Connecticut Gen Life Ins Co v. Sun Life Co. Canada

• Citation: 210 F.3d 771
• Decision Date: 27 April 2000
• Docket Number: Nos. 99-4085,99-4106,s. 99-4085
• Parties: (7th Cir. 2000) Connecticut General Life Insurance Company, et al., Petitioners/Cross-Respondents/Appellees, v. Sun Life Assurance Company of Canada, et al., Respondents/Cross-Petitioners/Appellants, v. Unicover Managers, Inc., et al., Third-Party Respondents/Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 771

210 F.3d 771 (7th Cir. 2000)

Connecticut General Life Insurance Company, et al., Petitioners/Cross-Respondents/Appellees, v. Sun Life Assurance Company of Canada, et al., Respondents/Cross-Petitioners/Appellants, v. Unicover Managers, Inc., et al., Third-Party Respondents/Appellees.

Nos. 99-4085, 99-4106

In the United States Court of Appeals For the Seventh Circuit

Argued March 27, 2000

Decided April 27, 2000

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. Nos. 99 C 6491 & 6512--William J. Hibbler, Judge.

Before Posner, Chief Judge, and Flaum and Williams, Circuit Judges.

Posner, Chief Judge.

These consolidated appeals ask: When does a federal district court have the power to order the consolidation of arbitration proceedings before a single arbitral panel? The question grows out of a reinsurance contract between two (overlapping) sets of insurance companies. One set, the three "retrocessionaires" (Sun, Phoenix, and Cologne), agreed to reinsure workers' compensation reinsurance policies issued by the other set, the seven "retrocedents." (Two of the retrocessionaires, Phoenix and Cologne, are also retrocedents.) For clarity we'll call the retrocessionaires the "reinsurers," and the retrocedents the "insurers," though in fact both sets of companies are reinsurers, there being many layers of reinsurance in the workers' compensation insurance market.

The contract was negotiated on behalf of the insurers by Unicover Managers, Inc., described in the contract as their "manager." Unicover is a middleman in the workers' compensation reinsurance market. Although not technically an insurance company, it issues reinsurance contracts to insurance companies (the retrocedents in this case) and then in effect assigns these contracts to other insurance companies (the retrocessionaires), who then bear the risk created by the contracts and reap the premiums that the contracts specify.

The contract contains an arbitration provision pursuant to which Sun and Phoenix served a demand for arbitration on Unicover and its insurers. Four of the latter responded by filing their own demands, each seeking a separate arbitration between itself, on the one hand, and Sun and Phoenix, on the other. Each of the six companies filed a motion in the federal district court in Chicago (the venue prescribed by the arbitration provision of the contract) pursuant to section 4 of the Federal Arbitration Act, 9 U.S.C. sec. 4, to compel arbitration. The district court denied the reinsurers' motion for a single arbitration and granted the insurers' motions for separate arbitrations; its order, which wound up the proceedings in the district court, is appealable under 9 U.S.C. sec. 16(a)(3). See Iowa Grain Co. v. Brown, 171 F.3d 504, 507-08 (7th Cir. 1999); Napleton v. General Motors Corp., 138 F.3d 1209, 1212 (7th Cir. 1998); Augustea Impb Et Salvataggi v. Mitsubishi Corp., 126 F.3d 95, 99 (2d Cir. 1997). (Whether our test for the appealability of such orders is too demanding is at present before the Supreme Court. See Randolph v. Green Tree Financial Corp.-Alabama, 178 F.3d 1149, 1152-57 (11th Cir. 1999), cert. granted, 2000 WL 122150 (U.S. Apr. 3, 2000); Napleton v. General Motors Corp., supra, 138 F.3d at 1216-18 (dissenting opinion).) Two of the other insurers settled, and the position of the remaining two (which includes one of the companies that is both a retrocessionaire and a retrocedent, Cologne Life Reinsurance Company) is unclear. Sun and Phoenix stated in their demand for arbitration that they were seeking rescission of the reinsurance contract, plus damages, on the ground of fraud by Unicover (for which, they contend, the insurers, as Unicover's principals, are liable) in both the inducement and the performance of the contract. The potential damages could, we are told, exceed $2 billion.

None of the parties contends that the issue of one versus many arbitrations is for the arbitrators rather than the court to decide. The arbitration provision in the contract does not address the question of who decides, cf. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 945 (1995), and there are compelling practical objections to remitting the question to the arbitrators. See Thomas J. Stipanowich, "Arbitration and the Multiparty Dispute: The Search for Workable Solutions," 72 Iowa L. Rev. 473, 513 (1987). Arbitral panels are ad hoc, making it difficult to coordinate their decisions on such a question. And there are no contractual or statutory provisions for transferring cases between panels, should multiple arbitrations be commenced when the contract envisaged a single consolidated one.

In defending the district court's refusal to order the single arbitration sought by their opponents, the insurers press upon us a series of cases in this and other courts that, they say, hold that a federal district court cannot grant a motion to consolidate separate arbitration proceedings unless the contract on which the arbitration is founded expressly authorizes consolidation. Champ v. Siegel Trading Co., 55 F.3d 269, 275-77 (7th Cir. 1995); Glencore, Ltd. v. Schnitzer Steel Products Co., 189 F.3d 264 (2d Cir. 1999); Government of United Kingdom v. Boeing Co., 998 F.2d 68, 71-74 (2d Cir. 1993); American Centennial Ins. Co. v. National Casualty Co., 951 F.2d 107 (6th Cir. 1991); Baesler v. Continental Grain Co., 900 F.2d 1193 (8th Cir. 1990); Protective Life Ins. Corp. v. Lincoln Nat'l Life Ins. Corp., 873 F.2d 281 (11th Cir. 1989) (per curiam); Del E. Webb Construction v. Richardson Hospital Authority, 823 F.2d 145, 150 (5th Cir. 1987); Weyerhaeuser Co. v. Western Seas Shipping Co., 743 F.2d 635 (9th Cir. 1984). All that these cases actually hold, however, is that unless the contract provides for consolidated arbitration, the court cannot order it. E.g., Government of United Kingdom v. Boeing Co., supra, 998 F.2d at 72 ("Each of our sister circuit courts that has considered the question since these Supreme Court decisions has held that district courts do not have the authority under the FAA to consolidate arbitrations absent the parties' consent") (emphasis added); American Centennial Ins. Co. v. National Casualty Co., supra, 951 F.2d at 108 ("we align ourselves with the view taken by the Fifth, Eighth, Ninth, and Eleventh Circuits, and hold that a district court is without power to consolidate arbitration proceedings, over the objection of a party to the arbitration agreement, when the agreement is silent regarding consolidation") (emphasis added).

A court can in appropriate circumstances consolidate cases before it (just as we have consolidated the three separate appeals taken from the district court's order), whether or not the parties want the cases consolidated, e.g., Fed. R. Civ. P. 42(a), or stay or transfer a case in order to enable the consolidated or otherwise orderly disposition of multiple proceedings. E.g., 28 U.S.C. sec. 1404; Finova Capital Corp. v. Ryan Helicopters U.S.A., Inc., 180 F.3d 896 (7th Cir. 1999); Evans Transportation Co. v. Scullin Steel Co., 693 F.2d 715 (7th Cir. 1982). But it cannot consolidate, transfer, etc. arbitration proceedings in defiance of the parties' wishes or contractual undertakings. The arbitration of contractual disputes pursuant to an arbitration clause in the contract is not a stage in a judicial proceeding but an alternative to such a proceeding, and the court cannot mess in the arbitrators' procedures beyond the very limited extent permitted by sections 9 and 10 of the Federal Arbitration Act (the provisions governing judicial review of arbitration awards). E.g., Baravati v. Josephthal, Lyon & Ross, Inc., 28 F.3d 704, 709 (7th Cir. 1994); UHC Management Co. v. Computer Sciences Corp., 148 F.3d 992, 997 (8th Cir. 1998). But we cannot see any reason why, in interpreting the arbitration clause for purposes of deciding whether to order consolidation, the court should (as the language we quoted from the American Centennial case might, if read literally, be thought to suggest) place its thumb on the scale, insisting that it be "clear," rather than merely more likely than not, that the parties intended consolidation. It is not as if consolidation of arbitration proceedings were somehow disfavored; quite the contrary--the same considerations of adjudicative economy that argue in favor of consolidating closely related court cases argue for consolidating closely related arbitrations. To repeat, the court has no power to order such consolidation if the parties' contract does not authorize it. But in deciding whether the contract does authorize it the court may resort to the usual methods of contract interpretation, just as courts do in interpreting other provisions in an arbitration clause. See, e.g., First Options of Chicago, Inc. v. Kaplan, supra, 514 U.S. at 944; Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62-63 (1995); Volt Information Sciences, Inc. v. Board of Trustees, 489 U.S. 468, 475 (1989); Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987); Brennan v. King, 139 F.3d 258, 264 (1st Cir. 1998).

The arbitration provision in this case neither clearly permits nor clearly forbids consolidation. In fact, it's a muddle, suggesting that the parties did not think about the issue. So far as bears on the question of consolidation, the provision reads as follows:

Any dispute arising out of the interpretation, performance or breach of this Agreement, including the formation or validity thereof, will be submitted for decision to a panel of three arbitrators. . . . One arbitrator will be chosen by each party [and the party-designated arbitrators will then choose a third, a neutral to preside over the panel and presumably cast the deciding vote in a close case] . . . . Unless otherwise mutually agreed by the parties, arbitration will take place in Chicago . . . . If more than one Retrocessionaire is involved in arbitration where there...