Employers Ins. of Wausau v. National Union Fire Ins. Co. of Pittsburgh
| Decision Date | 20 May 1991 |
| Docket Number | No. 89-16307,89-16307 |
| Citation | 933 F.2d 1481 |
| Parties | EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Plaintiff-Counter-Defendant, Appellee, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, Defendant-Counter-Claimant, Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Michael F. Perlis, Stroock, Stroock & Lavan, Los Angeles, Cal., for defendant-counter-claimant, appellant.
Timothy Regan, Zelle & Larson, Minneapolis, Minn., for plaintiff-counter-defendant, appellee.
Appeal from the United States District Court for the Northern District of California.
Before TANG, FARRIS and D.W. NELSON, Circuit Judges.
The district court affirmed a tripartite arbitration panel's decision that Employers Insurance of Wausau ("Wausau") could offset claims made by National Union Fire Insurance Company of Pittsburgh ("National") under various reinsurance agreements against money Wausau asserted National owed it under a separate reinsurance contract. The court denied National's motion for vacatur, in which National claimed that the panel's decision contradicted the contract's language, was ambiguous, and
was the product of unfair proceedings. National appeals.
This case arises from a tangled web of reinsurance agreements between Wausau and National. National entered into a contract to reinsure Wausau on an officers and directors liability policy issued to
BankAmerica. The parties submitted to arbitration their dispute over Wausau's efforts to collect under the reinsurance policy.
Prior to the commencement of the
BankAmerica arbitration, the district court issued an injunction in which, among other things, it forbade National from interfering with Wausau's efforts to settle the
BankAmerica litigation. The district court later declined Wausau's request to order National to make payments under the reinsurance agreement in advance of the arbitration decision. In January 1988, the district court clarified the scope of its injunction by finding that delaying National's payment until the arbitration concluded would not cause Wausau irreparable harm. The court concluded that no basis existed for including an order for advance payments in the injunction.
Some time after Wausau requested compensation under the BankAmerica claim, the two companies reversed roles. National submitted a request for payment by Wausau under certain contracts in which Wausau had agreed to reinsure National. Rather than pay, Wausau elected to offset the money National sought against the payments Wausau claimed National already owed it under the BankAmerica reinsurance contract.
In August 1988, National demanded arbitration of Wausau's right to offset. In November, the district court ordered, over Wausau's objection, arbitration of the offset issue. As formally articulated by the arbitration panel, the precise issued presented was: "Is the BAC [BankAmerica] Claim, in its present status, 'due' for purpose of offset under the instant contracts?" Resolution of this issue required the interpretation of two distinct contractual provisions defining the parties' rights.
The gist of the dispute over offset under one set of contracts, known as the "reinsurance treaties," focused on the meaning of the word "aforesaid" in the last sentence of the offset clause. The relevant portion of the reinsurance treaties provided:
Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any balance or balances, whether on account of premiums or on account of losses or otherwise, due from such party to the other (or, if more than one, any other) party hereto under this Agreement or under any other reinsurance agreement heretofore or hereafter entered into by and between them, and may offset the same against any balance or balances due or to become due to the former from the latter under the same or any other reinsurance agreement between them; and the party asserting the right of offset shall have and may exercise such right whether the balance or balances due or to become due to such party from the other are on account of premiums or on account of losses or otherwise and regardless of the capacity, whether as assuming insurer or as ceding insurer, in which each party acted under the agreement or if more than one, the different agreements involved, provided, however, that, in the event of the insolvency of a party hereto, offsets shall only be allowed in accordance with the provisions of Section 538 of the Insurance Law of the State of New York. The aforesaid shall only be invoked in instances where the conditions necessary to effect Article IV, Section (c) and (d) contained in this contract have been met.
(Emphasis added).
Sections (c) and (d) of Article IV provide:
(c) The Reassured may terminate this Agreement forthwith in the event that:
A reinsurer hereon should at any time become insolvent, or suffer any impairment of capital, or file a petition in bankruptcy, or go into liquidation or rehabilitation, or have a receiver appointed, or be acquired or controlled by (d) There is a severance or obstruction of free and unfettered communication and/or normal commercial and/or financial intercourse between (a) the United States of America, (b) the country in which the Reinsurer is incorporated or has its principal office or (c) as a result of war, currency regulation, or any circumstances arising out of political, financial or economic emergency.
any other insurance company or organization, or
Wausau argued that "aforesaid" referred only to the immediately preceding circumstances under which New York law would be invoked. Article IV's conditions, then, only limited offset rights when one party is insolvent. National, on the other hand, contended that "aforesaid" referenced the entire clause, drastically limiting the availability of offsets to either party.
The other contracts at issue, denominated the "reinsurance certificates," contained a much less obtuse offset clause: The battle here centered on the meaning of the word "due." The reinsurance certificates' offset clause reads:
The Reinsurer may offset any balance(s), whether on account of premiums, commissions, claims, losses, adjustment expense, salvage or any other amount(s) due from one party to the other under this certificate of reinsurance or under any other agreement heretofore or hereafter entered into between the Company and the Reinsurer, whether acting as assuming reinsurer or as ceding company.
(Emphasis added).
In Wausau's opinion, a claim was "due" at the time the reinsured requested payment. National argued that the BankAmerica claim would not be "due" until formally adjudged so by the arbitration panel and/or the district court.
Both the reinsurance treaties and the reinsurance certificates provide for the arbitration of disputes arising under the contracts. The parties elected to use a tripartite panel. Under this scheme, Wausau and National each chose one member of the panel. These two members then select a third neutral umpire. The arbitration panel establishes its own rules and procedures.
On February 15, 1989, the first of two hearings on the panel members' qualifications was held. During the hearing, National learned that the arbitrator Wausau selected, Mr. Richard Gilmore, had previously consulted with members of the law firm representing Wausau (Zelle & Larson) on the BankAmerica matter and that these consultations touched on the propriety of offsets. Under questioning by National's counsel, Mr. Gilmore explained that Zelle & Larson sought his "view of their [Wausau's] probability of getting paid for that [reinsurance claim]." Mr. Gilmore stated that he spent only a "couple" of hours on the project and did not prepare a written report of his recommendations. While he had looked at the BankAmerica claim, Mr. Gilmore testified that he had not formed a personal opinion on the matter.
Wausau provided the other panel members and National with copies of all the documents Zelle & Larson supplied Mr. Gilmore for purposes of his consultation.
In light of National's objection to Mr. Gilmore's selection as an arbitrator, the panel consulted outside counsel. The attorney advised it that the "panel was properly qualified and was unbiased." The panel unanimously affirmed its belief in each member's impartiality:
We will repeat, reaffirm, and re-repeat once more that we continue to believe and it's the unanimous opinion of this panel that each of the members has the required character, competency, independence, and integrity to serve on the panel, and, clearly, we are properly qualified, as well. We are convinced that each member will act objectively and in an unbiased fashion with respect to the merits of this procedure.
Under its authority to promulgate rules of procedure, the panel unanimously decided to permit ex parte communications between the parties and the arbitrator each selected. The panel did not allow ex parte contacts with the neutral umpire. All ex parte contacts terminated at the end of the At the conclusion of the hearing, the panel affirmed by a vote of two to one (National's appointed arbitrator dissenting) that Wausau could offset National's claims for reinsurance against the money Wausau already claimed to be due under the
hearing, however. None was allowed during deliberations. 1
BankAmerica agreement. The panel proceeded to hold unanimously that National could also offset against Wausau's offsets any amounts that it owed or might owe in the future. Specifically, the panel held:
1. Wausau may offset against the full amount of the Bank of America Corporation (BAC) claim, as currently or ultimately determined, other amounts which it now owes or may owe in the future to National Union, whether such other amounts be in dispute or not.
2. National Union may offset against amounts which Wausau has offset other amounts which it now owes or may owe...
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