Day Pitney secured a significant victory for those Certain Underwriters at Lloyd's of London ("Lloyd's") who participated as reinsurers on a number of excess-of-loss reinsurance contracts.
Day Pitney initiated arbitration on behalf of Lloyd's when a ceding company's reinsurance billings failed to apply a full annual retention. Lloyd's had paid the amounts due under the treaties after applying the stated retentions. The cedent, however, persisted in seeking additional sums, arguing that a full annual retention should not apply to losses paid pursuant to multi-year insurance policies.
The arbitration Panel issued a unanimous award in Lloyd's favor. The Panel rejected the cedent's billing methodology and held that Lloyd's had paid the full amount due with respect to each of the disputed billings. The Panel also issued a declaration that Lloyd's had fully and finally discharged not only their past and present payment obligations with respect to the disputed accounts, but also their future obligations. The Panel's declaration precluding future billings became the subject of litigation before the U.S. District Court and, ultimately, the Seventh Circuit Court of Appeals.
Day Pitney defended the Panel's declaration in the District Court, where the cedent unsuccessfully sought to vacate the Panel's ban on future billings by arguing that the Panel had exceeded its authority. The District Court held that "the Panel had broad authority pursuant to the honorable engagement provision to grant the remedies the parties sought, including that [Lloyd's] had paid the full amount due. "Thereafter, the cedent appealed to the Seventh Circuit.
The Seventh Circuit characterized the cedent's argument as one about "the consequences for failing to use the proper [billing] methodology. "Like the District Court, the Seventh Circuit relied on the reinsurance contracts' Honorable Engagement clauses to uphold the Panel's declaration. While noting the lack of Seventh Circuit precedent speaking "directly to the question of honorable engagement clauses," the Court held that the arbitrators "had a relatively free hand in deciding how to wrap up the case. "Indeed, the Court noted, "if there were any doubt on that point, the honorable engagement clause should remove it. "Accordingly, the Seventh Circuit affirmed the District Court's ruling and upheld the arbitration Panel's declaration precluding future reinsurance billings.
Michael P. Mullins led the Day Pitney team, and was joined by Chief Justice Chase T. Rogers (ret.), Nicholas M. Lombard and Michael Karpman in the representation of Lloyd's. The matter was covered in the Law360 article, "7th Circ. Sides With Underwriters in Asbestos Claims Fight," which can be found here.