Ario v. The Underwriting Members Of Syndicate 53 At Lloyds For The 1998 Year Of Account
Decision Date | 18 August 2010 |
Docket Number | No. 09-1921,09-2991.,09-2989,09-1921 |
Parties | Joel S. ARIO, Insurance Commissioner of the Commonwealth of Pennsylvania, in his official capacity as the statutory liquidator of Legion Insurance Company (in liquidation);*Pepper Hamilton, LLP, Appellant (09-1921)v.The UNDERWRITING MEMBERS OF SYNDICATE 53 AT LLOYDS FOR the 1998 YEAR OF ACCOUNT, Cross-Appellants (09-2991).*(Pursuant to F.R.A.P. 12(a) (09-2989 only)).Joel S. Ario, Insurance Commissioner of the Commonwealth of Pennsylvania, in his official capacity as the statutory liquidator of Villanova Insurance Company (in liquidation);*Pepper Hamilton, LLP, Appellant (09-1922)v.The Underwriting Members of Syndicate 53 at Lloyds for the 1998 Year of Account, Cross-Appellants (09-2992).*(Pursuant to F.R.A.P. 12(a) (09-2990 only)). |
Court | U.S. Court of Appeals — Third Circuit |
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Deborah F. Cohen, Esquire (Argued), Joann Hyle, Esquire, Kassem Lucas, Esquire, Thomas B. Schmidt, III, Esquire, Philadelphia, PA, for Appellant/Cross-Appellee Joel S. Ario.
Nancy J. Gellman, Esquire (Argued), Conrad O'Brien PC, Philadelphia, PA, for Appellant Pepper Hamilton LLP.
Joseph M. Donley, Esquire, Thorp, Reed & Armstrong, Philadelphia, PA, David M. Raim, Esquire (Argued), Washington, DC, for Appellees/Cross-Appellants of Syndicate 53.
Before AMBRO, SMITH, and ALDISERT, Circuit Judges.
We confront here the interplay between the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “Convention”) adopted June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 3, and the Federal Arbitration Act (“FAA”), 9 U.S.C. § 1 et seq. We also address the propriety of sanctions awarded in the related litigation. For the reasons that follow, we affirm the judgments of the District Court confirming the arbitration award and denying one of the requested Rule 11 sanctions, but we reverse its judgment awarding the other Rule 11 sanction.
I. Factual and Procedural HistoryA. The reinsurance treaties
Two Pennsylvania insurers, Legion Insurance Company and Villanova Insurance Company (collectively, the “primary insurers”), entered into reinsurance treaties 1 with the Underwriting Members of Syndicate 53 at Lloyd's for the 1998 Year of Account (the “reinsurers”).2 The primary insurers are now in liquidation, and they are represented in these actions by their statutory liquidator, Joel S. Ario, the Insurance Commissioner for the Commonwealth of Pennsylvania.3
Four reinsurance treaties are at issue here, all with identical language in the relevant provisions, differing only in the limits and types of coverage provided. The first relevant provision governs arbitration, and it is reproduced here in its entirety:
J.A. 141, 156, 173, 187. The second relevant provision is the service-of-suit provision, reproduced in part below:
B. The coverage dispute and arbitration
Years after the reinsurance treaties were signed, a dispute arose between the primary insurers and the reinsurers. The reinsurers asserted that the primary insurers were not underwriting the business as described in the initial placement materials ( i.e., the pool risks were not what the reinsurers expected them to be based on the primary insurers' prior representations). The reinsurers alleged that the primary insurers underwrote their business in a manner that, while increasing premium volume for the primary insurers, also exposed the reinsurers to increased risk. A September 2005 audit by the reinsurers purportedly exposed these problems.
The reinsurers argued that they had suffered substantial losses as a result of the primary insurers' misconduct, and they refused to pay the claims of the primary insurers. The primary insurers responded by demanding arbitration on September 18, 2006, in the hope of recovering their share of losses under the reinsurance treaties ( i.e., what the primary insurers believed was owed to them by the reinsurers under the treaties).
The parties agreed that the dispute was arbitrable, and they proceeded to arbitration. The primary insurers asked the arbitration panel to award it the full amount due under the reinsurance treaties, plus interest. The reinsurers argued that the treaties should be rescinded (and thus, their obligations to pay the primary insurers extinguished) based on eight separate legal theories. 4 The primary insurers denied the contentions. Broad discovery was conducted, resulting in document production, depositions, and expert reports; the parties submitted briefs; and a nine-day evidentiary hearing was held in which both parties made opening and closing statements, and thoroughly examined and cross-examined 11 witnesses.
The testimony of one witness in particular, Ian Crane, though only a small part of the arbitration proceedings, factors prominently in our case. Crane was an employee of the managing agent for the reinsurers, and he participated in the underwriting of the treaties at issue here. He testified to the circumstances under which he received the placement materials from the primary insurers and the effect of those materials on underwriting. However, he did not specifically recall the precise communications between the primary insurer and the reinsurers, and he did not recall his exact knowledge and thoughts at the time of the reinsurance underwriting. Instead, he based his testimony on documents (including three documents that are not part of or cited in the reinsurance treaties, but are communications between the primary insurers and the reinsurers and their agents) 5 that he saw years ago during the placement process.
Following the discovery, briefing, and evidentiary hearing, the arbitration panel issued an award rescinding three of the four treaties. On the rescinded treaties, the reinsurers were relieved of any obligation to pay losses owing; on the remaining treaty, the reinsurers were ordered to pay losses owing. This award was a so-called unreasoned award, as the panel neither provided the rationale for its decision nor gave any indication of the evidence on which its decision was based.
C. Post-arbitration litigation
The primary insurers have been in liquidation proceedings in the Commonwealth Court of Pennsylvania since mid-2003. Following the arbitration award, on August 6, 2008, Ario (as liquidator on behalf of the primary insurers) filed a motion to confirm in part, and to vacate in part, the award as part of the liquidation proceedings. Shortly thereafter, the reinsurers removed the case to the District Court for the ...
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