In a decision by the United States District Court for the Southern District of New York, AXA Versicherung AG v. New Hampshire Ins. Co., 05 Civ. 10180 (JSR) (S.D.N.Y. 2010), the court held that certain fraud claims were not a matter of contract interpretation and, therefore, not arbitrable under a provision in a facultative reinsurance agreement that provided for arbitration of disputes “arising out of the interpretation of this agreement.”
The lawsuit was brought by AXA Versicherung AG (“AXA”), the successor in interest to Albingia Versicherung AG (“Albingia”) against three cedents. A jury rendered a verdict in AXA’s favor, finding that the cedents had fraudulently induced Albingia to enter into two reinsurance facilities. The cedents appealed, and the Second Circuit remanded the case to the District Court to make certain findings in relation to whether the claims brought by AXA should have been sent to arbitration (the District Court had previously denied the cedents’ request for a stay, but the Second Circuit found that its reasons for doing so were not clear based on the record). The court concluded that AXA’s fraudulent inducement claim sounded in fraud and that, even if New York law would treat those allegations as duplicative of a contract claim, the court would still find that the claim was not within the scope of the arbitration clause because it did not “arise out of the interpretation” of the contract. Noting that the parties were free to limit the issues they chose to arbitrate, the court explained that arbitration clauses limited to disputes arising out of the “interpretation” of the contract are widely understood to cover only those disputes that can be resolved by reference to the terms of the contract.
The court also found that the cedents had knowingly and intentionally waived their right to arbitrate by not pursuing arbitration at the outset of the case. Instead, the cedents raised that argument in their summary judgment motion and motions in limine in what the court described as “a strategic gambit meant to provide a second bite at the apple in the event that [the cedents] lost in this Court.”