at the Hearing
During a nine-day arbitration hearing, the Panel heard testimony from more
than a dozen witnesses (including experts) and reviewed scores of exhibits. Three
contested issues before the Panel are now at issue in this action. Those issues
were:
1.
Under the Direct Access Treaty, could Amerisure treat the
individual losses that, collectively, comprised the
Amerisure Asbestos Losses, as a single “occurrence” that
12
satisfied the $500,000 “per occurrence” Company
Retention, or was each of the individual underlying losses
a separate and standalone “occurrence”?
2.
3.
J.
Did the Asbestos Exclusion preclude indemnification for
the Amerisure Asbestos Losses, or did an exception to that
exclusion apply that would preserve Amerisure’s right to
indemnification?
Did Amerisure’s demand for arbitration seek
indemnification for losses that Amerisure paid to
[Company Y], or did the demand seek indemnification
solely for amounts paid to [Company X], itself?
Moak and Everest’s Counsel Clashed During the Hearing, but When
Specifically Asked to Identify Any Way in Which Moak Prevented
Everest From Presenting Its Case, Everest’s Counsel Identified Only a
Single Limitation on Cross-Examination
At various times during the arbitration, Moak appeared frustrated with how
Everest presented its case. For example, at one point during Everest’s questioning
of a witness, Moak asked Everest to “move on” and said that Everest’s counsel was
“go[ing] over and over – you are arguing with the witness. We know what the
witness has to say….” (Arb. Tr. at 2527, ECF #31-21 at Pg. ID 837.) Moak and
Everest’s counsel then had the following colloquy:
Everest’s counsel: Well, there are a few nuances to this thing
that I think are bringing – worth bringing out. If you don’t
want to hear it, I will close my book and sit down. Thank you.
Moak: Fine. That’s your choice.
Everest’s counsel: It’s a choice I’m not given by you, Roger,
because you keep telling me you don’t want to hear the
evidence, and that’s really a problem.
13
Moak: I never said that []. That’s unfair and I resent it. []
Everest’s counsel: I’m sure you do.
Moak: You’re – you’re repetitive asking about – I have let you
get away with a lot already []. So if you have another question,
which isn’t repetitive, which isn’t arguing with the witness, go
ahead and ask it. If it is argumentative or it is repetitive, then
sit down. Okay. It’s your choice.
[….]
Everest’s counsel: I’m going to sit. I don’t think I have any
choice.
(Id. at 2527-2529, Pg. ID 837.)
At the conclusion of the hearing on May 7, 2014, Moak asked counsel for
Everest if he had any objections as to how the Panel allowed Everest to present its
case, and counsel for Everest identified only a single objection:
Moak: With respect to the panel’s affording you an opportunity
to present your arguments and your evidence, are you satisfied
that the panel allowed you to submit your evidence and your
arguments?
Everest’s counsel: Subject to the situation that I identified on
the record where I felt we were not.
Moak: Where I cut you off from your cross-examination. Is
that what you are talking about?
Everest’s counsel: Yes.
Moak: Anything else? I will let the record speak for itself with
respect to that.
Everest’s counsel: I think it does, I think it does.
Moak: Anything else that you want to say?
Everest’s counsel: No. Thank you.
(Arb. Tr. at 3655-3656, ECF #40-6, Pg. ID 1992-1993.)
14
K.
Everest Filed a Post-Arbitration Sanctions Motion That Angered Moak
On May 13, 2014, prior to the start of the Panel’s deliberations, Everest
sought sanctions on the ground that Amerisure “flouted its discovery obligations in
this matter and thereby deprived Everest of key evidence.” (ECF #31-25 at 2, Pg.
ID 859.) Everest argued that “[t]he prejudice resulting from Amerisure’s failure to
engage in good faith discovery is not calculable, but has been exacerbated by the
Panel’s denial of Everest’s right to introduce pertinent and material evidence at
the final hearing, and the Panel applying a different standard to Everest with
respect to the introduction of evidence.” (Id.; emphasis added.)
Everest’s allegations irritated Moak. In a May 14, 2014, e-mail to Maneval
and White, Moak wrote:
Jim and Andrew, I was preliminary inclined to rule, mostly at
least, in favor of Everest since before the hearing started, which
is why I’ve been impatient with [Everest’s counsel’s]
exaggerations, repetitions, and overkill tactics. While I’m still
so inclined, I have to tell you that accusations aimed at me
about Everest’s being denied a fair hearing piss me off! Of
course, I’ll put that aside whenever we get to deliberate.
(ECF #32-27 at 4, Pg. ID 1260.)
L.
Moak Made Yet Another Disclosure
Following the conclusion of the arbitration hearing, but before the Panel
issued its ruling, Moak made an additional disclosure to the parties. Moak wrote in
an e-mail, sent over the July Fourth holiday, that “in accordance with my
15
continuing disclosure obligation, I was notified this morning that I have been
selected as an umpire in an arbitration in which Mr. Maneval is a party-appointed
arbitrator.” (ECF #31-18, Pg. ID 815.)
At no time did either party seek to disqualify Moak due to his relationships
or past interactions with the parties or attorneys involved in the arbitration. Nor
did either party ever seek to disqualify Moak on any grounds. While Everest
complained in its sanctions motion that “the Panel” applied a different standard to
Everest’s request to admit evidence, Everest never suggested during the arbitration
that Moak was unfit to serve as umpire nor suggested that he harbored a bias that
prevented him from being fair.
M.
The Panel Awarded Amerisure Over $14 Million
Following in-person deliberations, the Panel issued its “Decision and Final
Award” on July 25, 2014. (See the “Final Award,” ECF #22-2, Pg. ID 182-188.)
Moak and Maneval signed the Final Award; White issued a dissent. (See White’s
dissent, ECF #31-20.)4
The Final Award “direct[ed] Everest to indemnify
Amerisure for Everest’s share of the asbestos loss … which amount is
$14,123,907.40 as of March 31, 2014.” (Final Award at 7 at ¶d, Pg. ID 188.)
4
Unless specified otherwise, the Court’s references to “the Panel” when discussing
the Final Award refer to the two-person majority that signed the Final Award
(Moak and Maneval).
16
The Panel began the Final Award by providing a “procedural history” of the
dispute. (See id. at 1-3, Pg. ID 182-184.) In this section, the Panel explained that
“[a]fter due deliberation” the Panel had ruled “on the morning of the hearing’s
final day that the [Company Y] claims were ‘in the case.’” (Id. at 2, Pg. ID 183.)
The Panel then provided its “Findings and Conclusions.” (See id. at 3-6, Pg.
ID 184-187.) Before listing these conclusions in numbered paragraphs, the Panel
first noted that it did “not intend to comment [in the Final Award] on every
noteworthy witness and exhibit in this arbitration.” (Id. at 4, Pg. ID 185.) Instead,
the Panel said that it intended “to provide the Parties with the findings and
conclusions upon which [its] rulings on the principal issues have most heavily
relied. Of course, [the Panel’s failure] to mention additional or contrary evidence
and testimony is not intended to imply that it was not considered by the Panel.”
(Id.)
The Panel first noted that the meaning of the key disputed contract terms
was far from clear and that it was applying rules of contract construction applicable
to ambiguous language:
2.
The applicable arbitration clause calls for the panel’s
decision to be made ‘with regard to the custom and usage of
the insurance and reinsurance business.’ Complying with
this charge was anything but straightforward inasmuch as
the two well-credentialed and articulate principal expert
witnesses offered opinions of treaty interpretation that were
totally at odds on the two central issues.
17
3.
There is well-founded precedent in the law which favors
resolving ambiguous contract language in insurance
contracts in favor of finding coverage and against the
contract drafter, which in this case the evidence showed was
Everest.
(Id. at 4, ¶¶2-3, Pg. ID 185.)
The Panel then explained that based upon its review of the testimony,
evidence, and case law, it had determined that the Direct Access Treaty did allow
Amerisure to aggregate the individual losses that comprised the Amerisure
Asbestos Losses into a single “occurrence”:
4.
The only percipient witness who testified about drafting
some treaty language was Everest’s former underwriter
[Person A], and he testified substantially in favor of
Amerisure’s treaty interpretations and in support of
Amerisure’s demand for payment. In support of Everest’s
position, two other Everest underwriters … testified about
how they would interpret the treaty language in question, but
neither of them was involved in the treaty underwriting, and
neither of them denied that [Person A] knew more about it.
5.
Everest offered the opinion testimony of experienced expert
witness (and former broker) John Chaplin to rebut [Person
A’s] fact testimony and to rebut opinion testimony from
Amerisure’s experienced expert witness (and former
underwriter) James Macdonald. Mr. Chaplin’s testimony
was largely based on sources which we find to be
considerably less authoritative than he did. We also find
unpersuasive his responses to questioning about how – given
the restrictive interpretation of the undefined word ‘event’ in
the treaty’s occurrence definition – products liability
coverage could ever apply to latent injury losses such as
from asbestos. We find that placing the product into the
18
stream of commerce was the ‘event’ for purposes of the
reinsurance cession.
6.
Having considered all of the conflicting interpretations
presented on the treaty’s occurrence definition (and the
absence of an event definition[)], we find that is commonly
accepted in the business that the extension of event-based
language to include occurrences, where applicable to
underlying product liability exposures, covers a single
occurrence the insured’s liability for an asbestos-containing
product for each policy year. We reach this outcome …
because this is the way we believe much of the industry has
come to define such excess of loss reinsurance coverage and
because it is the only way that any reasonable understanding
of casualty reinsurance coverage can apply to the emergence
of continuous-injury asbestos products liability exposures.
We also find support in International Surplus Lines Ins. Co.
v. Certain Underwriting Syndicates at Lloyd’s, 868 F. Supp.
917 (S.D. Ohio 1994) and Employers Ins. Co. of Wausau v.
Certain Underwriters at Lloyd’s, 552 N.W.2d 420 (Wis. Ct.
App. 1996).
7.
We do not find that Amerisure’s claim is precluded or
undercut by the fact that the underlying claims were settled
as individual losses. Clearly, the occurrence language of
[Amerisure’s insurance policies with [Company X] and the
occurrence definition in the [Direct Access Treaty] are
completely different, and the latter in no way depends or is
dictated by the former .... The Everest claim handler’s view
on this point, as it applied to the cession in this case
(Transcript pp. 2788-2789), supports this finding.
(Id. at 4-5, ¶¶5-7, Pg. ID 185-186.)
The Panel next turned to whether the Asbestos Exclusion prohibited
Amerisure’s claim for indemnification for the Amerisure Asbestos Losses. The
19
Panel explained that in considering that issue, it had to analyze both the exclusion
itself and whether an exception to the exclusion applied:
8.
The drafting history is more complete on the other principal
issue of interpretation, i.e., the applicability of the modified
asbestos exclusion added to the treaty terms in 1987 [i.e., the
Asbestos Exclusion]. The documentary evidence and
testimony indicates that, after years of treaty coverage with
no asbestos exclusion at all, Everest proposed an absolute
asbestos exclusion, which Amerisure rejected. The modified
exclusion eventually adopted contained a significant
exception to the exclusion [i.e., the Incidental Exception
Language in the Asbestos Exclusion]. Its wording raises
two questions: Did the insured’s operations, at the time of
policy issuance, present known and/or generally
recognizable asbestos exposures? And, Was [sic] that
exposure incidental to the insured’s overall operations?
(Id. at 5, ¶8, Pg. ID 186.)
The Panel concluded that [Company X] did not present “known and/or
generally recognizable asbestos exposures” and that the Asbestos Exclusion
therefore did not bar Amerisure’s claim for indemnification:
9.
The fact testimony from the Amerisure, [Company X], and
broker witnesses was that the asbestos claims started in 1992
for [Company Y] and 1998 for [Company X] – years after
the addition of the [Asbestos Exclusion]. Everest did offer a
few documents which appear to show that Amerisure may
very well have been aware by 1987 of the fact that
[Company X’s] steam traps contained an encapsulated
asbestos gasket. A couple even indicated that by 1987 there
could have been a few very small asbestos losses. On the
other hand, [Company X’s] workers’ compensation
insurance was written by Amerisure during the relevant
timeframe, and it experienced no claims for asbestos related
injury, and the Manufacturing Safety Data Sheet issued to
20
the gasket manufacturer also indicated that the product was
safe. In sum, it appears that it was Amerisure’s subjective
underwriting judgment, as manifested by the absence of an
exclusion in its policies, that the encapsulated asbestos
gaskets [Company X] used did not constitute a known
exposure.
10.
On the question of whether [Company X’s] products
presented a generally recognizable asbestos exposure …
both [of Everest’s expert witnesses] expressed their belief
that, by the mid-1980s, it was already well known in the
insurance marketplace that the mere existence of any
asbestos-containing product contained a generally
recognizable exposure. [Amerisure’s expert witness] had
already testified to the contrary, and his recollections
conform more closely with our own.
(Id. at 5-6, ¶¶9-10, Pg. ID 186-187.)
Importantly, the Panel then ruled that even if the Asbestos Exclusion
otherwise applied, Amerisure could nonetheless avoid that exclusion by operation
of the Generally-Applicable Incidental Exception to the Treaties’ Exclusions. (See
id., ¶12, Pg. ID 187.) The Panel quoted that exception verbatim and held that it
was “applicable.” (Id.)
Finally, the Panel discussed whether Amerisure could avoid the Asbestos
Exclusion by operation of a second exception to that exclusion – namely, the
Incidental Exception Language in the Asbestos Exclusion:
11.
Given [our ruling that the Asbestos Exclusion does
not
apply], we may not even need to reach the issue raised by
the ‘incidental’ exception drafted into the modified
exclusion [i.e., the Incidental Exception Language in the
Asbestos Exclusion]. Nevertheless, despite Everest’s
21
argument and its expert’s opinion that the exception as
intended to apply only to certain named exposures, namely,
from contractors, we find that the ‘not limited to’ language
indicates that the contractors example was not intended to be
exhaustive. Moreover, we view this interpretation of the
exception in light of the push-back from Amerisure –
seeking more protection for its underwriting objections – on
the exclusion generally.
(Id. at 6, ¶11, Pg. ID 187.)
The Panel did not award Amerisure all of the relief that it sought. For
example, the Panel, by a unanimous vote, “[d]enie[d] Amerisure’s demands for
interests and attorney fees.” (Id. at 7, ¶g, Pg. ID 188.)
N.
Amerisure and Everest Filed Dueling Motions in This Court
On July 31, 2014, Amerisure filed its Motion to Confirm Final Arbitration
Award in this Court. (See the “Motion to Confirm,” ECF #2.) Everest filed its
Motion to Vacate Final Arbitration Award on October 24, 2014. (See the “Motion
to Vacate,” ECF #23.)
Everest moves to vacate the Final Award on four primary grounds: (1) Moak
displayed “evident partiality” and was biased against Everest, (2) the Panel denied
Everest a fair hearing; (3) the Panel exceeded its powers when it ruled that
Amerisure could aggregate the individual asbestos losses that comprised the
Amerisure Asbestos Losses and that the Asbestos Exclusion did not preclude
coverage; and (4) the Panel exceeded its powers when it awarded damages for
22
amounts Amerisure paid to [Company Y]. The Court heard arguments on both
motions on February 11, 2015.
ANALYSIS
A.
Governing Law and Standard of Review: The Federal Arbitration Act
vs. Michigan Law
The Final Award covers seven reinsurance treaties – and various revisions
and endorsements – that the parties executed during their relationship. All of the
contracts involve interstate commerce and are thus subject to the Federal
Arbitration Act (the “FAA”), 9 U.S.C. § 1 et seq. See Uhl v. Komatsu Forklift Co.,
Ltd., 512 F.3d 294, 303 (6th Cir. 2008). But even where the FAA applies, parties
may contractually agree that state law governs their arbitration proceedings, and
federal courts will generally enforce such an agreement. See Savers Prop. & Cas.
Ins. Co. v. Nat’l Union Fire Ins. Co., 748 F.3d 708, 715-716 (6th Cir. 2014).
Here, one of the reinsurance treaties – the original 1979 Direct Access
Treaty – provides that “the law of the State of Michigan shall govern any
arbitration proceedings.” (Direct Access Treaty at 34, Pg. ID 273.) This provision
arguably requires application of Michigan law to a motion to confirm and/or vacate
an award issued pursuant to the Direct Access Treaty. See Savers, 748. F.3d at
715-716 (holding that similar provision required application of Michigan law
concerning judicial review of arbitration awards).
The other six reinsurance
treaties – the Woods Treaties – say nothing about Michigan law (or the law of any
23
State). In the absence of a reference to state law, the FAA supplies the governing
standard of review for an award issued under those treaties. See, e.g., id. at 716
(“The central inquiry in this choice-of-law determination is whether the parties
unambiguously intended to displace the FAA with state rules of arbitration”).
These divergent choice of law provisions could create a thorny conflicts
question. But they do not. “The first imperative of a conflict-of-laws problem is: a
conflict. When all roads lead to the same result, there is no conflict to resolve.” In
Re Dow Corning Corp., --- F.3d ---, 2015 WL 716299, at *8 (6th Cir. Feb. 20,
2015) (Sutton, J. dissenting). And here, there is scant conflict between Michigan
arbitration law and the FAA.
Indeed, “Michigan’s arbitration law is almost
identical to the FAA in all relevant respects.” Uhl, 512 F.3d at 303.
Everest acknowledges that “Michigan law is similar to the FAA as to the
legal standards governing” essentially all of its challenges to the Final Award –
those based upon the “evident partiality [of the Umpire], the panel’s refusal to hear
evidence, the panel’s conduct of the hearing, and the panel’s consideration of posthearing information on damages.” (Everest’s Supp. Br., ECF #45 at 3, Pg. ID
2476.) Since the “choice-of-law determination bears little impact on [the Court’s]
analysis or disposition” of those challenges to the Final Award, the Court need not
decide whether Michigan law displaces the FAA with respect to them. Savers, 748
F.3d at 716. The Court will analyze them under the FAA.
24
But this Court must “consider specific application of Michigan law where
the relevant provisions [of that law and the FAA] differ in substance.” Id. Everest
insists that Michigan law and the FAA differ with respect to “the standard of
review applicable to whether the panel exceeded its powers in ruling in
Amerisure’s favor on the occurrence and asbestos exclusion issues under the Direct
Access Treaty.” (Everest’s Supp. Br. at 3, Pg. ID 2476.) Everest argues that
Michigan law permits a much more searching review of whether an arbitrator
exceeded his authority. (Id.) (citing Detroit Auto. Inter-Insurance Exch. v. Gavin,
331 N.W.2d 418, 430 (Mich. 1982)). However, the difference, if any, between
Michigan law and the FAA with regard to reviewing whether the Panel exceeded
its powers is not nearly as significant as Everest suggests.
Under the FAA, “[t]he burden of proving that the arbitrators exceeded their
authority
is
very
great….”
Solvay
Pharmaceuticals,
Inc.
v.
Duramed
Pharmaceuticals, Inc., 442 F.3d 471, 476 (6th Cir. 2006) (quoting Nationwide
Mutual Insurance Company v. Home Insurance Company, 330 F.3d 843, 846 (6th
Cir. 2003)). “The terms of the contract define the powers of the arbitrator, and ‘as
long as the arbitrator is even arguably construing or applying the contract and
acting within the scope of his authority, that a court is convinced he committed
serious error does not suffice to overturn his decision.’” Id. (quoting United
Paperworkers Int'l Union v. Misco, Inc., 484 U.S. 29, 38 (1987)); see also
25
Michigan Sugar Co. v. Bakery, Confectionary, Tobacco Workers, and Grain
Millers International Union, 278 Fed. App’x 623, 628 (6th Cir. 2008) (no basis to
vacate arbitration award “even if the Arbitrator made a ‘bizarre’ and ‘unsupported’
finding because [courts] are directed to tolerate even ‘serious, improvident, or
silly’ legal or factual errors”) (quoting Michigan Family Resources, Inc. v. SEIU
517M, 475 F.3d 746, 753 (6th Cir. 2007)).
Likewise, under Michigan law, “[h]istorically, judicial review of arbitration
awards [has been] highly limited.” Miller v. Miller, 707 N.W.2d 341, 345 (Mich.
2005) (citing Gavin, 331 N.W.2d at 418).5 Courts applying Michigan law take a
cautious approach to claims that arbitrators have exceeded their powers. Indeed,
the Michigan Supreme Court has directed courts to “carefully evaluate[]” a party’s
“allegation that the arbitrators have exceeded their powers … in order to assure
that this claim is not used as a ruse to induce the court to review the merits of the
5
Like the FAA, Michigan law precludes a court from “‘review[ing] an arbitrator's
factual findings or decision on the merits.’ A reviewing court is also prohibited
from engaging in contract interpretation, which is an issue for the arbitrator to
determine.” Muskegon Central Dispatch 911 v. Tiburon, Inc., 462 Fed. App’x
517, 524 (6th Cir. 2012) (quoting City of Ann Arbor v. AFSCME Local 369, 771
N.W.2d 843, 854 (Mich. Ct. App. 2009)). “Nor may a court substitute its
judgment for that of the arbitrator. […] If, in granting the award, the arbitrator did
not disregard the terms of his or her employment and the scope of his or her
authority as expressly circumscribed in the contract, judicial review effectively
ceases. Thus, as long as the arbitrator is even arguably construing or applying the
contract and acting within the scope of his authority, a court may not overturn the
decision even if convinced that the arbitrator committed a serious error.” City of
Ann Arbor, 771 N.W.2d at 854 (internal citations and punctuation omitted)
(emphasis added).
26
arbitrators’ decision.” Gordon Sel-Way, Inc. v. Spence Brothers, Inc., 475 N.W.2d
704, 701 (Mich. 1991). A court applying Michigan law must presume that an
arbitration award is “within the scope of the arbitrators’ authority absent express
language to the contrary” and should be “reluctant to vacate or modify an award
when the arbitration agreement does not expressly limit the arbitrators’ power in
some way.” Id. (Emphasis added.) Under Michigan law, arbitrators run a “high
risk” of exceeding their powers only where they disregard “express and
unambiguous contract terms.” Gavin, 331 N.W.2d at 430.
Given the substantial similarities between Michigan law and the FAA, there
is no need to determine whether Michigan law displaces the FAA with respect to
Everest’s claim that the Panel exceeded its powers in interpreting the Treaties.
However, out of an abundance of caution, the Court will analyze Everest’s
argument that the Panel exceeded its powers under both the FAA and Michigan
law.6
6
If forced to choose between the FAA and Michigan law in reviewing whether the Panel
exceeded its powers, the Court would choose the FAA. As noted above, the Final Award
covers all seven Treaties between the parties, and only the Direct Access Treaty mentions
Michigan law. Thus, there is an ambiguity as to which law the parties intended to govern
review of a single arbitration award that applied to both a treaty incorporating Michigan
law (the Direct Access Treaty) and treaties governed under the FAA (the Woods Treaties).
In the face of such an ambiguity, the FAA applies. See, e.g., Martis v. DISH Network
Services, LLC, --- Fed. App’x ---, 2015 WL 74712, at *3 (6th Cir. Jan. 7, 2015)
(“Ambiguities [between whether the FAA or state law applies] are resolved in favor of the
federal standard”). And it makes more sense to apply the FAA given that six of the seven
Treaties at issue in the Final Award say nothing about Michigan law.
27
B.
Everest is Not Entitled to Relief From the Final Award Based Upon
Moak’s Alleged Evident Partiality
Everest first moves to vacate the Final Award on the ground that “Moak
exhibited evident partiality.”
(Everest Br., ECF #32 at 11, Pg. ID 1091.)
Specifically, Everest argues that:
Moak “developed a social relationship with Maneval” –
Amerisure’s chosen arbitrator – and was “tilted” toward
Amerisure in order to curry favor with, and receive additional
umpire appointments from, Maneval and Amerisure’s
counsel. (Id. at 11-13, Pg. ID 1091-1093.);
Moak “repeatedly criticized Everest’s counsel” for seeking an
adjournment of the originally-scheduled May 2013 hearing,
and he held this request against Everest throughout the
arbitration proceedings. (Id. at 13-15, Pg. ID 1093-1095.);
and
Moak “conducted the hearing in a manner that exhibited
evident partiality for Amerisure and bias and animosity
against Everest.” Among other things, Moak precluded
Everest from introducing certain exhibits, interfered with its
examination of witnesses (including expert witnesses), and
repeatedly ruled in favor of Amerisure during the arbitration.
(Id. at 15-24, Pg. ID 1095-1104.)
Everest cites Moak’s May 14, 2013, e-mail as further evidence of Moak’s
partiality. According to Everest, the e-mail shows that Moak was initially inclined
to rule in its favor, but that he “changed on his minds on the merits” and “ruled
against Everest in all material respects” in retaliation for the criticisms Everest
levied against him. (Id. at 24-25, Pg. ID 1104-1105.)
28
1.
Everest Has Failed to Preserve Its Evident Partiality Challenge
“As a general rule, a grievant must object to an arbitrator’s partiality at the
arbitration hearing before such an objection will be considered by the federal
courts.” Apperson v. Fleet Carrier Corporation, 879 F.2d 1344, 1358-1359 (6th
Cir. 1989); see also Questar Capital Corporation v. Gorter, 909 F.Supp.2d 789,
814 (W.D. Ky. 2012) (“A party cannot remain silent as to perceived or actual
partiality or bias and then later object after the [arbitration] panel reaches an
unfavorable decision”). Everest did not object to Moak’s partiality during the
arbitration. On the contrary, when given a clear opportunity to claim that it had
been harmed by Moak’s partiality – at the close of the arbitration hearing, when
Moak asked Everest directly if Everest had been given a sufficient “opportunity to
present [its] arguments and [its] evidence” – Everest said nothing about any
alleged partiality. (See Arb. Tr. at 3655-3656, ECF #40-6 at Pg. ID 1992-1993.)
To be sure, Everest did vigorously object to the merits of many rulings made by
Moak – before, during, and after the arbitration hearing – but an objection that an
arbitrator or umpire made an incorrect legal ruling is manifestly different from an
objection to that individual’s ability to be fair.
At the motion hearing before this Court, Everest suggested that its failure to
object to Moak’s alleged partiality should be excused. Everest cited the Sixth
Circuit’s decision in Thomas Kinkade Company v. White, 711 F.3d 719, 724-725
29
(6th Cir. 2013), for the proposition that objecting to a neutral arbitrator’s partiality
may offend the neutral, and Everest suggested that it acted reasonably in
withholding an objection to Moak’s partiality. But Kinkade does not authorize this
Court to review Everest’s evident partiality claim even though Everest failed to
raise the issue with Moak. The Sixth Circuit in Kinkade simply emphasized that a
neutral arbitrator should not engage in conduct that places a party in the
uncomfortable position of having to object to his partiality. The court did not take
the additional step – urged by Everest here – of holding that an objection to a
neutral’s partiality may be excused because it is awkward to make. Indeed, the
party seeking to vacate the award in Kinkade did object to the neutral arbitrator’s
partiality, and the Sixth Circuit did not disturb the district court’s ruling that,
pursuant to Apperson, a contemporaneous objection was a pre-requisite to federal
court review. See Thomas Kinkade Company v. Lighthouse Galleries, LLC, 0910757, 2010 WL 436604, at *6 (E.D. Mich. Jan. 27, 2010) (following rule that
parties objecting to arbitrator’s partiality must “make an objection if they wished to
preserve the issue for review, even at the risk of contributing to [the arbitrator’s]
disfavor of their cause”). While it is undoubtedly uncomfortable for a party to
argue to a neutral umpire that he is partial, Kinkade simply cannot be read as
30
overruling Apperson and permitting federal court review absent an objection.7 For
all of these reasons, Everest’s failure to timely object to Moak’s alleged partiality
cannot be excused.
Since Everest did not object to Moak’s partiality during the arbitration,
Everest has failed to preserve essentially all of its partiality challenge.
At a
minimum, it has no right to challenge Moak’s partiality based upon events
occurring before and/or during the arbitration hearing because such a challenge
could have been presented to Moak prior to the Final Award. The only aspect of
Everest’s evident partiality claim that is preserved is Everest’s argument that
Moak’s post-hearing, pre-deliberation e-mail establishes his evident partiality.
2.
On the Merits, Everest’s Evident Partiality Claim Fails
Even though the Court concludes that Everest has preserved only a tiny
fraction of its evident partiality claim, the Court will review the entire claim on the
merits. The claim fails.
7
The concept that a party must raise a bias objection with the allegedly-biased
decision-maker is not new. Nor is it limited to arbitration proceedings. Indeed,
despite any perceived awkwardness, it is well-recognized in both state and federal
courts that a party must object to a decision-maker’s partiality in order to preserve
the partiality issue for review. See, e.g., Goward v. United States, 569 Fed. App’x
408, 410 (6th Cir. 2014) (“A motion to disqualify [a judge] must first be presented
to the judge whose impartiality is questioned” before it can be reviewed on
appeal); see also In Re Forfeiture of $53.00, 444 N.W.2d 182, 189 (Mich. Ct. App.
1989) (claim of judicial bias was “not properly before” appellate court because
party had failed to move to disqualify the judge during a bench trial).
31
An arbitration award may be vacated on the basis of evident partiality only
where “a reasonable person would have to conclude that an arbitrator was partial to
the other party to the arbitration.” Apperson, 879 F.2d at 1358. In order to warrant
relief, “[t]he alleged partiality must be direct, definite, and capable of
demonstration, and the party asserting evident partiality must establish specific
facts that indicate improper motives on the part of the arbitrator.” Andersons, Inc.
v. Horton Farms, Inc., 166 F.3d 308, 329 (6th Cir. 1998) (internal quotation marks
omitted). Simply put, a claim of evident partiality requires two showings: (1) a
motive for the alleged bias and (2) “concrete actions in which [the arbitrator]
appeared to actually favor” the disadvantaged party. Kinkade, 711 F.3d at 724.
Everest has shown neither.
Everest has failed to establish that Moak had any motive to favor Amerisure.
Everest hypothesizes that Moak treated Amerisure better because he wanted to
secure additional umpire engagements from Amerisure and its counsel (see Everest
Br., ECF #32 at 12-13, Pg. ID 1092-93), but this theory is both illogical and
unsupported by the facts in this record. If, as Everest claims, Moak was interested
in securing more work as a neutral umpire, then unfairly favoring Amerisure would
have been decidedly counterproductive. The selection of a neutral umpire often
requires the consent of both parties (as it did here), and thus a neutral who earns a
reputation as favoring insurers over reinsurers (or, indeed, a reputation of playing it
32
any way other than “straight down the middle”) would quickly find himself with
less work, not more. Simply put, a neutral “arbitrator is in a private business
enterprise. His or her reputation for neutrality is a badge of honor, and an essential
credential in getting business.” Commentary, “ADR v. The Bench: Why Are
Neutrality Standards Different,” 25 Alternatives to the High Cost of Litigation 65,
74 (April 2007) (emphasis added). And case law confirms that in the very type of
arbitration at issue here – one involving a reinsurance dispute – neutral umpires
appear to be selected based upon their “reputation for legal acumen and
impartiality.” Sphere Drake Ins. Ltd. v. All American Life Ins. Co., 307 F.3d 617,
619 (7th Cir. 2002) (explaining basis for repeated selection of a neutral umpire in
reinsurance arbitrations) (emphasis added).8
The relevant financial incentives
would have pushed Moak to be fair to both sides, not to favor Amerisure.
Everest also lacks evidentiary support for its claim that Moak had a motive
to favor Amerisure. There is no evidence in this record that Moak knew which
party nominated him as the umpire nor that he knew how he was ultimately
selected to serve in that capacity. Moreover, as Everest acknowledged on the
record during the arbitration proceedings, neutral umpires may often not know
8
See also Malone v. Superior Court, 173 Cal. Rptr. 3d 241, 255, n. 19 (Cal. App.
2014) (“A less pessimistic view would take the position that an arbitrator with a
reputation for bias would have a short career indeed; arbitrators with reputations
for fair resolution of disputes regardless of their own short-term financial interests
would be in greater demand in the long run”).
33
which party nominated them. (Arb. Tr. at 307, ECF #41-2 at Pg. ID 2152.) Everest
has failed to show that Moak had any reason to believe that favoring Amerisure
would benefit him financially down the road.
Moreover, there is no evidence that Moak attempted to hide any arbitration
engagements involving Amerisure’s counsel and/or Amerisure’s party-arbitrator
(Maneval). In fact, the record establishes just the opposite: Moak disclosed his
relationships with the other arbitrators and the lawyers, and he even e-mailed the
parties over the Fourth of July weekend to inform them he was chosen as an
umpire in another case in which Maneval was an arbitrator. It is telling that during
the arbitration hearing, Everest never suggested that any of Moak’s disclosed
engagements gave him a motive to favor Amerisure.9
And Everest makes far too much of Moak’s May 14th e-mail. Everest views
the e-mail as a “smoking gun” – as definitive proof that Moak must have ruled
against Everest based upon his animus toward the company. Everest’s argument is
as follows: (1) Moak’s e-mail shows that he was inclined to rule in favor of Everest
at the close of the nine-day arbitration hearing; (2) the key event following the
9
Likewise, the fact that Moak may have had a social relationship with Amerisure’s
party-arbitrator (Maneval) and that he gave Maneval a tour of an art museum falls
well short of establishing that Moak was biased against Everest. Indeed,
“[a]rbitrators are often chosen for their expertise and community involvement, so
‘[t]o disqualify any arbitrator who had professional dealings with one of the parties
(to say nothing of a social acquaintanceship) would make it impossible, in some
instances, to find a qualified arbitrator at all.’” Uhl, 512 F.3d at 308 (quoting
Nationwide, 429 F.3d at 646-647).
34
conclusion of hearing was Everest’s sanctions motion containing the criticisms of
Moak’s rulings; (3) after being “piss[ed] off” by Everest’s accusations, Moak ruled
against Everest; and (4) Moak’s change of heart can only be explained by his anger
with Everest.
There are two fundamental flaws in Everest’s argument. First, in the e-mail,
Moak said that even after Everest’s “accusations,” he was “still … inclined” to
rule in Everest’s favor, and he committed that he would “put aside” his frustration
with Everest “whenever we get to deliberate.” (ECF #32-27 at 4, Pg. ID 1260;
emphasis added.) Thus, Moak’s statements in his e-mail, when read in their
entirety, undercut Everest’s claim that its accusations and criticisms led Moak to
change his mind.
Second, Everest’s argument omits a critical event that occurred between
Moak’s e-mail and the Final Award: the face-to-face deliberations between and
among the Panel.
Everest too quickly dismisses the possibility that the
deliberations could have been meaningful; that Amerisure’s party arbitrator,
Maneval, may have been more persuasive than Everest’s party arbitrator; and that
Moak may have discarded his initial inclination in favor of Everest after carefully
reviewing the evidence and considering Maneval’s views.
Everest also places far too much emphasis on Moak’s statement that he was
“piss[ed] off.” The fact that Moak may have been frustrated (even extremely
35
frustrated) with Everest as he headed into deliberations does not mean he lost the
capacity to fairly evaluate Everest’s position on the merits. Indeed, it is not
uncommon for decision-makers like arbitrators and judges to grow frustrated with
attorneys for a wide variety of reasons, including criticisms of their rulings.
Feeling that frustration is a natural part of the job; it is not evidence that the
decision-maker cannot fulfill his oath and duty to be fair. See, e.g., Consolidated
Rail Corp. v. Yashinsky, 170 F.3d 591, 597 (6th Cir. 1999) (“A court’s statement to
counsel that indicates frustration with counsel’s behavior is not enough to establish
bias or prejudice”).
Everest has also failed to show that Moak materially favored Amerisure in
an unfair manner. Everest likens this case to Kinkade in which the Sixth Circuit
held that an arbitrator unfairly favored one party. In Kinkade, “the coincidences all
[broke] one way.” Kinkade, 711 F.3d at 720 (emphasis added). That did not
happen here.
Indeed, Everest’s own complaints of unfair treatment show
conclusively that Moak did not always favor Amerisure. For instance, Everest
complains that Moak held a grudge because Everest moved to adjourn the
originally May 2013 hearing date, but Everest cannot escape the fact that Moak
granted Everest’s urgent request for the adjournment, and reopened discovery – all
over Amerisure’s vigorous objections. Similarly, Everest complains that at the
start of the hearing, Moak refused to admit into evidence a substantial number of
36
documentary exhibits proposed by Everest. But Moak did allow Everest to offer
the documents into evidence individually during the course of the hearing (with
him ruling on their admissibility as they were offered) and Moak denied
Amerisure’s request to exclude the exhibits. (See ECF #32-30, Pg. ID 1271.)
Likewise, Everest claims that Moak wrongly allowed Amerisure to present the
Panel with a post-hearing submission supporting Amerisure’s interest calculation,
but the Panel ultimately rejected Amerisure’s demand for interest. Finally, the
Panel denied Amerisure’s request for attorneys fees.
For all of these reasons, the Court concludes that even if Everest’s evident
partiality claim is preserved for review, there is no basis to vacate the Final Award
based on Moak’s supposed partiality.
C.
Everest is Not Entitled to Relief From the Final Award Based on How
the Panel Conducted the Arbitration Proceedings
Everest argues that the Court should vacate the Final Award because the
Panel’s allegedly-erroneous procedural and evidentiary rulings deprived Everest of
a fair hearing. Everest complains that the Panel wrongfully refused to allow
Everest to introduce certain exhibits at the arbitration, interfered with its
examination of lay and expert witnesses, unfairly favored and helped rehabilitate
Amerisure’s experts, and generally favored Amerisure at every opportunity. (See
Everest Br., ECF #32 at 15-25, Pg. ID 1095-1105.) The short answer to this
argument is that Everest’s broad criticisms of the Panel are fundamentally
37
inconsistent with Everest’s answer to Moak’s end-of-hearing question as to
whether the Panel had given Everest a fair opportunity to present its case. As
noted above, Everest identified only a single complaint in response to that inquiry.
(Arb. Tr. at 3655-3566, ECF #40-6 at Pg. ID 1992-1993.) Everest is thus on
extremely weak ground when it now claims to have been deprived of a fair
arbitration hearing in myriad ways.
The longer answer is that “evidentiary decisions of arbitrators should be
viewed with unusual deference,” Terk Technologies Corp. v. Dockery, 86
F.Supp.2d 706, 709 (E.D. Mich. 2000) (internal quotation marks omitted), and
Everest has fallen far short of showing that the Panel’s evidentiary and procedural
errors deprived Everest of a fair arbitration hearing.10 Indeed, many of Everest’s
complaints about the hearing ring hollow:
Everest argues that Moak “fawned” over Amerisure’s
expert witnesses, but Amerisure has identified portions of
the arbitration transcript that show Moak questioning the
qualifications of Amerisure’s expert (see Arb. Tr. at
1795, ECF #33-26 at Pg. ID 1527);
Everest argues that the Panel prevented it from offering
exhibits into evidence, but as described in detail above,
the Panel actually refused to grant Amerisure’s motion to
strike the exhibits and expressly allowed Everest the
10
See also U.S. Life Ins. Co. v. Superior Nat. Ins. Co., 591 F.3d 1167, 1175 (9th
Cir. 2010) (“[a]rbitrators enjoy ‘wide discretion … to admit or exclude evidence,
how and when they see fit.’”) (quoting Indus. Risk Insurers v. M.A.N.
Gutehoffnungshutte GmbH, 141 F.3d 1434, 1444 (11th Cir. 1998)).
38
opportunity to move the admission of the exhibits on an
individual basis (see ECF #32-30, Pg. ID 1271); and
Everest complains that the Panel allowed Amerisure to
file a post-hearing submission supplementing the
evidentiary record related to Amerisure’s claim for
interest (see ECF #31-38, Pg. ID 1057-1059 describing
and objecting to Amerisure’s submission), but the Panel
ultimately declined to award any interest.
Everest has failed to show that the Panel conducted the hearing in an unfair
manner and/or that it suffered any unfair prejudice as a result of the manner in
which the Panel conducted the hearing.
D. Everest Has Failed to Show That the Panel Exceeded Its Powers in a
Manner Warranting Vacatur of the Final Award
The Panel faced two primary issues of contract interpretation and
application: (1) did the Direct Access Treaty permit Amerisure to aggregate the
individual losses that comprised the Amerisure Asbestos Losses into a single claim
for indemnification and (2) did the Asbestos Exclusion bar Amerisure’s claim for
indemnification? The Panel ruled that Amerisure could aggregate the individual
losses that comprised the Amerisure Asbestos Losses and that the Asbestos
Exclusion was no bar to indemnification. Everest argues that in so ruling, the
Panel exceeded its powers and dispensed its “own brand of industrial justice.” The
Court disagrees. As explained below, the Panel did not exceed its powers in
allowing Amerisure to aggregate, and while one aspect of the Panel’s ruling on the
Asbestos Exclusion did exceed the Panel’s powers, the ruling was supported by an
39
alternative ground that was within the Panel’s powers.
1.
The Panel’s Conclusion That Amerisure Could Aggregate the
Individual Losses That Comprised the Amerisure Asbestos Losses
Under the Direct Access Treaty
The Panel ruled that the individual losses that comprised the Amerisure
Asbestos Losses could be treated as a single “occurrence” or “series of occurrences
arising out of one event.” (Final Award at 4-5, Pg. ID 185-186.) Under the FAA,
this Court must affirm that ruling so long as, in reaching the ruling, the Panel was
“even arguably construing or applying the contract and acting within the scope of
[its] authority.” Nationwide, 429 F.3d at 643. It was.
As described in detail above, the Panel first determined that the definition of
“occurrence” – with its use of the undefined term “event” – was ambiguous as to
whether it permitted aggregation. (See Final Award at 4, ¶¶2-3, Pg. ID 185.) This
conclusion is hardly surprising, and is defensible, in light of the fact that “the two
well-credentialed and articulate principal expert witnesses offered opinions of
treaty interpretation that were totally at odds.” (Id. at ¶2.) Indeed, given that each
side asked the Panel to look beyond the “four corners” of the Direct Access Treaty
and to consider expert testimony about the meaning of terms “occurrence” and
“event,” the Panel had every right to find the language ambiguous.11
11
Everest highlights that “[n]either party argued [at the arbitration hearing] that
[the “occurrence” definition] was ambiguous.” (Everest Br., ECF #31 at 17, Pg.
ID 523.) But “the fact that both parties argue that [a] contract is unambiguous does
40
The Panel then “considered all of the conflicting interpretations presented on
the treaty’s occurrence definition (and the absence of an event definition),” and it
found the interpretation offered by witness [Person A] (“[Person A]”) to be the
most persuasive. (Id. at 4, ¶¶4-5, Pg. ID 185.) The Panel stressed that [Person A]
was the “only percipient witness” – the only person with a connection to the
drafting of the language in question – and that he “testified substantially in favor of
Amerisure’s treaty interpretations and in support of Amerisure’s demand for
payment.” (Id. at ¶4.) Simply put, [Person A] testified that aggregation was fully
consistent with the definition of “occurrence” and ”event”:
Q:
Turn again to the treaty … And I’m going to direct your
attention to [where the treaty defines the word occurrence].
Is that an example of an occurrence definition which permits
the combination of multiple losses?
A:
Yes it does.
Q:
And how so?
A:
It provides for losses arising out of occurrence, whether it be
multiple insured’s or multiple coverage parts and arising out
of one event.
not preclude … [a] finding [that] the contract [is] ambiguous.” Pitcher v. Principal
Mutual Life Insurance Company, 870 F.Supp. 903, 907, n. 1 (S.D. Ind. 1994); see
also E.R. Squibb & Sons, Inc. v. Lloyd’s & Companies, 241 F.3d 154, 179 (2d Cir.
2001) (“reject[ing] both parties’ positions” that endorsement in insurance contract
was unambiguous). Indeed, the fact that the parties offered starkly different
definitions and supported those definitions with expert testimony and with detailed
and reasonable arguments tends to confirm the Panel’s ruling that the term is
susceptible to different interpretations – that it is ambiguous.
41
Q:
Okay. Do you see the reference there to a series of accidents
or occurrences?
A: Yes.
Q:
And do you believe that allows for more than one accident
or occurrence, more than one claim to be combined into a
single occurrence if they all arise out of the same event?
A:
I do, yes.
Q:
Do you believe that a series of products losses can
out of one event?
A:
Yes.
Q:
And as you read this clause, can the manufacture of a
product that includes an asbestos component constitute an
event?
A:
Yes.
arise
[….]
Q:
Do you have an understanding as to whether [an] event [as
defined in the treaty] could be something that occurs over a
period of time?
A:
Event is a very broad word. And it could be something that
occurs over a period of time, yes.
Q:
And when you say ‘over a period of time,’ how long could
that be? Could that be multiple years?
A:
It could be, sure.
(Arb. Tr. at 503-506; 511-512, ECF #42-6 at Pg. ID 2223-2224.) The Panel found
[Person A’s] testimony in support of Amerisure’s interpretation especially
persuasive because he was employed by Everest when the Direct Access Treaty
42
was drafted. (See Final Award at 4, ¶4, Pg. ID 185.) The Panel also relied upon
case law that, in its view, supported its conclusion that aggregating losses was
consistent with the definitions of “occurrence” and “event.” (See id. at 4-5, ¶6, Pg.
ID 185-186.)
The Panel further considered and rejected the evidence that Everest offered
in support of its argument that the Direct Access Treaty did not allow the
aggregation of the individual losses that comprised the Amerisure Asbestos Losses.
The Panel found that evidence substantially less persuasive than the evidence
offered by Amerisure. (See id. at ¶6.)
In short, the Panel followed a customary interpretive path.
It first
determined that an ambiguity allowed it to look beyond the four corners of the
Direct Access Treaty. It then analyzed the competing extrinsic evidence as to the
meaning of the terms “occurrence” and “event” and as to whether aggregation of
the individual losses that comprised the Amerisure Asbestos Losses was consistent
with those terms, as Amerisure argued.
It found Amerisure’s evidence more
persuasive and adopted the interpretation supported by that evidence. That is
classic – and reasonable – contract interpretation. Such interpretation fell squarely
within the Panel’s authority.
The FAA bars this Court from upsetting that
interpretation.
43
Everest counters that another passage in the Final Award proves that the
Panel impermissibly deviated from the plain language of the “occurrence”
definition. Everest points to the Panel’s statements that allowing the aggregation
of the individual losses that comprised the Amerisure Asbestos Losses (1) “is
commonly accepted in the business” and (2) comports with how “much of the
industry has come to define such excess of loss reinsurance coverage.”
(Id.;
emphasis added.) Everest argues that the Panel’s use of the present tense shows
that the Panel was answering the wrong question: instead of determining the intent
of the parties when they used the terms “occurrence” and “event” in the Direct
Access treaty more than twenty years ago, the Panel rested its decision on how the
relevant terms could be understood under current industry standards.
The Court acknowledges that the Panel’s use of the present tense is a bit
confounding. The Panel did not draw a connection between the current meaning
of the disputed terms and the commonly accepted meaning of those terms when the
parties entered into the Direct Access Treaty. Without such a link, the current
meaning is not relevant to the issue that the Panel was asked to resolve: namely,
when the parties executed the Direct Access Treaty, did they intend to allow
aggregation of individual losses, like those that comprised Amerisure Asbestos
Losses, into a single claim for indemnification?
44
Although the Panel did appear to consider the current meaning of the
disputed terms, the Court is not convinced that the Panel actually rested its ruling
on that meaning rather than upon their meaning when the parties entered the Direct
Access Treaty. As described above, the Panel expressly relied on the testimony of
a percipient witness who had a connection to the original drafting of the disputed
language and upon the testimony of experts as to what that language meant. The
Court is convinced that even though the Panel used some imprecise language in the
Final Award, the Panel did engage in proper contract interpretation, and the Court
cannot disturb that interpretation under the FAA. See, e.g., Solvay, 442 F.3d at 476.
Nor does Michigan law permit the Court to upset the Final Award on the
ground that the Panel exceeded its powers in allowing aggregation of the
individual losses that comprised the Amerisure Asbestos Losses. As explained in
detail above, the Panel’s resolution of the aggregation issue is not plainly at odds
with any express and unambiguous term of the Direct Access Treaty, and, more
specifically, is not fundamentally irreconcilable with the treaty’s definition of
“occurrence.” Indeed, interpreting ambiguous contractual terms, as the Panel did
in this case, is a far cry from exceeding an express contractual term in violation of
Michigan law. See Muskegon Central Dispatch 911, 462 Fed. App’x at 524-25
(explaining that an arbitrator does not exceed his powers under Michigan law
45
where he “engag[es] in contract interpretation” but does exceed his powers when
he ignores the “plain language” of a contract).
At bottom, Everest’s argument that the Panel exceeded its authority by
allowing aggregation is nothing more than an invitation to review the merits of the
Panel’s contract interpretation. The Michigan Supreme Court has directed courts
to reject such an invitation. See Gordon Sel-Way, 475 N.W.2d at 704. This Court
heeds that direction here, as it must.
2.
The Panel’s Conclusion That the Asbestos Exclusion Did Not
Preclude Indemnification
As described in detail above (see pp. 2-5), the Direct Access Treaty (as
amended in 1987) and the Woods Treaties both contained the Asbestos Exclusion
and two possibly applicable exceptions to the Asbestos Exclusion.
These
exceptions were the Incidental Exception Language in the Asbestos Exclusion and
the Generally-Applicable Incidental Exception to the Treaties’ Exclusions.
The Panel considered both whether the Asbestos Exclusion applied and
whether, even if the Amerisure Asbestos Losses would otherwise fall within that
exclusion, Amerisure was nonetheless entitled to indemnification by operation of
one of the two above-described exceptions to the exclusion. (See Final Award at
5-6, ¶¶ 8-12, Pg. ID 186-187.) The Panel resolved both issues in Amerisure’s
favor.
The Panel first determined that the Asbestos Exclusion did not apply
because [Company X’s] asbestos exposure was neither known to Amerisure nor
46
generally-recognized. (See id. at ¶¶ 9-10.) The Panel then ruled that even if the
Asbestos Exclusion would otherwise apply (and bar indemnification), Amerisure
was still entitled to indemnification because the Generally-Applicable Incidental
Exception to the Treaties’ Exclusions was “applicable.” (Id. at 6, ¶12, Pg. ID 187.)
Everest argues that these rulings exceeded the Panel’s powers.
The Court agrees with Everest that the Panel exceeded its powers when it
concluded that Amerisure could avoid the Asbestos Exclusion on the ground that it
did not know about [Company X’s] asbestos exposure. However, Everest has
failed to show that the Panel exceeded its powers in ruling that the GenerallyApplicable Incidental Exception to the Treaties’ Exclusions was “applicable,” such
that Amerisure was entitled to coverage even if the Asbestos Exclusion otherwise
applied and precluded indemnification.
a.
Everest Has Established That the Panel Exceeded its
Powers When it Ruled That [Company X’s] Operations Did
Not Present a Known Asbestos Exposure
The Panel acted directly contrary to the plain language of the Asbestos
Exclusion – and thereby exceeded its powers – when it ruled that Amerisure could
avoid the Asbestos Exclusion because it did not know about [Company X’s]
asbestos exposure. The Panel acknowledged that documents introduced by Everest
“appear[ed] to show that that Amerisure may very well have been aware by 1987
[before the parties executed the Direct Access treaty] of the fact that [Company
47
X’s] steam traps contained an encapsulated asbestos gasket.” (Id. at 5, ¶9, Pg. ID
186.) The Panel also acknowledged that other documents “even indicated that by
1987 there could have been a few very small asbestos losses.” (Id.) The Panel,
however, dismissed these documents because “[Company X’s] workers’
compensation insurance was written by Amerisure during the relevant timeframe,”
and Amerisure “experienced no claims for asbestos-related injury” and did not
include in [Company X’s] workers’ compensation policy an exclusion for
asbestos-related claims. (Id.) The Panel announced its holding on the knowledgeof-exposure issue as follows: “In sum, it appears that it was Amerisure’s
underwriting judgment as manifested by the absence of an exclusion in its policies,
that the encapsulated asbestos gaskets [Company X] used did not constitute a
known exposure.” (Id.; emphasis added.)
But the relevant question under the Asbestos Exclusion has nothing to do
with Amerisure’s subjective “underwriting judgment.” The question is whether
Amerisure objectively knew about [Company X’s] asbestos exposures. The Panel
did not answer that question.
Instead, it replaced the contractually-mandated
inquiry into Amerisure’s knowledge of the exposure with its own inquiry into
Amerisure’s subjective assessment about the extent of the exposure. Even under
the deferential review mandated by the FAA, such a wholesale departure from the
plain language of the contract cannot stand. See, e.g., Michigan Family Resources,
48
475 F.3d at 753 (“[W]e cannot ignore the specter that an arbitration decision could
be so ignorant of the contract's plain language as to make implausible any
contention that the arbitrator was construing the contract”) (internal citation and
punctuation omitted). And it certainly cannot withstand review under Michigan’s
law which requires vacatur where an arbitrator acts contrary to unambiguous
contractual language. See Gavin, 331 N.W.2d at 430.
Amerisure attempts to insulate the Panel’s treatment of the knowledge issue
from review. It argues that the Panel made a “factual finding” that Amerisure
lacked knowledge, and it insists that under both the FAA and Michigan law, this
Court may not review such a finding. (Amerisure Opposition Brief, ECF #40 at 1920, Pg. ID 1959-1960.) If the Panel had made such a finding, Amerisure would be
right. But the Panel made no such finding. As described above, instead of finding
that Amerisure did not know about [Company X’s] asbestos exposure, the Panel
found “that it was Amerisure’s underwriting judgment” that there was no “known
exposure.” (Final Award at 5, ¶9, Pg. ID 185.) And the Court is unwilling to hold
– in the face of the Panel’s statement that it resolved the knowledge issue based on
Amerisure’s underwriting judgment – that the Panel made some sort of implicit or
unstated factual finding that Amerisure lacked knowledge.
For all of these
reasons, the Panel exceeded its powers when it ruled that Amerisure could avoid
49
the Asbestos Exclusion on the ground that it did not know that [Company X’s]
operations presented a known asbestos exposure.
b.
Everest Has Failed to Establish That the Panel Exceeded its
Powers When it Ruled That the Generally-Applicable
Incidental Exception to the Treaties’ Exclusions Was
“Applicable”
As described in detail above, the Generally-Applicable Incidental Exception
to the Treaties’ Exclusions provided that even if one of the Treaties’ enumerated
exclusions would preclude indemnification for a loss caused by a product, Everest
would nonetheless indemnify Amerisure if the product in question was a minor and
incidental part of an insured’s total products. (See Direct Access Treaty at 40-41,
Pg. ID 279-280.) The Panel ruled that this exception was “applicable” and, thus,
that the Asbestos Exclusion did not bar Amerisure from receiving indemnification
from Everest. (Final Award at 6, ¶12, Pg. ID 187.) Everest has barely attempted
to show – and certainly has not demonstrated – that the Panel exceeded its powers
in concluding that the Generally-Applicable Incidental Exception to the Treaties’
Exclusions was “applicable.”
Indeed, even though Amerisure’s briefing urged this Court to uphold the
Panel’s ruling that the Generally-Applicable Incidental Exception to the Treaties’
Exclusions was “applicable” – and to confirm the Final Award, in part, on the basis
of that ruling (see Amerisure Br., ECF #40 at 20-21, Pg. ID 1961-1962) –
50
Everest’s primary briefs do not even mention the exception.12 Nor did Everest’s
oral argument to the Court demonstrate an error in the Panel’s ruling that the
exception was “applicable.” During argument, the Court twice specifically asked
Everest’s counsel about this aspect of the Panel’s ruling. In response to the first
question, counsel focused on the separate Incidental Exception Language in the
Asbestos Exclusion.13 In response to the second question, Everest’s counsel said
12
The Panel’s ruling on the Generally-Applicable Incidental Exception to the
Treaties’ Exclusions is included in paragraph 12 of the Final Award. The only
reference to this paragraph of the Final Award in Everest’s primary briefs (i.e., all
of its briefs filed before the motion hearing before this Court) is included in
footnote 11 of Everest’s brief in support of its Motion to Vacate. (See ECF #31 at
26, n. 11, Pg. ID 532.) This footnote states, in its entirety: “The panel majority
also did not attempt to interpret the so-called ‘escape clause,’ merely concluding
that it was ‘applicable.’” (Id.) This footnote confuses the Panel’s ruling on the
“escape clause” with its ruling on the separate Generally-Applicable Incidental
Exception to the Treaties’ Exclusions. In the very paragraph of the Final Award
cited by Everest, the Panel unanimously held, contrary to Everest’s claim, that the
“escape clause” did not apply: “The panel is unanimous in rejecting Amerisure’s
argument that the so-called ‘escape clause,’ the last paragraph of the [Direct
Access Treaty] [] applies in this case.” (Final Award at 6, ¶12, Pg. ID 187.) In
that same paragraph of the Final Award, the Panel held, by a 2-1 vote, that the
Generally-Applicable Incidental Exception to the Treaties’ Exclusions was
“applicable.” Everest’s briefs do not contain any argument concerning this latter
holding.
13
The Court asked Everest’s counsel at the motion hearing how Everest could “get
around the fact that even if [Everest won] on the known exclusion[,] [it would] lose
under the incidental exception to the exclusion as [the Panel] note[ed] in paragraph
12 of the award on page 6 of the award?” (The “Motion Transcript,” ECF #44 at
95, Pg. ID 2444.) In response, Everest’s counsel referred the Court to “the litany
of types of activities that were stated in the first paragraph of the exclusion.” (Id.)
The Generally-Applicable Incidental Exception to the Treaties’ Exclusions did not
consist of multiple paragraphs; it was a single sentence. (Direct Access Treaty at
41, Pg. ID 280.) In contrast, the Incidental Exception Language in the Asbestos
51
only that the Panel’s finding that the exception was “applicable” was not “tethered
to the contract in any respect.” (Mot. Tr. at 97, Pg. ID 2446.) This conclusory
response falls short of the showing required to establish that the Panel exceeded its
powers.
Indeed, this response does not identify any specific language in the
Treaties that expressly conflicts with the Panel’s holding that the GenerallyApplicable Incidental Exception to the Treaties’ Exclusions was “applicable” to
the Asbestos Exclusion.
Finally, in its post-hearing supplemental brief “addressing whether the FAA
or Michigan arbitration law” governs, Everest complained in passing that the Panel
“inexplicably rul[ed] that [Company X’s] undisputed main product (asbestoscontaining steam traps) was a ‘minor and incidental part of [its] total …
products.’” (Everest Supp. Br., ECF #45 at 5, Pg. ID 2478; emphasis in original.)
But under Michigan law (which Everest asks this Court to apply), Everest may not
attack the Panel’s factual findings in these proceedings. See Muskegon Central
Dispatch 911, 462 Fed. App’x at 524 (quoting City of Ann Arbor, 771 N.W.2d at
854). Likewise, Everest’s perfunctory attack on the Panel’s “minor and incidental”
finding is not sufficient to warrant setting it aside under federal law. See DBM
Exclusion appears in two paragraphs. (Id. at 7, Pg. ID 246.) Moreover, the
Incidental Exception Language in the Asbestos Exclusion identifies specific
activities; the Generally-Applicable Incidental Exception to the Treaties’
Exclusions does not. Thus, counsel’s reference to the specified activities shows
beyond any doubt that he was referring to the Incidental Exception Language in the
Asbestos Exclusion.
52
Technologies, Inc. v. Local 227, United Food & Commercial Workers Int’l Union,
257 F.3d 651, 657 (6th Cir. 2001) (reaffirming that standard governing review of
arbitrator’s factual findings “is even more stringent” than already-deferential
standard of review for awards and that even “silly” fact-finding “is an insufficient
basis to vacate an arbitrator’s award”). And to the extent the sentence fragment
quoted above from Everest’s post-hearing brief is an argument that the Panel
exceeded its powers, it falls well short of the required showing.
Everest has simply not carried its heavy burden to show that the Panel
exceeded its powers when it concluded that the Generally-Applicable Incidental
Exception to the Treaties’ Exclusions – which, on its face, applies to all of the
listed exclusions14 – was “applicable” to the Asbestos Exclusion and to
Amerisure’s claim.15
14
The Court recognizes that there may be a reasonable argument that the
Generally-Applicable Incidental Exception to the Treaties’ Exclusions does not
apply to asbestos-related claims. One could argue that the Incidental Exception
Language in the Asbestos Exclusion is the relevant exception with respect to
asbestos-related claims (and controls over the Generally-Applicable Incidental
Exception to the Treaties’ Exclusions) because it is more directly-applicable and is
located in the Asbestos Exclusion itself. But Everest has not made this argument.
Thus it is not before the Court, and the Court need not consider it. Cf. Kuhn v.
Washtenaw Cnty., 709 F.3d 612, 624 (6th Cir. 2013) (“This court has consistently
held that arguments not raised in a party's opening brief, as well as arguments
adverted to in only a perfunctory manner, are waived”). And even if the Panel’s
reading of the Generally-Applicable Incidental Exception to the Treaties’
Exclusions is not the best reading – and even if a court may have interpreted the
exception differently –the Panel’s reading of the exception does not expressly
53
E.
Everest Is Not Entitled to Relief on the Ground That the Panel
Exceeded Its Powers by Ruling That the [Company Y] Losses Were “In
the Case”
The Final Award required Everest to indemnify Amerisure for amounts that
Amerisure paid to [Company Y], an affiliate of [Company X] (the “[Company
Y] Losses”). Everest argues that the Panel “had no jurisdiction” to award that
relief because “Amerisure’s arbitration demand and position statement only
referenced [Company X].” (ECF #31 at 26-27, Pg. ID 532-533.)
Everest
presented this argument to the Panel, and, “after due deliberation,” the Panel
rejected it, holding “on the morning of the hearing’s final day that the [Company
Y Losses] were ‘in the case.’” (Final Award at 2, Pg. ID 183.) Everest insists that
this Court may review the Panel’s ruling on the [Company Y] Losses de novo
(albeit with a “thumb on the scale in favor of arbitration”) because that ruling
related to the Panel’s “jurisdiction.” (Mot. Tr. at 105; quoting Solvay, 442 F.3d
conflict with the plain language of the Treaties. Thus, the Panel did not exceed its
powers.
15
As noted above, the Panel also discussed whether the Incidental Exception
Language in the Asbestos Exclusion applied and whether, for that independent
reason, the Asbestos Exclusion did not bar Amerisure’s claim. (See Final Award at
6, ¶11, Pg. ID 188.) But while the Panel discussed this issue, it did not clearly rule
on it. The Panel said that it “may not need to reach the issue,” and while the
Panel’s comments appear to indicate that it was inclined to find that the exception
did apply and did allow for coverage despite the Asbestos Exclusion, the Panel did
not expressly state its conclusion. (Id.) At oral argument on the motions,
Amerisure urged the Court to confirm the Final Award, in part, on the basis of the
Panel’s discussion of this exception. However, since it is not clear to the Court
that the Panel made any ruling on this exception, the Court declines to address
whether that exception applies.
54
471.)
Everest contends that the Panel’s assumption of jurisdiction over the
[Company Y] Losses cannot withstand such review. The Court disagrees with
Everest’s proposed standard of review and its conclusion.
The Panel’s ruling that the [Company Y] Losses were “in the case” is not
subject to de novo review simply because it related to the Panel’s “jurisdiction.”
An arbitration panel has “jurisdiction” over a dispute if two conditions are met: (1)
the dispute is subject to arbitration under the parties’ contract and (2) the parties
have, in fact, submitted the dispute to the panel. It is the first “jurisdictional”
question – whether a dispute is arbitrable – that receives independent, de novo
review in federal court. See Solvay, 442 F.3d at 476-477. In sharp contrast, an
arbitrator’s determination of the second “jurisdictional” question – whether the
parties in fact submitted an arbitrable claim for arbitration – is entitled to great
deference. Indeed, “[t]he extraordinary deference given to an arbitrator’s ultimate
decision on the merits applies equally to the arbitrator’s threshold decision that the
parties have indeed submitted a particular issue for arbitration.” International
Association of Machinists and Aerospace Workers v. Tennessee Valley Authority,
155 F.3d 767, 772 (6th Cir. 1998) (quoting Champion International Corp. v.
United Paperworkers International Union, 779 F.2d 328, 335 (6th Cir. 1985)).
This rule applies with full force in the context of arbitration proceedings involving
reinsurance disputes. See United States Life Insurance Company v. Superior
55
National Insurance Company, 591 F.3d 1167, 1178 (9th Cir. 2010) (holding in
dispute between insurer and reinsurer over scope of arbitration demand that
arbitration “panel’s understanding of its scope of authority is entitled to the same
level of great deference as its determination on the merits”) (internal punctuation
omitted).
Here, the “jurisdictional” issue before the Court is not one of arbitrability
that the Court reviews de novo. Indeed, the dispute over Everest’s liability for the
[Company Y] Losses undoubtedly falls within the scope of the Treaties’ broad
arbitration provisions and is thus plainly subject to arbitration. Everest does not
contend otherwise. Instead, the “jurisdictional” issue here is whether the parties
submitted their admittedly-arbitrable dispute about the [Company Y] Losses to the
Panel for resolution. The Panel’s answer to that question – that the parties did
submit their dispute over the [Company Y] Losses to arbitration – is entitled to
“extraordinary deference.” International Association of Machinists and Aerospace
Workers, 155 F.3d at 772
The Court declines to disturb the Panel’s ruling that the parties submitted
their dispute over the [Company Y] Losses for decision. Amerisure explained to
the Panel that while its original demand may not have used the name “[Company
Y],” the amounts included in that demand did include payments that Amerisure
made to [Company Y]. Everest did not dispute that assertion before the Panel and
56
did not dispute it before this Court. (See Mot. Tr. at 113-114, Pg. ID 2462-2463.)
Moreover, Amerisure filed a letter brief with the Panel in which it set forth in
detail the many ways in which the parties addressed the [Company Y] losses in
the proceedings leading up to the arbitration hearing (including discovery and prehearing filings). (See Amerisure Letter Brief, ECF #40-11, Pg. ID 2127-2133.)
Amerisure’s detailed showing amply supports the Panel’s conclusion that the
parties submitted their dispute over the [Company Y] Losses for decision.
Everest admittedly had some support for its argument to the Panel that the
[Company Y] Losses were not sufficiently identified in Amerisure’s demand for
arbitration and were not part of the arbitration proceedings. Everest explained to
the Panel that Amerisure objected to a discovery request concerning [Company Y]
on the ground that [Company Y] was “not at issue in this arbitration.” (Discovery
Response, ECF #33-5 at 5, Pg. ID 1382). However, Amerisure explained to the
Panel that it made this objection early in the proceedings – nearly a year before the
originally scheduled June 2013 arbitration hearing – that it withdrew the objection;
and that in the many months following the objection, the parties proceeded on the
clear understanding that the [Company Y] Losses were at issue. (See Amerisure’s
Letter Brief, ECF #40-11, Pg. ID 2127-2133.) The Panel accepted Amerisure’s
explanation, and that decision by the Panel was not objectively unreasonable. The
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Court will not vacate that portion of the Final Award which requires Everest to
indemnify Amerisure for the [Company Y] Losses.
F.
The Court Must Confirm the Final Award
For all of the reasons stated above, the Court finds no justification to vacate,
modify, or correct the Final Award. Accordingly, the Court must confirm the Final
Award. See 9 U.S.C. § 9; Barcume v. City of Flint, 132 F. Supp. 2d 549, 555 (E.D.
Mich. 2001); Gordon Sel-Way, 475 N.W.2d at 709 (“In this context, the court rules
provide the court with three options: it may confirm, modify or correct, or vacate
the award”).
CONCLUSION
For all the reasons stated above, IT IS HEREBY ORDERED that
Amerisure’s Motion to Confirm (ECF #2) is GRANTED and Everest’s Motion to
Vacate (ECF #23) is DENIED.
IT IS FURTHER ORDERED that within seven calendar days, Amerisure
shall submit to the Court through the Utilities function of CM/ECF, a proposed
Judgment that confirms the Final Award. Amerisure shall also serve a copy of the
proposed Judgment on Everest and file a Proof of Service with this Court. Everest
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shall have seven calendar days from the date of service to file an objection with the
Court to the form of the proposed Judgment.
Dated: March 18, 2015
s/Matthew F. Leitman
MATTHEW F. LEITMAN
UNITED STATES DISTRICT JUDGE
I hereby certify that a copy of the foregoing document was served upon the
parties and/or counsel of record on March 18, 2015, by electronic means and/or
ordinary mail.
s/Holly A. Monda
Case Manager
(313) 234-5113
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