Employers Ins. of Wausau v. Certain Underwriters at Lloyd's London

• Decision Date: 04 June 1996
• Docket Number: No. 95-2930,95-2930
• Citation: 552 N.W.2d 420,202 Wis.2d 673
• Parties: In the Matter of Arbitration between: EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Petitioner-Respondent, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, and Certain London Market Insurance Companies, Respondents-Appellants.
• Court: Wisconsin Court of Appeals

Page 420

552 N.W.2d 420

202 Wis.2d 673

In the Matter of Arbitration between: EMPLOYERS INSURANCE

OF WAUSAU, a Mutual Company, Petitioner-Respondent, v. CERTAIN UNDERWRITERS AT LLOYD'S LONDON, and Certain London

Market Insurance Companies, Respondents-Appellants.

No. 95-2930.

Court of Appeals of Wisconsin.

Submitted on Briefs May 6, 1996.

Opinion Released June 4, 1996.

Opinion Filed June 4, 1996.

On behalf of respondents-appellants, the cause was submitted on the brief of Robert E. Shumaker and Kristin M. Huotari of DeWitt Ross & Stevens S.C. of Madison, and Robert A. Knuti and Jane H. Veldman of Lord, Bissell & Brook of Chicago, Illinois.

On behalf of petitioner-respondent, the cause was submitted on the brief of Timothy J. Muldowney and Jeffrey J. Kassel of LaFollette & Sinykin of Madison, and Mark C. Kareken of Zelle & Larson LLP of Minneapolis, Minnesota.

Before CANE, P.J., and LaROCQUE and MYSE, JJ.

LaROCQUE, Judge.

Certain underwriters at Lloyd's London and certain London Market insurance companies (Lloyd's) appeal a judgment and an order of the circuit court confirming an arbitration panel's decision awarding Employers Insurance of Wausau (Employers) $7,783,324 under its reinsurance contracts with Lloyd's. Lloyd's argues: (1) the panel exceeded its power by awarding Employers a recovery on contracts which the parties did not submit to arbitration, (2) the panel improperly extended the time the parties had to submit their case and (3) the award must be modified or vacated because it exceeded Lloyd's policy limits.

We conclude: (1) the panel's determination of the scope of the issues submitted derived its essence from the parties' agreement, (2) the arbitration contract empowered the panel to extend the time for the parties to submit their case and (3) the panel had the authority to award an amount greater than the policy limits. Therefore, the judgment and order are affirmed.

BACKGROUND

Beginning in 1966, Employers and Lloyd's agreed to a series of contracts called "excess retrocessional insurance treaties." ¹ Under these treaties, Lloyd's reinsured Employers' The treaties each lasted one year, and the parties renewed the treaties on a yearly basis. Employers and Lloyd's structured the contracts in multiple layers of excess of loss coverage through separate contracts with different syndicates of Lloyd's and other insurance companies in the London and United States insurance markets. The separate retrocessional contracts contained common arbitration clauses and common provisions defining "disaster and/or casualty."

reinsurance contracts with other insurance companies. Each of the insurance companies Employers reinsured is called an "original assured."

Under the treaties, Employers paid the first $200,000 caused by one "disaster and/or casualty." The first-layer retrocessional reinsurer was liable for 95% of the next $800,000, and the second-layer retrocessional reinsurer was liable for 95% of the next $1,000,000. Later, Employers added a third-layer treaty in which the third-layer retrocessional reinsurer paid 95% of the first $500,000 in excess of $2,000,000. A layer of excess coverage is reached only after the lower levels of coverage are exhausted.

In the 1980s, Employers faced claims on its reinsurance contracts with the original assureds resulting from asbestos-related product liability claims. Employers began to submit requests for reimbursement for its payments under its first-layer retrocessional reinsurance treaties. Employers calculated its reimbursement request by aggregating all asbestos-related losses sustained by each original assured during a policy period. Lloyd's rejected Employers' request for reimbursement on the grounds that the policies did not allow Employers to aggregate the losses in this manner. Lloyd's argued that each claim from each individual injured by asbestos was a separate "disaster and/or casualty." No individual loss exceeded the first-layer contracts' retention of $200,000 per occurrence, so Lloyd's denied Employers reimbursement under the first-layer contracts.

In a letter dated May 27, 1991, Employers demanded arbitration regarding the denial of reimbursement. Employers' demand referenced seven first-layer policies by policy number in the caption of the letter. The parties completed selection of the arbitration panel on May 22, 1995. ² The arbitration clause requires each party to "submit its case to the arbitrators" within thirty days of the selection of the panel. At the end of the thirty-day period, Employers submitted a statement of its case, but requested further discovery.

Lloyd's objected to the arbitrators deciding any dispute under any policies other than the seven referenced by policy number in the arbitration demand letter, and objected to any discovery or submission being made to the arbitrators after the thirty-day period. The panel overruled these objections and determined that the scope of the arbitration included claims against the signatories to all treaties between July 1, 1966, and June 30 After reviewing the parties' submissions, the panel decided that Employers could aggregate the asbestos claims for each original assured as one disaster, awarded Employers $7,783,324 and released Lloyd's from further liability under the contracts. Employers moved the circuit court to confirm the arbitration award and Lloyd's countermoved to vacate or modify the award. The circuit court confirmed the award in its entirety. Lloyd's does not challenge the decision that the claims could be aggregated, but challenges the scope of arbitration, the panel's decision to allow submissions more than thirty days after the selection of the panel, and the amount of the award.

1973, and stated that it may request further submissions from the parties. The parties entered into a total of sixteen treaties between July 1, 1966, and June 30, 1973. Other facts are set forth in the discussion of the separate issues raised on appeal.

SCOPE OF ARBITRATION

Lloyd's does not dispute that the arbitration clause in the treaties encompasses the aggregation dispute. However, an arbitration provision "constitutes merely a promise to arbitrate." John Morrell & Co. v. Local Union 304A, 913 F.2d 544, 561 (8th Cir.1990). How the parties framed the issue to be arbitrated, the conduct of the parties, and the original contract to arbitrate, determine the scope of the arbitrator's authority. Id.

Lloyd's argues that the parties submitted a request for arbitration regarding only the seven reinsurance treaties and that the panel exceeded its authority by imposing liability on policies not specifically referenced by policy number in Employers' arbitration request. If the panel exceeded its power, we must modify or vacate the award. See §§ 788.10(1)(d) and 788.11, STATS. ³ Employers responds that the issue presented to the panel was whether Employers could aggregate all the claims related to asbestos for each original assured, and that the resolution of this issue determined the amount it could collect from of its reinsurance contracts for all years and all layers from July 1966 to June 1973. The panel agreed with Employers.

An issue falls within the scope of the issues presented to the arbitrator if a common intent to submit that particular issue appears with reasonable certainty. See Milwaukee Prof. Firefighters Local 215 v. City of Milwaukee, 78 Wis.2d 1, 16, 253 N.W.2d 481, 489 (1977). In our case, unlike Milwaukee Prof. Firefighters, the parties raised the issue of the scope of the submission to the panel, and it ruled on that issue. ⁴ Federal circuit courts have consistently reviewed an arbitrator's interpretation of the scope of the issues submitted under the same We conclude that the panel's decision to include all policies affected by the aggregation issue derived its essence from the request for arbitration and did not show a manifest disregard for the agreement between the parties. In Employers' May 27, 1991, request for arbitration, it noted that "one panel must determine any basis for the consolidated, common denial and assess the conduct surrounding that denial, as well as the damages flowing from it." Employers also noted "[t]his request involves all existing and future asbestos claims affected by [Lloyd's] denial."

standard as they review an arbitrator's interpretation of a contract. Pack Concrete, Inc. v. Cunningham, 866 F.2d 283, 285 (9th Cir.1989). Appellate courts uphold an arbitrator's contract interpretation if the arbitrator's interpretation drew its essence from the contract so it was not a manifest disregard of the parties' agreement. United Steelworkers v. Enterprise Wheel & Car Corp., 363 U.S. 593, 599, 80 S.Ct. 1358, 1362, 4 L.Ed.2d 1424 (1960). This standard fosters recourse to arbitration for dispute resolution and forecloses the possibility that our courts will become flooded with disputes involving the exact scope of arbitration proceedings. See Department of Public Safety v. Public Safety Employees Ass'n, 732 P.2d 1090, 1097 (Alaska 1987).

The parties' conduct leading up to the request for arbitration strengthens the inference that the request related to every treaty affected by the aggregation issue. Employers requested Lloyd's to explain whether its denial of coverage "was intended as a blanket denial of all presently existing and future asbestos-related claims." Lloyd's responded "[i]n response to your inquiry the denial of the London Reinsurers is intended to apply to all of [Employers] reimbursement requests for its bodily injury asbestos-related losses involving the July 1, 1966 to June 30, 1973 treaties." Further, no language in any of the correspondence explicitly states that the arbitration request pertains only to the seven policies Employers listed in its caption.

Lloyd's notes the caption of the letter lists seven specific insurance policies by number. Lloyd's also presents other evidence indicating the parties intended the...