Employers Insurance Company of Wausau v. Certain Underwriters At Lloyds Of London et al
ORDER denying 35 MOTION for Oral Argument; granting 1 Petition for an Order Appointing a third arbitrator; N. David Thompson appointed for the arbitration in this matter. Signed by Chief Judge Barbara B. Crabb on 9/28/2009. (llj)
IN THE UNITED STATES DISTRICT COURT FO R THE WESTERN DISTRICT OF WISCONSIN --------------------------------------------EM PLO YE R S INSURANCE COMPANY OF WAUSAU, O P IN IO N and ORDER Petitioner, 0 9 - cv -2 0 1 - b b c v. C ER TA IN UNDERWRITERS AT LLOYDS OF L O N D O N , QBE REINSURANCE (EUROPE) LIMITED, TRANSATLANTIC REINSURANCE C O M PA N Y , ST. PAUL REINSURANCE COMPANY L T D , and UNIONAMERICA INSURANCE C O M PA N Y LIMITED, R espo nd ents. --------------------------------------------Petition er Employers Insurance Company of Wausau and respondents Certain U nd erw riters at Lloyds of London, QBE Reinsurance (Europe) Limited, Transatlantic R einsuran ce Company, St. Paul Reinsurance Company and Unionamerica Insurance C o m p an y Limited are engaged in arbitration proceedings in Wausau, Wisconsin, pursuant to three reinsurance agreements. Petitioner has asked this court to appoint a neutral
arb itrato r from among six candidates proposed by the party-appointed arbitrators pursuant
to Section 5 of the Federal Arbitration Act, 9 U.S.C. §§ 1-16 and the parties' reinsurance con tracts. Respondents' cross petition raises statute of limitations, estoppel and laches d efe n ses and includes a request that the court dismiss petitioner Wausau's petition and disqua lify petitioner's party-appointed arbitrator because he is non-neutral. Jurisdiction is p resen t under chapter 2 of the Federal Arbitration Act, which expressly confers jurisdiction on federal courts to hear actions seeking to enforce an agreement or award falling under the C o n v en tio n on the Recognition and Enforcement of Foreign Arbitral Awards. 9 U.S.C. § 20 3 ("An action or proceeding falling under the Convention shall be deemed to arise under th e laws and treaties of the United States. The district courts of the United States . . . shall h ave original jurisdiction over such an action or proceeding. . . ."). The parties' arbitration agreem ent, contained in their reinsurance contracts, falls under the Convention because the p arties to the agreements are not all citizens of the United States. 9 U.S.C. § 202. As an initial matter, petitioner has filed a motion requesting oral argument concerning its petition for a third arbitrator. I have decided that a hearing is unnecessary in this matter because the parties provided sufficient information in their briefs and exhibits to permit me to reach a decision without hearing oral argument from them. Petitioner's motion for oral argum ent will be denied. From the record, I find the following facts to be material.
B AC KG R O U N D Petitioner Employers Insurance Company of Wausau provides property and general li ability insurance to commercial and residential property owners. Petitioner's parent
com pan y is Liberty Mutual. In March 1998 and March 1999, petitioner and respondents entered into contracts under which respondents agreed to reinsure some of petitioner's i n s uran ce policies. The contracts contain an arbitration clause and a choice of law clause th at specifies that the laws of Wisconsin are to govern and interpret the contracts. In 2001, respondents refused to indemnify petitioner for incidents occurring under policies that co vered specific risks that respondents believed they had not agreed to reinsure. In 2002, the parties used an auditor to determine whether respondents had actually agreed to reinsure certain risks. This method of resolution was unsuccessful and petitioner abandoned it in 20 03 . On July 14, 2008, petitioner served respondents with a demand for arbitration. Pursuant to the reinsurance contracts, petitioner and respondents agreed to arbitrate "any dispute arising out of the interpretation, performance or breach" of the contract. The arbitration clause further provides for the selection of a panel of three arbitrators: O ne arbitrator shall be chosen by each party and the two arbitrators shall, before instituting the hearing, choose an impartial and disinterested third arbitrator who shall preside at the hearing. . . . In accordance with the terms of the contract, each side has selected a party arbitrator. Petition er designated Paul D. Hawksworth as its party-appointed arbitrator, and respondents
chose Trevor Clegg. After several months of discussion, however, the party arbitrators have been unable to agree on a third arbitrator. The contract provides for this contingency: If the two arbitrators are unable to agree upon the third arbitrator within 30 days of their appointment, either or both parties may petition a judge of the fe de ra l court having jurisdiction over the geographical area in which the arbitration is to take place . . . to select the third arbitrator from a list of six individu als (three named by each arbitrator). Petitioner has submitted to this court a list of six individuals to be considered for the t h i r d arbitrator. Petitioner nominated Caleb Fowler, Elizabeth Thompson and N. David T h o m p so n as candidates, and respondents nominated Edward Cowen, Simon Twigden and S tep hen Carter. Each candidate completed a questionnaire concerning his or her prior insuran ce and reinsurance experience, contacts with the parties, counsel and party-appointed arbitrators and any expert opinions on the issues involved in the dispute. The questionnaires reveal that all six candidates are lawyers with extensive experience in the insurance and reinsurance industry and varying levels of arbitration experience. (Fo w ler has 31 years of experience in the industry; Elizabeth Thompson has 23 years; N. D avid Thompson has 47 years; Cowen has 34 years; Twigden has 29 years; and Carter has 2 2 years). All except Cowen and Carter have previous experience acting as an arbitrator or um pire (third arbitrator), to varying degrees. (Fowler has been an arbitrator in more than 1 5 0 arbitrations, and acted as umpire in 24; Elizabeth Thompson has arbitrated in 37, and acted as umpire in 31; N. David Thompson has arbitrated in 68, and acted as umpire in 65;
an d Carter has arbitrated in 12, and acted as an umpire in two). The questionnaires also inquired about the candidates' possible biases and any co n n ectio n s they might have with the other parties involved in the arbitration. All three of petition er's nominees and one of respondent's have served on arbitration panels in the past w ith petitioner's party-appointed arbitrator, Paul Hawksworth. (Fowler has served on ten previo us panels with Hawksworth; Elizabeth Thompson has served on three; and N. David T ho m pso n and Twigden have each served on one). All of petitioner's nominees (Fowler, Elizabeth Thompson and N. David Thompson) are certified as arbitrators by the AIDA Reinsurance and Insurance Arbitration Society. Acco rding to its website, the Society is "a not-for-profit corporation that promotes im p ro vem en t of the insurance and reinsurance arbitration process for the international and do m estic markets." www. arias-us.org. Senior counsel for Liberty Mutual, petitioner's
paren t company, is the vice president of the Society. However, arbitrators who are certified by the society have to meet objective criteria to maintain their certification. Liberty Mutual has no decision making authority over re-certification. One of respondent's nominees, Cowen, spent six years as an underwriter for one of respo nd ents, syndicate 529 at Lloyd's of London; Twigden is currently collaborating with B aach Robinson (former counsel to respondents in this matter) in serving a mutual client; an d Carter has appointed respondent's party arbitrator Trevor Clegg as an arbitrator and
expert witness for his clients in the past. In addition to being unable to agree on a third arbitrator, the parties do not agree on the appropriate level of neutrality required for their party-appointed arbitrators. The
resinsuran ce contracts provide that "[a]ll arbitrators shall be impartial and disinterested active or former executive officers of insurance or reinsurance companies or Underwriters at L lo yd 's, London . . . and shall make [their] decision considering the custom and practice of the applicable insurance and reinsurance business." The reinsurance agreements further pro vide that if either party nominates an arbitrator whom the other party believes is interested or partial, the other party may "petition the federal court for an order disqualifying the nominated arbitrator." In numerous communications, respondents have to ld petitioner that they believe that party-appointed arbitrators must be impartial and "n eu tral," by which they mean that petitioner should not engage in ex parte communications w i th Hawksworth. Petitioner has responded that party-appointed arbitrators can be nonneu tral and act as advocates for the party that appointed them.
DISCUSSION A. Respondents' Statute of Limitations, Estoppel, Laches Defenses R e sp o nd en ts argue that petitioner Wausau's petition should be dismissed because (1) the relevant statute of limitations for breach of contract claims has expired; and (2) the
do ctrines of equitable estoppel and laches bar petitioner's request for arbitration because petition er's unreasonable delay has prejudiced respondents. The reinsurance contracts between petitioner and respondents contain a choice of law clau se that selects the laws of Wisconsin. Wisconsin law imposes a six-year statute of lim itation s for breach of contract claims. Respondents contend that because petitioner did no t demand arbitration until 2008, seven years after respondents refused to reimburse petition er in 2001, its claims are barred by the Wisconsin statute of limitations. R espondents contend also that petitioner waited too long to seek arbitration; now the m em ories of the witnesses have faded or they are unavailable and documentary evidence has been lost. R e sp o nd en ts' affirmative defenses are issues that should be raised during arbitration, no t on cross petition to this court. Under Wisconsin law and the Federal Arbitration Act, cou rts may decide whether parties agreed to arbitrate certain disputes. Continental Casualty C o. v. American National Ins. Co., 417 F.3d 727, 730 (7th Cir. 2005); Wisconsin Auto T itle Loans, Inc. v. Jones, 2005 WI App 86, ¶ 8, 280 Wis. 2d 823, 696 N.W.2d 214. Co urts look to state-law principles of contract formation, consider whether the scope of the arb itratio n clause is narrow or broad and resolve "any doubts concerning the scope of ar b itr ab le issues in favor of arbitration." Moses H. Cone Memorial Hospital v. Mercury C o n stru ctio n Corp., 460 U.S. 1, 24-25 (1983); Joint School Dist. No. 10, City of Jefferson
v. Jefferson Education Assn., 78 Wis. 2d 94, 104 (1977). If parties are arguing about procedure or affirmative defenses to arbitration such as timeliness, the presumption is that th ese questions should be arbitrated. Zurich American Ins. Co. v. Watts Industies, Inc., 466 F .3 d 577, 581 (7th Cir. 2006) (citing Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 84 (2002)) ("[P]rocedural questions which grow out of the dispute and bear on its final disposition are presumptively not for the judge, but for an arbitrator to decide. So, too, the presum ption is that the arbitrator should decide allegations of waiver, delay, or a like defense to arbitrability") . In the reinsurance contracts at issue here, the parties agreed to arbitrate "any dispute arising out of the interpretation, performance or breach of this Contract." Given this broad arbitration clause and the presumption of arbitrability under Wisconsin law and the Federal A rb itratio n Act, I conclude that respondents' affirmative defenses of timeliness, estoppel and laches are issues that should be reserved for arbitration.
B. Disqualification of Hawksworth R espondents request that the court disqualify petitioner's party-appointed arbitrator, P au l Hawksworth, pursuant to Wisconsin law and the reinsurance contract's arbitration clause which provides that "[a]ll arbitrators shall be impartial and disinterested," because H aw ksw orth is non-neutral. Wisconsin law requires that all arbitrators, including party-
a p p oin ted arbitrators, be neutral and independent unless the parties have explicitly co n tracted for non-neutral arbitrators. Borst v. Allstate Ins. Co., 2006 WI 70, ¶ 20, 291 W is. 2d 361, 717 N.W.2d 42. Petitioner does not argue that Hawksworth is neutral. Instead, it argues that it is the Federal Arbitration Act and not Wisconsin arbitration law th at governs the reinsurance contracts, and the Federal Arbitration Act allows a party appo inted arbitrator to act as an advocate for the party who appointed him. I do not need to decide whether Wisconsin arbitration law applies to the reinsurance con tracts at issue. Even if it did apply to the agreement, I would not disqualify Hawksworth at this time because respondents have not shown that Hawksworth is "impartial" or "nonneu tral." Respondents accuse Hawksworth of being impartial because (1) he may have engaged in ex parte communications with petitioner concerning the merits of the reinsurance dispute; and (2) he is beholden to petitioner's parent company, Liberty Mutual, because he is certified as an arbitrator by the AIDA Reinsurance and Insurance Arbitration Society and senior counsel for Liberty Mutual is the vice president of the society. However,
H aw ksw orth's connections with petitioner through his certification by the AIDA R e in su ran ce and Insurance Arbitration Society are too attenuated to create actual or ap paren t impartiality. Hawksworth's continued certification as an arbitrator is based on objective criteria, such as participating in educational courses, and is not subject to approval by Liberty Mutual. Further, respondents have not offered evidence that Hawksworth has
engaged in ex parte communications with petitioner. Respondents have only speculated about whether these communications occurred, what may have been discussed and how the com m un ication s might have affected Hawksworth's neutrality. Merely alleging that ex parte com m unications may have occurred is not enough to require disqualification of an arbitrator. N ot all ex parte communications destroy impartiality, even under the American Bar Asso ciation 's Code of Ethics which the Wisconsin Supreme Court relied on in Borst. Model C od e of Ethics for Arbitrators in Commercial Disputes, Canon 3 (allowing ex parte con versation s in limited circumstances); Sphere Drake Ins. Co. v. All American Life Ins. Co., 3 0 7 F.3d 617, 620-22 (7th Cir. 2002) (holding that ex parte conversations do not autom atically destroy impartiality). Moreover, unless an arbitrator's impartiality is blatant, it is rare for a court to disqualify an arbitrator while an arbitration is still pending. Gulf Guaranty Life Ins. Co. v. Co nnecticut General Life Ins. Co., 304 F.3d 476, 490 (5th Cir. 2002); Certain Underwriters at Lloyd's London v. Argonaut Ins. Co., 264 F. Supp. 2d 926, 935 (N.D. Cal. 2003); Availl, Inc. v. Ryder System, Inc., 110 F.3d 892, 895-96 (2d Cir. 1997). The proper way in which to insure impartiality and neutrality in arbitration proceedings is for the parties to establish "an atmosphere of frankness at the outset" of arbitration, voluntarily disclose possible biases, im pro per ex parte communications or other conflicts of interest and determine, in co n ju nctio n with the arbitrators, whether an arbitrator violates the requirements of
disinterest and impartiality and should recuse himself. Commonwealth Coatings Corp. v. C o n tin en tal Gas. Co., 393 U.S. 145, 151 (1968); Northern Electric, Inc. v. Local Union 15 8, International Brotherhood of Electrical Workers, 387 F. Supp. 2d 916, 921 (E.D. Wis. 20 05 ). Accordingly, I will not disqualify Hawksworth at this time.
C. Third Arbitrator U nder Section 5 of the Federal Arbitration Act, I am authorized to appoint a third arbitrator in this case: If in the agreement provision be made for a method of naming or appointing an arbitrator or arbitrators or an umpire, such method shall be followed; but if . . . for any other reason there shall be a lapse in the naming of an arbitrator o r arbitrators or umpire, or in filling a vacancy, then upon the application of either party to the controversy the court shall designate and appoint an arbitrator or arbitrators or umpire, as the case may require. 9 U.S.C. § 5. Before addressing the relative qualifications of each of the candidates, I must consider th e qualities and characteristics desirable in a third arbitrator for this type of reinsurance arbitratio n. Travelers Indemnity Co. v. Everest Reinsurance Co., 2004 WL 2297860, *2 (D. C on n. Oct. 8, 2004). The reinsurance contract itself is the starting point for this analysis because it lays out certain specified qualifications that the arbitrators must possess. Under the contract, "[a]ll arbitrators shall be impartial and disinterested active or former executive
officers of insurance or reinsurance companies or Underwriters at Lloyd's, London," and the pan el "shall make it decision considering the custom and practice of the applicable insurance an d reinsurance business." Thus, executive-level knowledge of the insurance and
reinsuran ce industry is mandatory for the prospective third arbitrator. Although the parties argu e about whether the third arbitrator must be knowledgeable about insurance and reinsurance practices in the United States or in the London market, both are relevant to the dispute. A second contract qualification for arbitrators is impartiality. The contract stipulates this absence of bias by requiring that each arbitrator be "impartial and disinterested." The reinsurance contracts also provide that the third arbitrator must "preside at the hearin g." A proposed candidate's experience arbitrating the kinds of reinsurance disputes at issue is relevant in determining whether the third arbitrator could effectively manage the arbitration process. Citrin v. Erikson, 918 F. Supp. 792, 799 (S.D.N.Y. 1996). Turning to the relative qualifications of each candidate, I have considered the com pleted questionnaires and the parties' objections to each candidate as provided in their b riefs. Because all six candidates are lawyers with extensive experience in the insurance and reinsurance industry, I must distinguish between the nominees by considering possible bias an d relevant arbitration experience. Cowen and Carter will be dismissed from consideration because they have no experience acting as arbitrator or umpire (third arbitrator). All other
candidates have some experience arbitrating, but Fowler and N. David Thompson have substantially more experience as umpires than the other candidates. As to bias, respondents object to all of petitioner's nominees because they are "beholden" to petitioner's parent company, Liberty Mutual, because of their certification as arbitrators by the AIDA Reinsurance and Insurance Arbitration Society. As discussed above, arbitrators who are certified by the society have to meet objective criteria to maintain their certificatio n , and Liberty Mutual has no decision making authority over re-certification. Thus, any relationship between the nominees and petitioner is too attenuated to rise to the level of partiality. Next, respondents object to petitioner's nominees because they have each served on arbitration panels with petitioner's party appointed arbitrator, Paul Hawksworth, in the past. Fo w ler has served with Hawksworth on ten previous panels, Elizabeth Thompson has served w ith Hawksworth on three previous panels and N. David Thompson served with H aw ksw orth on one panel nine years ago. Of course, this concern applies equally to
T w igd en , who served with Hawksworth on an arbitration panel in 2006. After considering the relative qualifications of each candidates, I find N. David T ho m pso n to be most qualified to act as third arbitrator in this case. He has the most industry experience, with 47 years in the insurance and reinsurance business. He also has su b s tan tially more umpire experience than any other candidate; he has participated in 68
rein su ran ce and insurance arbitrations, acting as umpire in 65 of them. Finally, he has no significant connections with any of the parties involved or with their appointed arbitrators. Fo r these reasons, I will appoint N. David Thompson as the third arbitrator in this case.
OR DER IT IS ORDERED that 1 . Petitioner Employers Insurance Company of Wausau's motion for oral argument in this matter is DENIED. 2. Petitioner's petition requesting the court to appoint a third arbitrator to preside o ver an arbitration involving petitioner and respondents Certain Underwriters at Lloyds of Lon don, QBE Reinsurance (Europe) Limited, Transatlantic Reinsurance Company, St. Paul R einsurance Company and Unionamerica Insurance Company Limited is GRANTED. N. D avid Thompson is APPOINTED as third arbitrator for the arbitration in this matter. 3. Respondents' cross petition seeking disqualification of petitioner's party appointed arbitrator and dismissal of petitioner's petition based on Wisconsin's statute of limitations, esto ppel and laches is DENIED.
4. The clerk of court is directed to close the case. Entered this 28 t h day of September, 2009. B Y THE COURT: /s/ B AR B AR A B. CRABB D istrict Judge
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