584 F.3d 513 (3rd Cir. 2009), 08-2924, Century Indemnity Co. v. Certain Underwriters at Lloyd's, London, subscribing to Retrocessional Agreement Nos. 950548, 950549, 950646

Docket Nº:08-2924.
Citation:584 F.3d 513
Opinion Judge:GREENBERG, Circuit Judge.
Party Name:CENTURY INDEMNITY COMPANY, Appellant v. CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, SUBSCRIBING TO RETROCESSIONAL AGREEMENT NOS. 950548, 950549, and 950646.
Attorney:Carter G. Phillips (argued), William M. Sneed, Melanie Jo Triebel, Sidley Austin LLP, Chicago, IL, Lawrence Nathanson, Siegal & Park, Mount Laurel, NJ, for Appellant. Mark J. Hill, Mark J. Hill & Associates, Philadelphia, PA, John M. Wulfers, Hugh S. Balsam, Susan P. Jordan (argued), Locke Lord B...
Judge Panel:Before McKEE, HARDIMAN and GREENBERG, Circuit Judges.
Case Date:October 15, 2009
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 513

584 F.3d 513 (3rd Cir. 2009)

CENTURY INDEMNITY COMPANY, Appellant

v.

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, SUBSCRIBING TO RETROCESSIONAL AGREEMENT NOS. 950548, 950549, and 950646.

No. 08-2924.

United States Court of Appeals, Third Circuit.

October 15, 2009

Argued June 2, 2009.

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[Copyrighted Material Omitted]

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Carter G. Phillips (argued), William M. Sneed, Melanie Jo Triebel, Sidley Austin LLP, Chicago, IL, Lawrence Nathanson, Siegal & Park, Mount Laurel, NJ, for Appellant.

Mark J. Hill, Mark J. Hill & Associates, Philadelphia, PA, John M. Wulfers, Hugh S. Balsam, Susan P. Jordan (argued), Locke Lord Bissell & Liddell LLP, Chicago, IL, for Appellee.

Before McKEE, HARDIMAN and GREENBERG, Circuit Judges.

OPINION

GREENBERG, Circuit Judge.

I. INTRODUCTION 518
II. BACKGROUND 519
A. Insurance, Reinsurance, and Retrocession 519
B. The Dispute 519
III. JURISDICTION AND STANDARD OF REVIEW 521
IV. DISCUSSION 522
A. Whether the District Court Properly Compelled Arbitration Based on the Retrocessional Agreements' Incorporation of the Reinsurance Treaties 522
1. The Federal Arbitration Act 522
2. Compelling Arbitration 523
3. Whether the Retrocessional Agreements' Incorporation-by- Reference Language Effected a Valid Agreement to Arbitrate Between Century and Lloyd's 524
a. Two Threshold Issues Regarding the Standards That Apply When Determining Whether There Is a Valid Agreement to Arbitrate 525
(1) Whether the Presumption in Favor of Arbitration Applies to the Initial Question Whether the Parties Agreed to Arbitrate 525
(2) The " Express" and " Unequivocal" Standard 527
b. Whether Century and Lloyd's Agreed to Arbitrate Disputes Arising from the Retrocessional Agreements 532
(1) Choice of Law: Pennsylvania law applies 532
(2) Principles of Pennsylvania Contract Law 533
(3) Binding Nonsignatories Through Incorporation by Reference 533
c. Construing the Retrocessional Agreements Under Pennsylvania Law 534
d. Three Surety Cases in Which General Incorporation Provisions Effectively Incorporate Arbitration Agreements 535
e. Declining to Incorporate Restrictively Worded Arbitration Clauses That Refer to the Immediate Parties 538
f. Questions of Existence and of Scope 544
g. John F. Harkins Co 547
h. Incorporation by Reference for a Limited Purpose 548
i. The Retrocessional Agreements 549
(1) The Agreement's Language and Structure 549
(2) Construing the Agreement 550
(3) Language Lacking from the Incorporation Clauses 552
(4) Century's Problems 553
(5) The Forum-Selection and Service-of-Suit Clause 554
(6) Imprecision in Incorporation by Reference 554
4. Whether This Particular Dispute Falls Within the Scope of Century and Lloyd's Valid Agreement to Arbitrate 555
5. Whether The District Court Properly Compelled Arbitration 556
B. Whether the Arbitration Award Should Be Vacated Because the Arbitrators Excluded Certain Evidence from Consideration 556
V. CONCLUSION 559
Page 518 I. INTRODUCTION This matter comes on before this Court on an appeal by appellant Century Indemnity Company (" Century" ) from two orders of the District Court, one entered May 18, 2006, granting a motion of appellee Certain Underwriters at Lloyd's, London (" Lloyd's" ) to compel arbitration of a disputed claim based on a set of reinsurance-of-reinsurance agreements, and one entered May 30, 2008, denying Century's motion to vacate an arbitration panel's subsequent award in favor of Lloyd's. Inasmuch as we conclude both that there was a valid agreement to arbitrate between Century and Lloyd's and that the dispute in this case falls within the scope of that agreement, we hold that the District Court properly compelled the parties to submit their dispute to arbitration. Moreover, because we reject Century's argument that the arbitration panel deprived it of a fair hearing when the panel excluded certain evidence that Century proposed to introduce, we also hold that the District Court properly denied Century's motion to vacate the arbitration panel's award. Page 519 II. BACKGROUND A. Insurance, Reinsurance, and Retrocession Insurance, the shifting of risk through contract, may involve multiple layers of shifts. To start the process, insurance companies issue policies under which the insurer assumes certain risks in exchange for premiums that the policyholders pay. The insurance companies then may pass on all or part of the risk through reinsurance agreements, in which another insurance company provides insurance of all or part of the first insurer's risk by accepting such risk in exchange for a percentage of the original premium.1 Reinsurance agreements covering classes or lines of business, rather than a particular policy, are called reinsurance treaties. Subsequently, reinsurers may seek to spread their exposure to risk through further reinsurance. The reinsurance of reinsurance is called a retrocession, and the reinsurers of reinsurers-that is, reinsurers who assume retrocession risk through retrocessional agreements-are called retrocessionaires.2 This case involves a dispute between Century, the original reinsurer, and Lloyd's, the retrocessionaire, arising from three retrocessional agreements under which Lloyd's agreed to reinsure certain reinsurance treaties that Century's predecessor had formed with Argonaut Insurance Company (" Argonaut" ), another insurer that was the original insurer of the insured in the policies underlying the litigation. B. The Dispute The material facts are not in dispute. Century's predecessor, the Insurance Company of North America (" INA" ), reinsured Argonaut according to the terms of three excess-of-loss treaties (the " reinsurance treaties" ). Argonaut had issued insurance policies to its insureds, Western Asbestos Company and Western MacArthur Company (together " Western" ), to cover losses from Western's distribution of asbestos products. INA, Century's predecessor, then entered into three retrocessional agreements with Lloyd's (the " retrocessional agreements" ), pursuant to which Lloyd's agreed to pay 90% of the losses in return for 90% of the premiums that accrued to Century's predecessor under the corresponding reinsurance treaties.3 In the late 1970s, Western began receiving injury claims from persons allegedly exposed to asbestos who sought to hold Western responsible for injuries traceable to their exposure. Western looked to Argonaut for coverage on the insurance policies that Argonaut had issued and that Western believed protected it against those claims, but Argonaut resisted Western's efforts, a position that led to declaratory judgment litigation between Western and Argonaut over the scope of the policies' coverage. Argonaut then sought reimbursement for its litigation expenses from Century under its reinsurance treaties with Century. Century concluded that the reinsurance Page 520 treaties entitled Argonaut to recover those expenses and, accordingly, in 2001 made payments to Argonaut pursuant to the reinsurance treaties. After paying Argonaut, Century turned to Lloyd's, its retrocessionaire, for Lloyd's's 90% share of Century's payout to Argonaut pursuant to the retrocessional agreements between Century and Lloyd's. Lloyd's refused to pay the approximately $2.2 million that Century sought, contending that it did not owe the reimbursement because Century should not have paid Argonaut for the declaratory judgment litigation expenses. This lawsuit followed. Century sued Lloyd's in the Court of Common Pleas in Philadelphia County to recover the amount that Century alleged that Lloyd's owed it under the retrocessional agreements.4 Lloyd's answered the complaint filed in state court, asserting that the retrocessional agreements incorporated the reinsurance treaties' arbitration clauses and that therefore the dispute should be arbitrated, and then Lloyd's removed the case to the District Court pursuant to 9 U.S.C. § 205.5 In the District Court, Century moved to remand the case to the state court and Lloyd's moved to compel arbitration. Of course, it was not immediately obvious that Lloyd's was entitled to arbitrate because the retrocessional agreements did not include arbitration provisions. Lloyd's nevertheless claimed that Century could be compelled to arbitrate their dispute because the retrocessional agreements incorporated by reference the arbitration clauses contained in the reinsurance treaties. The arbitration clauses in the reinsurance treaties state: " [i]f any dispute shall arise between the Company [Argonaut] and INA [Century] with reference to the interpretation of this Agreement or their rights with respect to any transaction involved, the dispute shall be referred to [arbitration]." App. at 59-60, 101, 127 (bracketed material added). The retrocessional agreements between Century and Lloyd's contain language referring to and incorporating " all" of the reinsurance treaties. Lloyd's contended that the incorporation-by-reference provision in the retrocessional agreements incorporating " all" of the reinsurance treaties...

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