The United States Court of Appeals for the Seventh Circuit recently affirmed a district court’s decision finding that a cedent’s appointment of an arbitrator in a reinsurance arbitration was invalid because it did not fall within the time limitations set forth by the reinsurance contract at issue. See Certain Underwriters at Lloyd’s London v. Argonaut Ins. Co., No. 06-3395 (7th Cir. Aug. 29, 2007).
Certain Underwriters at Lloyd’s London (“Lloyd’s”) entered into various reinsurance treaties (the “Treaties”) with Argonaut Insurance Company (“Argonaut”). The Treaties contained an arbitration clause that provided, in relevant part, as follows:
“If any dispute shall arise between the Company [Argonaut] and the Underwriters [Lloyd’s] with reference to the interpretation of this Agreement…this dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen. If either party refuses or neglects to appoint an arbitrator within thirty days after receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators, who shall choose the third.” (Emphasis added.)
Argonaut settled certain asbestos-related claims brought against one of its insureds, Western MacArthur, and sought reimbursement from Lloyd’s under the Treaties. After receiving Argonaut’s cession, Lloyd’s requested supporting information from Argonaut related to the subject claims and, in response, Argonaut demanded arbitration. Argonaut’s arbitration demand requested that Lloyd’s name its party-appointed arbitrator within thirty days, as set forth in the Treaties. Several days later, Lloyd’s requested that Argonaut nominate its party-appointed arbitrator within the proscribed period.
Consistent with the Treaties, Lloyd’s appointed its arbitrator within the thirty-day period, but Argonaut failed to do so. Instead, Argonaut appointed its arbitrator on the thirty-second day after it received Lloyd’s request. Prior to Argonaut’s appointment of its arbitrator, Lloyd’s invoked the default provision in the Treaties’ arbitration clause and appointed a second arbitrator.
Lloyd’s filed a declaratory judgment action in the United States District Court for the Northern District of Illinois seeking confirmation of its appointment of the two arbitrators. Argonaut opposed the petition, arguing that California law governed the dispute and that under the law of that state, the last day for selecting an arbitrator was not the thirtieth-day from Lloyd’s request, since that day fell on a Sunday and the next day was a U.S. holiday (Labor Day). Instead, Argonaut asserted that the day on which it named its party-appointed arbitrator, the thirty-second day, was the actual expiration date for a party to appoint its arbitrator under the Treaties. Argonaut also withdrew its initial arbitration demand, without prejudice and under a reservation of rights, and filed a motion to dismiss on the grounds that the court lacked subject matter jurisdiction to hear the dispute, claiming that the controversy had been rendered “moot.”
The district court granted Lloyd’s motion for summary judgment, holding that under federal common law principles, the terms of the arbitrator selection clause in the Treaties should be strictly enforced, with no extension of time for weekends and holidays. The court also rejected Argonaut’s jurisdictional argument, finding that Argonaut could not circumvent Lloyd’s right under the Treaties to appoint a second arbitrator simply by ending the arbitration proceeding with the clear intent to bring a new one against Lloyd’s in the future.
In affirming the district court’s decision, the Seventh Circuit found that the controversy was not “moot,” since Argonaut “explicitly reserved its rights to institute a new arbitration proceeding, evincing its intent to move forward with a course of conduct the legality of which the district court in this action was charged with deciding.” Id. at 9. Thus, the controversy was within the jurisdiction of the court.
As for the enforceability of the arbitrator selection clause in the Treaties, the Seventh Circuit noted that the arbitration clause at issue fell within the scope of the New York Convention, 9 U.S.C. § 201, et seq. (the “Convention”), which governs certain arbitration agreements involving foreign entities. While the Convention is silent on whether to apply federal or state law in interpreting arbitration agreements that do not contain choice of law provisions, the Seventh Circuit held that “substantial federal interests in uniform interpretation of agreements under the Convention justify the application of a uniform rule of decision on the question presented.” Id. at 22. Thus, the court found that, in the absence of an express choice of law provision in the Treaties, “a uniform federal rule that enforces strongly arbitration deadlines under the Convention is necessary and appropriate” and neither California law nor any other state-specific exceptions that would extend the deadlines set forth in the arbitration clause applied.
