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Case Spotlight:
Arbitrators' Venue Choice (Lyndon Property)

by ~ Steven J. Torres, CPCU (Email) (Web Site)

Case Report: Court Rules that Arbitrators Should Decide Venue for Action to Enforce Arbitrator's Order to Post Prejudgment Security

In a recent federal court decision in the District of Massachusetts, the court (Stearns, J.) dismissed a ceding insurer's suit against a reinsurer in which the cedant sought to enforce a panel's order that the reinsurer post prejudgment security pending arbitration. The issue presented in the motion to dismiss was whether the court had authority to enforce the panel's order that the reinsurer submit prejudgment security. In granting the motion and dismissing the suit, the court found that the determination of the proper forum for deciding a choice of forum dispute was itself a matter that should be decided by the arbitration panel -- not the district court.

In Lyndon Property Ins. Co. v. Founders Ins. Co., Ltd., 587 F. Supp. 2d 333 (D. Mass. 2008), Lyndon, a primary insurer, entered into a reinsurance agreement with Founders. The agreement required the parties to arbitrate any insurance-related disputes. When a dispute arose over whether or not Founders met its obligation to maintain deposits in a custodial account in an amount equal to the reserves on the business reinsured, Founders demanded arbitration and an arbitration panel was appointed with two party-appointed arbitrators and a neutral umpire. Prior to an organizational meeting with the panel held in Boston (a location selected to accommodate the schedule of the umpire), Lyndon sought an order requiring that Founders post prejudgment security. The panel allowed the motion and in February 2008 ordered that Founders post $20 million in security.

In August 2008, Lyndon instituted an action in federal court in the District of Massachusetts seeking to enforce the panel's order that Founders post the security, and Founders moved to dismiss. Founders asserted that the reinsurance agreement selected Missouri courts as the place for enforcement actions and that the court in Massachusetts lacked personal jurisdiction over Founders. Lyndon, for its part, asserted that a different provision in the reinsurance agreement provided that a party could seek enforcement of an arbitral award in any court of competent jurisdiction. Lyndon also asserted that the court in Massachusetts had jurisdiction over Founders because the parties had attended two preliminary arbitration proceedings in Boston.

The court found that both parties offered plausible interpretations of the seemingly conflicting contractual provisions determining choice of forum to enforce arbitral awards. The court determined that the issue before the court was procedural in nature - interpreting a choice of forum clause - and as such, should be left for the arbitrator to decide. In granting Founders' motion and dismissing Lyndon's enforcement action, the court relied on the First Circuit's ruling in Richard C. Young & Co., Ltd. v. Leventhal, 389 F.3d 1 (1st Cir. 2004), and held that that the "interpretation of the [reinsurance] agreements' conflicting choice of forum provisions is a procedural issue that is for the arbitrators, not the court." Whatever the style you want, our trendy hermes replica handbags,breitling replica,replica watches uk and replica rolex watches variety will supply it.

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Click Here for more about Lyndon Property Ins. Co. v. Founders Ins. Co., Ltd.

Click Here for more about Richard C. Young & Co., Ltd. v. Leventhal

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