A federal court recently granted a reinsurer’s motion to confirm an arbitration award, and denied a cedent’s petition to modify the same, holding that the panel’s alleged error in computing the amount due to the cedent was not apparent from the face of the award, and thus subject to the highly deferential review of review provided by the Federal Arbitration Act. Scottsdale Insurance Company sought indemnification from its reinsurers for an underlying settlement of a consolidated class action brought against its insured. Scottsdale allocated the settlement payment equally between two insurance policies implicated by the underlying suit, and billed its reinsurers on the grounds that there were ten “occurrences” under each policy. One of the reinsurers, John Deere Insurance Company, disputed the amount of Scottsdale’s settlement and its allocation methodology. The operative reinsurance agreements contained an arbitration provision, and thus the parties resolved their dispute before a three-person arbitration panel of insurance and reinsurance professionals. After a three-day hearing and post-arbitration briefing, the panel issued a final award that required John Deere to pay certain sums based on an “adjusted settlement amount” for “reinsurance billing purposes.” John Deere complied with the award.
Thereafter, Scottsdale commenced an action in the United States District Court for the District of Arizona seeking an order to modify or correct the panel’s award, on the grounds that the award contained a computational error. John Deere cross-moved to confirm. The Federal Arbitration Act, and not Arizona law, governed judicial review of the award, because the relevant provisions in the reinsurance agreements at issue provided that Arizona law only applied to the arbitration process, and not to judicial proceedings to challenge or confirm the award. Applying the federal standard, the court held the panel’s alleged calculation error was not apparent from the face of the award, and thus should not be disrupted, given the highly deferential review afforded by federal law. The court further noted that the panel was not obligated to detail its computational reasoning in the award, nor was it appropriate for the court to second-guess the panel’s legal conclusions or factual findings, even if erroneous. Accordingly, John Deere’s cross-motion to confirm was granted and Scottsdale’s Petition to Modify or Correct denied. Scottsdale Insurance Co. v. John Deere Insurance Co., No. 15-cv-00671 (USDC D. Ariz. Feb. 17, 2016).
