Ancon Insurance Co. (U.K.) v. Ge Reinsurance Corp.

Citations: 480 F. Supp. 2d 1278; 2007 U.S. Dist. LEXIS 24822; 2007 WL 960050Docket: 06-2106-CM

Court: District Court, D. Kansas; March 30, 2007; Federal District Court

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Ancon Insurance Company (U.K. Limited) seeks to compel arbitration with GE Reinsurance Corporation regarding an adverse selection clause in their commercial reinsurance agreement, contesting the appointment of arbitrators. Ancon requests the court to confirm John F. Chaplin as its arbitrator and to void GE Re's appointment of Robert J. Federman. Conversely, GE Re aims to confirm Federman's appointment and declare Chaplin's appointment void. The case centers on a tripartite arbitration provision in their reinsurance contract, which outlines the process for appointing arbitrators and stipulates that disputes are to be settled by arbitrators who are executive officers of insurance or reinsurance companies not under either party's control. The agreement emphasizes that arbitrators should interpret it with an honorable engagement rather than a strict legal obligation. The parties have filed cross-motions for summary judgment, and the court is prepared to make a ruling.

Arbitration is to occur in the location of the Reassured's Head Office unless otherwise agreed. On February 2, 2006, GE Re initiated arbitration against Ancon concerning a claim under their reinsurance agreement, directing the demand to Cavell Management Services Limited, which was handling aspects of Ancon's UK business. GE Re had previously communicated with Cavell about amounts owed by Ancon since mid-2005, but these discussions had not resolved the disputes. Cavell received the arbitration demand on February 6, 2006, but mistakenly stamped it as received on February 13, 2006, leading to confusion. Ancon's counsel incorrectly stated they received the demand on February 13 and indicated they would appoint their arbitrator by March 15, 2006.

Cavell's employee mistakenly confirmed to Ancon's counsel that the demand was received on February 13. On March 6, Cavell informed GE Re that the demand had been received on February 7, which was forwarded to GE Re's counsel. Ancon's counsel appointed John F. Chaplin as its arbitrator on March 13, 2006, unaware of Cavell's prior communication. GE Re contended that Ancon's appointment was untimely, as the appointment was due by March 8, 2006, according to their agreement. Following this, GE Re appointed Robert J. Federman as Ancon's arbitrator. Ancon filed a lawsuit on March 22, 2006, seeking to compel arbitration, confirm Chaplin's appointment, and declare GE Re's appointment of Federman void. GE Re filed a counterclaim on April 6, 2006, also seeking to compel arbitration but confirming Federman's appointment and declaring Chaplin's appointment void.

Summary judgment is granted when the moving party shows there are no genuine issues of material fact and is entitled to judgment as a matter of law. The court evaluates evidence in favor of the nonmoving party, considering a fact "material" if it is essential under substantive law and "genuine" if sufficient evidence exists for a rational fact-finder to resolve the issue. The moving party must initially demonstrate the absence of genuine issues and need not negate the opposing claim but highlight a lack of evidence on an essential element. Once this burden is met, the nonmoving party must present specific admissible facts that indicate a genuine issue for trial, using affidavits, depositions, or exhibits. Summary judgment is a vital process aimed at achieving efficient and just resolutions.

The parties' cross-motions for summary judgment focus on two main issues: (1) whether GE Re was entitled to designate Ancon's party-appointed arbitrator and (2) whether GE Re has waived or is equitably estopped from claiming Ancon's appointment of Mr. Chaplin was untimely. Ancon argues for the confirmation of Mr. Chaplin's appointment despite a five-day delay, asserting that the overall purpose of their agreement is a fair arbitration process. Ancon claims the adverse selection clause is secondary to achieving a balanced panel, noting that the agreement does not emphasize timeliness. Conversely, GE Re contends that the adverse selection clause must be enforced in alignment with the Federal Arbitration Act (FAA) and Kansas contract law principles, arguing Ancon relies on outdated judicial views against arbitration. The court observes a lack of choice-of-law analysis in the parties' submissions and states that the reinsurance agreement mandates jurisdiction in any U.S. court upon a reinsurer's failure to pay, thus establishing that Kansas law applies to this dispute.

No Kansas appellate court, this court, or the Tenth Circuit has established law directly addressing the issue at hand. The cases referenced by the parties present situations where one party attempted to appoint an arbitrator after the deadline specified in the arbitration agreement's adverse selection clause. The court finds the rationale in the cases cited by Ancon, particularly the precedent set in *In re Utility Oil*, more persuasive than that of GE Re. In *Utility Oil*, the court did not strictly enforce the adverse selection clause due to a delay in appointing an arbitrator, attributing it to a disagreement over arbitrability. The ruling emphasized that unless clearly stipulated, time constraints in arbitration agreements are not considered essential unless a party has acted in bad faith or with unreasonable neglect. In the current case, Ancon's five-day delay in appointing its arbitrator was based on a simple mistake regarding the arbitration demand date. The court concurs with Ancon that such a minor error should not allow GE Re to dominate the arbitration panel by appointing two arbitrators unilaterally. The decision underscores that arbitration aims for a fair and balanced resolution, advocating for a panel chosen by both parties to avoid unnecessary litigation and maintain the original intent of the arbitration agreement.

The Sixth Circuit Court of Appeals declined to strictly enforce an adverse selection clause, emphasizing that contract interpretation should focus on the parties' intent, with time being non-essential unless explicitly stipulated. This contrasts with the approach taken in Universal Reinsurance, where the Seventh Circuit enforced a similar clause despite a party's typographical error that caused a delay in naming an arbitrator. The court noted that the arbitration agreement clearly outlined the appointment process and that strict adherence to this provision, while potentially undermining confidence in the arbitration panel, was legally justified. The court criticized the notion that a minor delay, even by a minute, would lead to forfeiture of rights, asserting that both parties, being sophisticated entities with legal counsel, chose not to make time of the essence in their agreement. Ancon’s delay was attributed to an agent's mistake, not bad faith, and the court found that enforcing the provision strictly would likely result in an arbitration judgment that Ancon would distrust. Furthermore, the court saw no prejudice to GE Re from this ruling, as the arbitration process would still proceed as intended, involving both parties' appointed arbitrators and a third arbitrator.

The court emphasizes that the parties' agreement should be interpreted and enforced with the goal of resolving disputes through an impartial arbitration panel, ensuring both parties' confidence in the outcome. Consequently, Ancon's appointment of Mr. Chaplin as its arbitrator is confirmed, while GE Re's appointment of Mr. Federman is declared void. Ancon's argument regarding the timeliness of its appointment is rendered moot by the court's ruling. 

The court orders the following: 
1. Ancon's motion for summary judgment is granted.
2. GE Re's motion for summary judgment is denied.
3. Both parties are required to proceed with arbitration, confirming Chaplin's appointment and voiding Federman's. Chaplin and GE Re's appointed arbitrator, Robert K. Burgess, will select a third member for the arbitration panel.

The magistrate judge notes that few matters remain to be addressed and suggests an entry of judgment as per Fed. R. Civ. 58. If GE Re intends to appeal, counsel must notify Judge Murguia's chambers; otherwise, they should confer on discovery and case management and submit an updated report by May 16, 2007. The document also references the assignment of the case to the magistrate judge and stipulations regarding undisputed facts and documents relevant to the motions for summary judgment.

Key points address the principles of appointment delays in arbitration as established in various court cases. The excerpt highlights that minor delays in appointing an arbitrator, when not accompanied by bad faith, do not necessarily deprive a party of their right to appoint an arbitrator as per their agreement. The courts have ruled that merely stating a timeline in an arbitration clause does not make timing essential unless explicitly indicated. 

Several cases illustrate this, such as *Utility Oil Corp.*, *Lobo Co.*, and *New England Reins. Corp.*, which show varying degrees of delay and their repercussions. The excerpt also notes a divergence in interpretations of Kansas law regarding contract interpretation, particularly in the context of arbitration agreements, with differing conclusions drawn from the cases cited by both parties. The court emphasizes that the cited Kansas cases do not directly address arbitration agreements, suggesting that the previously mentioned cases provide more relevant guidance for the current issue.