ACE PROPERTY AND CASUALTY INSURANCE COMPANY et al v. ENSTAR (US) INC. et al PETITION TO COMPEL ARBITRATION

8/12/2019 ACE PROPERTY AND CASUALTY INSURANCE COMPANY et al v. ENSTAR (US) INC. et al PETITION TO COMPEL ARBIT

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UNITED STATES DISTRICT COURTEASTERN DISTRICT O F PENNSYLVANIA

A C E PROPERTY CASUALTYINSURANCE COMPANY a n d A C E FIREUNDERWRITERS INSURANCECOMPANY,

CIVIL ACTION N O .

Petitioners,

ENSTAR (US) I NC. and ENSTAR ( E U )LIMITED,

Respondents.

A C E PROPERTY CASUALTY INSURANCE COMPANY a n d A C E FIREUNDERWRITERS INSURANCE COMPANY S PETITION T O COMPEL

ARBITRATION A N D F O R A N ORDER DIRECTING SELECTION O F T H E UMPIREPetitioners, A c e Property & Casualty Insurance Company a n d A C E Fire Underwriters

Insurance Compa ny (collectively ACE ), seek a norder compelling Enstar (US) Inc . and Enstar( E U ) Limited ( Enstar ) toarbitrate adispute between th e parties in accordance with th etermsof a reinsurance contract known as the Blanket Excess o fLoss Cover, effective July 1, 1982 (theGlobal Slip Treaty ), as amended by theparties f o rthis dispute bytheir April 8, 2014 Umpire

Selection Agreement, a n ddirecting Enstar tocomplete theprocess fo rselecting th eneutralumpire fo r this arbitration.

There is nodisagreement between th e parties that theunderlying dispute issubject toarbitration under the arbitration provision in the Global Slip Treaty. Likewise, there is nodisagreement that th e umpire fo r the arbitration panel is to be selected under th e UmpireSelection Agreement, th e terms o f which were negotiated specifically fo rthis dispute an dhavealready begun to be implemented by theparties. T h e next step in the Umpire Selection

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Agreement is theobligation to rank th e four remaining candidates to select th e neutral umpire, astep which Enstar refusest o complete.

Thus, th eparties are at atemporary impasse a n d A C E seeks this Court's intervention toorder Enstar to proceed with th e next step in theagreed umpire selection process. Insupport o fitspetition, A C E relies upon th eMemorandum o f L a wfiled with this petition a n d further statesas follows:

T H EPARTIESA C E Property a n d Casualty Insurance Company is aPennsylvania insurance

company with itsprincipal place o fbusiness in Philadelphia, Pennsylvania.A C E Fire Underwriters Insurance Company is aPennsylvania insurance company.

with itsprincipal place o f business inPhiladelphia, Pennsylvania.ENSTAR (U.S.) Inc. is a Delaware company with itsprincipal place o fbusiness

in St.Petersburg, Florida. It is responsible for the run-offa n dmanagement of certain UnitedStates-domiciled insurance companies, including Seaton Insurance Company an d ConstellationReinsurance Company, which are citizens o f Rhode Island a n d N e wYork, respectively.

ENSTAR (E.U.) Limited isnon-U.S. company with itsprincipal place o fbusinessinHamilton, Bermuda. It is responsible fo r the run-offa n d management o fcertain non-USinsurance companies.

JURISDICTION A N DVENUEThis Petition is submitted under Chapters 1 and 2 of the Federal Arbitration Act , 9

U.S.C. 1 -16 and 201-208.

Chapter 2 o f the FAA provides fo renforcement of the Ne w York Convention on theRecognition a n dEnforcement o fForeign Arbitral Awards of June 10, 1958 ( the N ew YorkConvention ).

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6. Both the FAA, 4 , a nd T he Ne w York Convention, as implemented b yChapter 2of the FAA, provide this Court with th e power tocompel arbitration.

Section 4states: Aparty aggrieved by thealleged failure, neglect, or refusalofanother to arbitrate under awritten agreement fo rarbitration m a y petition a n y United Statesdistrict court which, save fo rsuch agreement, would have jurisdiction under title 28, in acivilaction or in admiralty of thesubject matter of asuit arising out of the controversy between theparties, for an order directing that such arbitration proceed in the manner provided for in suchagreement.

8. This Court h a sjurisdiction over Enstar (US) Inc . and i ts United States domiciledinsurance companies, Seaton Insurance Company an d Constellation Reinsurance Company,under 28 U.S.C. 1332 , because each arecitizens of Delaware, Rhode Island a n d N e w York,respectively, a nd ACE i s acitizen o fPennsylvania, and theamount incontroversy exceeds$75,000. Diversity o fcitizenship also applies toEnstar's non-US owned a n d managedcompanies a swell, b u toriginal jurisdiction is also available under 9U.S.C. 203.

Section 203 o f the FAA states: A n action orproceeding falling under theConvention shall be deemed to arise under th e laws an d treaties of theUnited States. T h e districtcourts of theUnited States (including th ecourts enumerated in section 460 o ftitle 2 8 ) shall haveoriginal jurisdi ction over such a n action orproceeding, regardless of the amount in controversy.

10. Section 206 o f the Ne wYork Convention specifically provides that [a ]courthaving jurisdiction under this chapter m a ydirect that arbitration b e held inaccordance with theagreement a t anyplace therein provided for ,whether that place iswithin or without th e UnitedStates. 9U.S.C. 206.

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11. Venue isproper inthis district because Section 4 o f the FAAprovides that apartyaggrieved b yanother's failuretoarbitrate under a written agreement m a y petition an yUnitedStates district court which, save f o rsuch agreement, would have jurisdiction under Title 28, in acivil action .. . of thesubject matter of a suit arising out of the controversy between th eparties 9U.S.C. 4. In the absence of anagreement toarbitrate between th e parties, A C E could have suedEnstar in this District.

BACKGROUND12. In areinsurance contract, areinsurer typically agrees to indemnifyt h e reinsured

with respect to aportion of the reinsured's obligations under a ninsurance policy issued by thereinsured, inexchange for aportion of thepremium paid to the reinsured fo r theunderlyingpolicy.

Under atype o f reinsurance contract known as a treaty, th ereinsurer assumes3.all orpart of anentire category or book ofinsurance policies issues by the reinsured company.

Effective July 1, 1982, various insurance a n d reinsurance companies that a re now4.owned ormanaged b y Enstar participated as reinsurers ofACE's predecessors under the GlobalSlip Treaty. (See Exhibit 1 to theDeclaration o fLarry P . Schiffer, dated July 7 , 2014 ( SchifferDec. ).)

15. Under theGlobal Slip Treaty, A C E w a spermitted tocede an dEnstar wa sobligated toaccept apercentage o f ACE's excess liabilities. (Id. a t Art . 1) Th e Global SlipTreaty requires that disputes between A C E a n d Enstar b esubmitted to arbitration a s follows:

[a]s aprecedent to any right ofaction hereunder, if any dispute shall arisebetween th eCompany a nd the Reinsurers with reference to the interpretation o fthis Agreement or their rights with respect to any transaction involved, whethersuch dispute arises beforeo rafter termination o fthis Agreement, such dispute,upon th ewritten request o f either party, shall b esubmitted tothree arbitrators, oneto bechosen b yeach party, a nd the third by the two sochosen. Ifeither partyrefuseso r neglects toappoint a narbitrator within thirty days aftert h e receipt o f

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written notice fromt h eother party requesting it to do so, therequesting party m a yappoint tw oarbitrators. If the twoarbitrators failto agree in the selection of athird arbitrator within thirty days o f their appointment, each of them shall nametwo , o fwhom th e other shall decline one a nd thedecision shall bemade bydrawing lots.

(Id. at Art. 21).1 6. A C E h a s settled a n dpaid asbestos claims arising from tw oinsurance policies

issued b y A C E t o t h ePlant Insulation Company.17. These insurance policies come within th e coverage of theGlobal Slip Treaty and

A C E submitted reinsurance billings toEnstar for i ts share of thePlant Insulation losses.

18. Enstar h a s refused to pa y theamounts billed.19. On November 11, 2013 , A C Edemanded arbitration against Enstar under the

arbitration clause inGlobal Slip Treaty because o f Enstar's non-payment of the Plant Insulationloss asbilled. (See Ex. 2 to Schiffer Dec.)2

O nNovember 18 , 2013 , in-house counsel fo rEnstar responded toACE 's0 .Arbitration Demand o n behalf of all Enstar managed companies, thereby acknowledging that thepresent dispute isripe fo rarbitration. (See Ex. 4 to SchifferD e c . )

2 1 . Enst ar's outside counsel also responded to ACE's Arbitration Demand o nNovember 2 5 , 2 0 1 3 , further confirming that th epresent dispute isripe fo rarbitration. (See Ex. 5to SchifferDe c . )

22 . On December 16, 2013, in keeping with th e terms of the Global Slip Treaty andas agreed between t h eparties, an d further acknowledging that th e dispute between th eparties

2 O nNovember 2 5 , 2 0 1 3 , A C E amended its arbitration demand to rectifyt h e inadvertent clericalerror in not originally demanding arbitration o n behalf of both A C E Property & CasualtyInsurance Company and i ts wholly-owned subsidiary, A C EFire Underwriters InsuranceCompany. (See Ex. 3 to Schiffer D e c . ) T h e billings from A C E t o Enstar expressly included theamounts due fo rboth A C E companies.

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should b e resolved in the arbitration commenced byAC E' s Arbitration Demand, Enstarappointed Michael L. Cohen as itsarbitrator. (S e e Ex. 6 to SchifferDec . )

Also onDecember 16 , 2013 , ACE appointed itsarbitrator, bu t on December 20,3 .2 0 1 3 , replaced itsoriginal arbitrator with Paul Dassenko as itsarbitrator. (See Ex. 7 to SchifferDe c . )

2 4 . Enstar also entered into ahighly customized written Umpire Selection Agreementwith A C E o n April 8 , 2014 , following negotiations that began o nNovember 26 , 2013 . (See Ex. 8to SchifferDe c . )

25 . T he Umpire Selection Agreement provides that itreplaces th eportion in thearbitration clause contained in the Blanket Excess o f Loss Contract (Layers 1, 2 and 3)thatdirects the two party-appointed arbitrators to select a 'third arbitrator,' a n dsets forthaproceduretofollow when the twoarbitrators fail to agree on the selection of thethird arbitrator.

26 . A ke y featureof the customized Umpire Selection Agreement is aprovision thateliminates many of theexperienced candidates that each party might have otherwise nominatedto act asneutral umpire. F o r example, under th eUmpire Selection Agreement th e parties agreednot to:

. . .nominate a n yUmpire Candidate w h o h a s previously served as an expertwitness, arbitrator orumpire in anyprior reinsurance arbitration between theParties a n d their affiliates within th epast 7years. . . .This provision, however,shall n o tpreclude th eUmpire inthis dispute from serving as an Umpire indisputes between a ny one o f theParties, their affiliateso r counsel a n d anotherparty n o t related to the Parties inthis arbitration. . . .

(Ex. 8 to SchifferD e c . )27 . Asprovided for in the Umpire Selection Agreement, each party wa s toname, and

d idname, four qualified neutral umpire candidates a n d were tojointly send amutually agreeableform of umpire questionnaire toeach of theeight umpire candidates v iae-mail.

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28 . Upon receipt of all completed umpire questionnaires, each Party will strike two(2 )names from the other Part's [sic] list o ffour(4 )Umpire Candidates. (Id.)

29 . T heparties were to then rank th e remaining candidates a nd theumpire candidatewith th e lowest combined ranking will serve as the umpire. (Id.)

30 . T he parties simultaneously exchanged lists of umpire candidates onApril 14,2014.3

31 . T heparties then negotiated an umpire questionnaire, which w a s sent to theumpirecandidates o nApril 28 , 2014 . (See Ex. 9 to SchifferD e c . )

32 . Prior to sending th equestionnaire, Enstar replaced one of i tsnominees.Subsequent to sending th e questionnaire, A C E replaced one of i tsnominees. A dispute aroseconcerning th equalifications of one ofEnstar's nominees, a n dEnstar eventually agreed toreplace that nominee as well.

33 . As required by the Umpire Selection Agreement and as agreed by the parties afterall the replacement candidates h a d completed their umpire questionnaires, on June 3, 2014, theparties each struck tw o candidates from th eother party's list o f nominees.

34 . T he next step in theumpire selection process is foreach party torank th e fourremaining neutral umpire candidates.

35. On the same d a y that th e parties exchanged th estrikes under th eUmpire SelectionAgreement, both counsel asked each other when th eother party would b eready to exchange therankings of the remaining four candidates so the neutral umpire could b e chosen.

3 T h e umpire candidate nomination letters, thenames of the candidates, including th ecandidatea t issue here, an d e-mails containing th e parties' strikes have no t been included asexhibits orhave been redacted because disclosure would alert th e potential candidates to the identity of thenominating party a n djeopardize th e neutrality of theumpire.

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36 . That evening one of the remaining four umpire candidates advised th eparties thathe ha dbeen selected as aneutral umpire in adifferent reinsurance arbitration between A C E a n da nunrelated reinsurer, b u twhere th e underlying claim wa s the same claim atissue in thearbitration between A C E a n d Enstar. (See E x. 10 to SchifferD e c . (redacted).)

37 . T he Umpire Selection Agreement provides guidance fo rsuch acircumstance andallows candidates to remain eligible to act as aneutral umpire in other disputes that involve oneof the parties: [t]his provision, however, shall n o t preclude th e Umpire in this dispute fromserving as anUmpire indisputes between any one of theParties, their affiliateso rcounsel and

another party n o t related to the Parties inthis arbitration. (Ex. 8 to SchifferDec . )O nJune 5 , 2014 , counsel f o r A C E e-mailed counsel fo r Enstar indicating that8 .

A C E w a s ready toexchange th e rankings of theremaining four candidates that da y . (See Ex. 11to SchifferD e c . )

39 . Instead o f agreeing toexchange rankings, counsel fo rEnstar asked i f A C E wouldagree to areplacement o f that nominee with another umpire candidate. O n June 13, 2014,counsel f o r A C E advised counsel f o rEnstar that A C E would no t agree to areplacement o fthatumpire candidate, primarily because th eumpire selection process h a dalready winnowed downth ecandidates a n d this candidate wa s no tdisqualified under th ecarefully drafted limitations ofth e Umpire Selection Agreement. (See Ex . 12 to SchifferD e c . (redacted).)

4 0 . Counsel f o r A C E reiterated th e request for adate toexchange th e rankings of theremaining four remaining neutral umpire candidates. (Id.)

41 . Counsel fo rEnstar h a scontinued todelay in acting onthat obligation. (See Ex.13 to SchifferD e c .(redacted).)

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4 2 . Section 5 o f the FAAprovides that if anarbitration agreement contains aprovision fo r amethod ofnaming o r appointing anarbitrator o r arbitrators or an umpire, suchmethod shall b e followed. 9U.S.C. 5

4 3 . Under Section 208 o f the Ne w York Conventi on, Chapte r 1 [o f the FAA ] appliesto actions a n d proceedings brought under [ th e N e w York Convention] to the extent that chapteris not inconflict with [ t h e N e w York Convention]. 9U.S.C. 208.

44 . T he Global Slip Treaty (Ex . 1 to theSchiffer Dec.), as amended solely fo rthisdispute by the parties' Umpire Selection Agreement (Ex.8 to theSchiffer Dec.), provides the

method f o r selection of the neutral umpire.4 5 . Enstar willingly participated in the agreed-upon method f o r the selection of the

umpire u p until th e present delay.4 6 . T h eparties each nominated four umpire candidates an d struck tw o candidates

fromth e other's list.47. All that ha s tohappen to select th e neutral umpire is for theparties to rank the

remaining candidates a nd thecandidate with th e lowest combined ranking will serve as theneutral umpire.

48 . T he Umpire Selection Agreement also has a tie-breaking mechanism. (Ex . 8 to theSchifferDec . )

4 9 . Althou gh Enstar exchange d lists o fumpire candidates with A C E a n d exchangedlists o fstrikes, Enstar h a s delayed its ranking th e remaining four candidates unless areplacementismade fo r one candidate, acandidate it no longer likes, because of h i s separate andcoincidentalappointment fo r theneutral umpire role in another arbitration.

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50. Nothing in the Umpire Selection Agreement bars th ecandidate from serving as aneutral umpire inthis case just because he ha sbeen selected as aneutral umpire inanother,similar case. (Id.)

51. Consistent with Section 5 o f the FA A a n d Section 206 o f the Ne w YorkConvention, this Court should direct Enstar tocomplete th eumpire selection process asrequiredunder th e Umpire Selection Agreement.

52. Enstar should be required to rank th eremaining four umpire candidates, includingth ecandidate Enstar wants to see replaced, sothat th eneutral umpire in this case m a y b e chosen

as agreed to by the parties.REQUEST FO RRELIEF

WHEREFORE, A C E h a sproperly demanded arbitration under th e Global Slip Treaty,Enstar does n o tcontest that the dispute concerning th ePlant Insulation loss isarbitrable, and thecontract provides amethod fo rumpire selection, assupplemented by theparties UmpireSelection Procedure, th e Court should enforcet h eclear terms of the Global Slip Treaty and theUmpire Selection Agreement. For thereasons stated above and in theaccompanyingmemorandum o f la w , A C E requests that this Court enter a n Order:

1. Directing that th e arbitration commenced b yACE's proceed forthwithbefore asingle arbitration panel consisting ofPaul Dassenko, Michael L .Cohen, and anneutral umpire selected under th e Umpire SelectionAgreement agreed to by theparties;

2 . Directi ng that Enstar immediat ely rank th efour remaining umpirecandidates, including th ecandidate that Enstar wants to see replaced, andproceed forthwitht o select aneutral umpire as agreed in the UmpireSelection Agreement; and

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3. Directing Enstar to pa y ACE i t s reasonable attorney feesa n d costsincurred because of thefiling o f this Petition.

Respectfully submitted,WHITE A N D WILLIAMS L L P

B Y :Michael S.O j M i i /Brendan D.jyleQiiiggan1650 Market StreetO n eLiberty Place, Suite 1800Philadelphia, P A 19103-7395Phone: 215.864.6878/7173

Dated: July 8, 2014

A N DSQUIRE PATTON BOGGS (US) L L PLarry P. Schiffer1185 Avenue of the Americas30 th FloorN e w York, N Y 10036Phone: 646.557.5100Pro Hac Vice Pendingttorneys for Petitioners ACE Property

Casualty Company and ACE FireUnderwriters Insurance Company

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Documents

ACE PROPERTY AND CASUALTY INSURANCE COMPANY et al v. ENSTAR (US) INC. et al PETITION TO COMPEL ARBITRATION