Final Award Confirmed Over Interim Final Award in Reinsurance Dispute

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Reinsurance arbitration panels, when asked, sometimes issue interim awards that address merits issues.  Often this happens when the parties need clarity on how to calculate a reinsurance billing.  The panel’s interim award may resolve certain issues and suggest that the parties meet and confer to see if they can now resolve the dispute, but if not, return to the panel either for additional briefing or additional proceedings to resolve the dispute.  What happens when one party likes the interim award and moves to confirm, but the other party likes the final award and moves to confirm that?  An Illinois federal court recently addressed this conundrum.

In Allstate Insurance Co. v. Amerisure Mutual Insurance Co., Nos. 19 C 4341, 19 C 7080, 2020 U.S. Dist. LEXIS 53923  (N.D. Ill. Mar. 25, 2020), underlying asbestos claims manifested into a reinsurance dispute between the cedent and its facultative reinsurer over whether defense costs could be billed in addition to the limits under umbrella policies.  The reinsurer resisted billings from the cedent because it could not understand why the cedent was paying costs in addition to the limits of the underlying umbrella policies.  The reinsurer thought the cedent’s answers were insufficient, so it demanded arbitration.

In the arbitration, the reinsurer sought an interim award directing the cedent to provide the reinsurer with the answers to its questions about the payment of costs under the umbrella policies and for an order that the reinsurer was not obligated to pay the cedent for its defense cost payments in addition to the limits of the umbrella policies.  The panel issued an “Interim Final Award,” which denied the cedent’s claims for defense costs in addition to the umbrella policy limits on five of six certificates and granted the cedent’s claim on only the 1982 certificate.  The panel found that the 1982 umbrella policy allowed for the cession of costs in addition to the policy limits, but the earlier policies did not.

The parties disagreed as to how to interpret the interim award, could not come to a resolution of the dispute, and filed final briefs with the arbitration panel.  Meanwhile, the reinsurer filed a petition to confirm the interim award.  The panel then issued a “Final Award,” which allowed the cedent to cede defense costs to the reinsurer, but for 5 of the 6 certificates only up to the policy limits, with the allowance of costs in addition to the limits for the 1982 policy and certificate.  The cedent filed its petition to confirm the final award.

In granting the cedent’s petition and denying the reinsurer’s petition, the court held that the Final Award was the final award, not the Interim Final Award, and that the Final Award, although terse, only decided the issues that had not been decided under the Interim Final Award.  The court rejected the reinsurer’s argument that the arbitration panel was functus officio after it issued the Interim Final Award.

As explained by the court, while the Interim Final Award was not a model of clarity, it denied the cedent’s claims under the pre-1982 contracts only to the extent that the cedent sought defense costs in addition to the policy limits.  The interim award tracked the reinsurer’s requests for the panel to order the cedent to provide more information, retain jurisdiction to resolve further disputes based on the information the cedent disclosed, and rule that defense costs were payable only within the underlying policy limits.  The court stated that it was not reasonable to interpret the panel’s interim award to mean that the panel denied the cedent’s claims to any defense costs, regardless of whether they were within or without the underlying policy limits.  The court concluded, that “it is clear that in the Interim Final Award the arbitration panel intended to address only whether [the cedent] could properly seek payment from [the reinsurer] of defense costs in addition to its policy limits, and it was only [the cedent’s] claims to such payments that were denied.”

The court granted confirmation of the Final Award, holding that in the Final Award, the panel only decided issues that it had not yet decided, so its decision was not funtus officio.  Thus, the cedent was able to recover defense costs paid within the limits of 5 of 6 umbrella policies and defense costs paid in addition to the limits under the 1982 policy.

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