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Page 1: ARIAS Fourth Quarter 2014 Quarterly

HIGHLIGHTSHIGHLIGHTSHTHTSSHTS

VOLUME 21 NUMBER 4

FOURTH QUARTER 2014

Page 2: ARIAS Fourth Quarter 2014 Quarterly

I was bowled over when the Hilton rose to our 20th anniversary blockbuster celebration todeliver a dinner appropriate to the occasion. While we hit some of the highlights on theARIAS website and in this edition of the Quarterly, we’ll be reporting in depth on the sub-stantive aspects of the meeting in our next edition. Suffice it to say, we can take pride inbeing members of an organization that has accomplished much in its first 20 years and willsurely accomplish more in the 20 years to come. The celebration featured a shout out tothe members who made ARIAS what it is today with special thanks to Bill Yankus for his 12years of leadership as our Executive Director. In response to requests for the text of JeffRubin’s presentation of the ARIAS AWARD to Bill, we’ve included it in this edition. The ARIASwebsite features a slideshow from the event that is well worth a click.

What do e-discovery, waivers of arbitration, and disputes arising out of MGA relationshipshave in common? Hard to say? Not really. They each give rise to disputes, disputes withinthe insurance/reinsurance community and disputes that may arise in arbitrations.

Know what else these diverse subjects have in common? The membership of ARIAS hasdealt with all or most of them during the course of their careers. So if you’re searching for acommunity of knowledgeable and experienced individuals capable of adjudicating disputesinvolving these matters and many more, you’ve come to the right place, ARIAS. Can similarknowledge and experience be found among the American judiciary? No, not hardly.

The articles we feature in this edition of the Quarterly illustrate the diversity of our practice.

Many years ago it was thought a matter involving 25,000 documents was a substantialcase. In the age of electronically stored information, we now deal in the realm of terabytes,For those unfamiliar with the term, “terabyte”, I won’t define it but the entire Library of Con-gress is said to contain ten of them. While it’s not routine (yet) there certainly are reinsur-ance disputes that involve discovery requests for two or three terabytes of information.Michele Jacobsen and Royce Cohen lead off with a discussion of whether arbitrators shouldtake a page from the litigation world in dealing with burgeoning e-discovery disputes.

We all know that arbitration is a matter of contract, not an inherent right. Contractual pro-visions can be waived and arbitration is no different. What is unique to waiver of arbitrationis the unique manner in which waiver will be found to have occurred. Equally important iswho decides waiver. In an article on the subject, Tom Newman explains it all.

MGA arrangements seem to be praised one minute and reviled the next. Is this aninevitable cycle? Dale Crawford explains why MGA disputes occur and suggests how theymay be avoided.

Last but not least, in a Law Committee report Elizabeth Kniffen summarizes the case ofTransatlantic Reinsurance Co. v. Nat’l Indem. Co., which addresses the circumstances underwhich non-signatories to a reinsurance agreement containing an arbitration provision maybe compelled to arbitrate.

I hope you’ll find the articles in this issue interesting. As always, I end with a statement thatthe Quarterly welcomes, needs and depends on articles authored by our membership. Thereare many out there who want to share their knowledge, dreams of being the next Heming-way, or at least Fitzgerald, or just want to sound off. Here’s your chance to do so. Just sendyour piece to me at [email protected].

EDITORIAL BOARDEditor Thomas P. [email protected]

Associate Editors Peter R. [email protected]

Susan E. [email protected]

Mark S. [email protected]

Daniel E. Schmidt, [email protected]

Teresa [email protected]

Managing Editor William H. [email protected]

International EditorsChristian H. [email protected]

Jonathan [email protected]

Ex-Officio Ann L. FieldEric S. KobrickElizabeth A. MullinsJames I. Rubin____________________Production/Art Director Gina Marie Balog

VOL. 21 NO. 4FOURTH QTR. 2014

editor’scomments

The ARIAS•U.S. Quarterly (ISSN 7132-698X) is published Quarterly, 4 times a year byARIAS•U.S., 131 Alta Avenue, Yonkers, NY 10705.Periodicals postage pending at Yonkers, NY andadditional mailing offices.

POSTMASTER: Send address changes toARIAS•U.S., P.O. Box 9001, Mt. Vernon, NY 10552

ARIAS•U.S.7918 Jones Branch Dr., Suite 300,McLean, VA 22102Phone: 703-506-3260Fax: [email protected]

Thomas P. Stillman

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Editor’s Comments Inside Front Cover

Table of Contents Page 3

FEATURE: Taking a Page from Litigation: Curbing Discovery Costsin ArbitrationBY MICHELE L. JACOBSON AND ROYCE F. COHEN Page 4

News and Notices Page 7

FEATURE: Waiver of Arbitration BY THOMAS R. NEWMAN Page 8

Members on the Move Page 13

FEATURE: Managing General Agency Disputes: Why They Recurand Some Thoughts for PreventionBY DALE CRAWFORD Page 14

REPORT: ARIAS•U.S 2014 Fall Conference Page 18

REPORT: Board of Directors Election Results Page 30

Law Committee Reports Page 31

IN FOCUS: Recently Certified Arbitrators Page 32

Invitation to Join ARIAS•U.S. Page 34

Membership Application Inside Back Cover

ARIAS•U.S. Board of Directors Back Cover

contentsVOLUME 21 N UMBER 4

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Editorial PolicyARIAS•U.S. welcomes manuscripts of original articles, book reviews, comments, and case notes from our membersdealing with current and emerging issues in the field of insurance and reinsurance arbitration and dispute resolution.All contributions must be double-spaced electronic files in Microsoft Word or rich text format, with all references andfootnotes numbered consecutively. The text supplied must contain all editorial revisions. Please include also a briefbiographical statement and a portrait-style photograph in electronic form. Manuscripts should be submitted as email attachments to [email protected] .Manuscripts are submitted at the sender's risk, and no responsibility is assumed for the return of the material. Materialaccepted for publication becomes the property of ARIAS•U.S. No compensation is paid for published articles.Opinions and views expressed by the authors are not those of ARIAS•U.S., its Board of Directors, or its Editorial Board,nor should publication be deemed an endorsement of any views or positions contained therein.

Copyright NoticeCopyright 2014 ARIAS•U.S. The contents of this publication may not be reproduced, in whole or in part, without writtenpermission of ARIAS•U.S. Requests for permission to reproduce or republish material from the ARIAS•U.S. Quarterlyshould be addressed to Sara Meier, Executive Director, ARIAS•U.S., 7918 Jones Branch Drive, Suite 300, McLean, VA 22102or [email protected] .

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Michele L. JacobsonRoyce F. Cohen

A common complaint these days is thatarbitration is becoming more like litigation.Protracted motion practice surroundingdiscovery disputes has become the norm inthe arbitration arena. Privilegedeterminations and privilege logs, which caninvolve thousands of individual entries, havebeen at the forefront of discovery disputesin both litigation and arbitration.

New York courts are taking a giant leapforward in curbing the costs of discovery byadopting a Rule in New York SupremeCourt’s Commercial Division designed tolessen the burden of producing privilegelogs. Rule 11-b of Section 202.70(g) of theUniform Rules for the Supreme and CountyCourts (Rules of Practice for the CommercialDivision) (“Rule 11-b”), which goes into effecton September 2, 2014, establishes apreference for “categorical” privilege logs.Rule 11-b is intended to “promote moreefficient, cost-effective pretrial disclosure byestablishing a ‘preference’ in theCommercial Division for use of ‘categoricaldesignations’ rather than document-by-document logging.”1

A categorical privilege log “has a single entrythat corresponds to several documents thatrelate to some subject matter category orhave the same type of information.”2

Accordingly, rather than requiring litigantsto prepare a log containing a separate entryfor each document withheld from disclosureon a claim of privilege, Rule 11-b suggeststhat documents may logged by categorythus considerably reducing the number oflog entries. Significantly, categorical loggingdoes not obviate privilege review, but ratherallows documents that would otherwisehave to be logged individually to be groupedinto categories.

The Rule cements New York’s efforts tobecome a leading venue for the cost-effective, efficient resolution of commercial

disputes. Like judges, arbitrators have thebroad authority to control the proceedingspending in front of them. Arbitrators shouldbe guided by the courts’ efforts to streamlinediscovery in litigation, and should considerutilizing measures which would equallystreamline the arbitral process. Taking apage from litigation will, in this instance,both foster the goals of arbitration andpermit arbitration to remain a preferredalternative to litigation.

Why Streamline Discovery Now?In recent decades, the cost of discovery in thedispute resolution process has beendramatically increased by the creation anduse of electronically stored information(“ESI”). Discovery of ESI is likely to be thegreatest, largely uncontrolled cost growtharea for the foreseeable future. As a result ofthe volume of ESI, privilege review and thecreation of a privilege log can be the mostexpensive part of the discovery process, if notthe entire litigation or arbitration.3

Arbitration is intended to be far more expedi-ent and less costly than litigation.4 The con-ventional wisdom is that the real cost sav-ings lies in the likelihood that an arbitratorwill be less inclined than a judge to entertainextensive discovery and motion practice,both of which frequently drive up the feesand costs of litigation. This has not alwaysbeen the case. In fact, many practitionersand users of arbitration, alike, have observedthat arbitrations often have the same “trap-pings” as litigations. Chief among their com-plaints is the extent and cost of discovery inarbitrations. Of course, the sky-rocketing costof discovery is not a phenomenon of arbitra-tion alone. Courts have become keenlyaware of the impact of e-discovery on theirlitigants, and have proposed rule changes tocombat this growing concern. These rulechanges have included: (1) cooperation; (2)case management, (3) proportionality5; and(4) cost allocation.

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

feature

Michele L.Jacobson

Michele L. Jacobson is a Partner in theInsurance Practice Group of Stroock &Stroock & Lavan LLP. Royce F. Cohen wasSpecial Counsel in Stroock's InsurancePractice Group and co-chair of Stroock’seDiscovery and Information GovernanceGroup. Currently, Ms. Cohen is a partnerin the New York office of Tressler LLP.

Taking a Page from Litigation: Curbing Discovery Costs in Arbitration

New York courts aretaking a giant leapforward in curbingthe costs of discov-ery by adopting aRule in New YorkSupreme Court’sCommercial Divisiondesigned to lessenthe burden of pro-ducing privilege logs.

Royce F.Cohen

4th Qtr. 14_4th Qtr 14 12/10/14 9:48 AM Page 4

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Rule 11-b The Chief Administrative Judge of the NewYork State Courts has issued a new Rule 11-bof the Uniform Rules of Practice for theCommercial Division (the “Rules”) that,effective September 2, 2014, establishes apreference for categorical privilege logs forcases pending in the New York SupremeCourt, Commercial Division.6

For the first time, the Rules will requireattorneys to “meet and confer” at the outsetof a case, “and from time to timethereafter,” to discuss “the scope of theprivilege review” of documents, and theamount of information and categorizationof privilege logs, “including the entry of anappropriate non-waiver order.” The ruleexpresses “the preference in theCommercial Division” for the parties “to usecategorical designations, where appropriate,to reduce the time and costs associatedwith preparing privilege logs.” The specificsof the categorical log would have to beworked out at the meet and confer. Theparties are urged to agree – at the directedmeet and confers – “where possible” toemploy a categorical approach to privilegedesignations.

The producing party shall provide, for eachsuch category, a certification “setting forthwith specificity those facts supporting theprivileged or protected status of theinformation included within the category.”The certification must also describe thesteps taken to identify the documents socategorized, including but not limited towhether each document was reviewed orsome form of sampling was employed, andif the latter, how the sampling wasconducted.

If, however, the demanding party refuses toagree to a categorical approach, insteaddemanding that the producing partyproduce a document-by-document listing inthe privilege log, the producing party mayseek judicial relief to narrow its obligations.Alternatively, the new Rule provides anadditional safeguard for the producingparty; it permits the producing party to seekan allocation of costs incurred in preparingthe document-by-document log upon ashowing of good cause. In addition, if thedemanding party insists on a document-by-document log, “absent an order to thecontrary,” the following will be the protocolwith respect to e-mail chains:

[E]ach uninterrupted e-mail chainshall constitute a single entry, andthe description accompanying theentry shall include the following: (i)an indication that the e-mailsrepresent an uninterrupteddialogue; (ii) the beginning andending dates and times (as notedon the e-mails) of a dialogue; (iii)the number of e-mails within thedialogue; and (iv) the names of allauthors and recipients – togetherwith sufficient identifyinginformation about each person (e.g.,name of employee, job title, role inthe case) to allow for a consideredassessment of privilege issues.7

Email chains containing multiple emails overdays or weeks generally present a challengefor the attorneys responsible for reviewingemails to decide which emails to withholdon the basis of privilege. The most commonquestion that these attorneys have had toaddress is whether, when logging emailchains, each email in the string is considereda separate document and thus should belogged separately or whether the entireemail chain should be logged as a singledocument. Rule 11-b now answers thatquestion by stating that the entire emailchain may be logged as a single entry on aprivilege log.

Other Judicial Attempts toLimit the Burden of Privilege LogsThe concept of categorical privilege logs isnot a novel concept. As early as 1996, in theUnited States District Court for the SouthernDistrict of New York, United StatesMagistrate Judge Michael H. Dolinger foundthat courts may permit categorical privilegelogs where “(a) document-by-documentlisting would be unduly burdensome and (b)the additional information to be gleanedfrom a more detailed log would be of nomaterial benefit to the discovering party inassessing whether the privilege claim is wellgrounded.”8 Magistrate Judge Dolingerfound support for this proposition in boththe Federal Rules of Civil Procedure and theCivil Rules for the United States DistrictCourt for the Southern District of New York.9

Similarly in 2004, Sedona10 suggested thatparties consider agreeing to use categoricalprivilege logs at the outset of litigation,while agreeing that challenges to privilege

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

The most commonquestion that theseattorneys have had

to address iswhether, whenlogging email

chains, each emailin the string is

considered aseparate documentand thus should be

logged separately orwhether the entireemail chain should

be logged as asingle document.

Rule 11-b nowanswers that

question by statingthat the entire emailchain may be loggedas a single entry on

a privilege log.

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P A G E 6

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

Conclusion Twenty years ago, the legal communityunderstood that the creation ofprivilege logs was becoming asubstantial expense due to theexponential growth in the size ofdocument productions that resultedfrom the use of computers and similardevices, and emails other forms ofelectronic communications, all of whichgenerate electronically storedinformation. As the amount of ESIcontinues to rise, this expense is onlyincreasing. In many disputes, the costof producing document-by-documentprivilege logs outweighs their value,because the logs are not used in anymeaningful way by the parties.

The judicial system is addressing thisgrowing concern. The arbitrationcommunity should as well. Arbitrationshould be more efficient and less costlythan litigation. After all, that is one ofthe primary reasons that companieschoose arbitration over litigation. Inorder to remain the preferred mannerof dispute resolution, arbitration mustretain its core attributes, and not fallbehind the judiciary in addressing theexponential costs of e-discovery.▼

1 Mem. of N.Y. Sup. Ct. Commercial Division Advi-sory Council to All Interested Persons on Pro-posed Adoption of Rule 22NYCRR §202.70(g)(April 3, 2014).

2 Joseph A. Saltiel & Michael G. Babbitt, Is There aBetter Way to Create Privilege Logs?, 4 BloombergLaw Report No. 30 (2010).

3 Gideon Mark, Federal Discovery Stays, 45 U. Mich.J.L. Reform 405, 420 (2012) (“Attorney review forprivilege and the preparation of privilege logsconstitute the single most costly steps in the e-discovery process.”).

4 Robert M. Hall, How Reinsurance Arbitrations canbe Faster, Cheaper and Better (Revisited), 18 Jour-nal of Reinsurance No. 2 (Spring 2011), availableat http://www.robertmhall.com/articles/Cheap-erFaster_Revisited.pdf.

5 Proportionality factors include: (1) the burden orexpense of the proposed discovery outweighingits likely benefit, (2) considering the needs of thecase, (3) the amount in controversy, (4) the par-ties’ resources, (5) the importance of the issues atstake in the action, and (6) the importance of thediscovery in resolving the issues. Fed. R. Civ. P. 26.These proportionality factors are included in thecurrent FRCP 26(b)(2)C)(iii), which allows a courton a motion or sua sponte to limit discoverybased on the proportionality factors. The pro-posed FRCP 26(b)(1) limits the scope of allowablediscovery based on the proportionality factors inevery case, not just at the request of the parties.

6 Currently, parties in New York state court are re-quired to exchange privilege logs pursuant toNYCPLR §3122(b). Rule §3122(b) would co-existwith Rule 11-b. It requires parties who withhold

privileged documents to prepare a log contain-ing a separate entry for each document, includ-ing pertinent information such as the type,general subject matter, date and such other in-formation that is sufficient to identify the docu-ment.

7 22 N.Y.C.R.R. 202.70(g), Rule 11-b.8 SEC v. Thrasher, No. 92 Civ. 6987 (JFK), 1996 WL

125661 (S.D.N.Y. Mar. 20, 1996).9 Fed. R. Civ. P. 26(b)(5) (party is required to “de-

scribe the nature of the documents ... in a man-ner that, without revealing information itselfprivileged or protected, will enable other partiesto assess the applicability of the privilege or pro-tection.”); S.D.N.Y. Civ. R. 46(e)(2)(ii)(A) (details ofdocument, including author and addressee,should be provided “where appropriate”).

10 The Sedona Principles represent a best-practiceguideline for eDiscovery that evolved out of thediscussions of The Sedona Conference®, a non-partisan law and policy think tank.

11 The Sedona Principals: Best Practices Recommen-dations & Principals for Addressing ElectronicDocument Production COMMENT 3.B. PRIVILEGE LOGSFOR VOLUMINOUS ELECTRONIC DOCUMENTS (Jan. 2004),available at https://thesedonaconference.org/publication/The%20Sedona%20Principles.

12 FED. R. CIV. P. 26, Advisory Committee Notes 1993(“Details concerning time, persons, general sub-ject matter, etc., may be appropriate if only afew items are withheld, but may be unduly bur-densome when voluminous documents areclaimed to be privileged or protected, particu-larly if the items can be described by cate-gories.”).

13 See, e.g., Teledyne Instruments, Inc. v. Cairns, 6:12-CV-854-ORL-28, 2013 WL 5781274 (M.D. Fla. Oct.25, 2013); In re Imperial Corp. of Am., 174 F.R.D. 475,479 (S.D. Cal. 1997); In re Apollo Grp., Inc. Sec.Litig., 251 F.R.D. 12, 17 (D.D.C. 2008) aff’d on othergrounds, 329 F. App’x 283 (D.C. Cir. 2009); U. S. v.Gericare Med. Supply Inc., CIV.A.99-0366-CB-L,2000 WL 33156442 (S.D. Ala. Dec. 11, 2000);Turner & Biosseau, Chartered v. Nationwide Mut.Ins. Co., 95-1258-DES, 1996 WL 129815 (D. Kan. Feb.29, 1996).

14 COURT OF CHANCERY GUIDELINES FOR THE COLLECTIONAND REVIEW OF DOCUMENTS IN DISCOVERY, available athttp://courts.state.de.us/chancery/docs/Collec-tionReviewGuidelines.pdf.

15 S.D.N.Y. Civ. R. 26.2(c).

claims be settled document-by-document and noting that such anapproach would “reduce motionpractice regarding log deficiencies andother procedural challenges that arebecoming more common given thehuge volume of documents at issue.”11

Sedona based this approach on the1993 rules amendment comment toFederal Rule of Civil Procedure 26(b)(5).12

Although other courts have condonedthe use of categorical privilege logs,New York may be one of the first toestablish it as the preferred method.13On December 4, 2012, the DelawareCourt of Chancery announced anexpansion of its Guidelines forPractitioners, which now states that “[i]tmay be possible for parties to agree tolog certain types of documents bycategory instead of on a document-bydocument basis.”14 Similarly, effectiveSeptember 3, 2013, the Local Rules of theUnited States District Courts for theSouthern and Eastern Districts of NewYork state:

Efficient means of providinginformation regarding claimsof privilege are encouraged,and parties are encouraged toagree upon measures thatfurther this end. For example,when asserting privilege onthe same basis with respect tomultiple documents, it ispresumptively proper toprovide the informationrequired by this rule by groupor category. A party receiving aprivilege log that groupsdocuments or otherwisedeparts from a document-by-document or communication-by-communication listing maynot object solely on that basis,but may object if thesubstantive informationrequired by this rule has notbeen provided in acomprehensible form.15

Thus, although Rule 11-b is notinnovative in approach, it is unique inits express preference for categoricalprivilege logs.

The judicial system isaddressing this growing

concern. The arbitrationcommunity should as well.

Arbitration should bemore efficient and less

costly than litigation.

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

As of January 1,2015, Coulter, a

Charter AccreditedAssociation

ManagementCompany, will

assume themanagement of

ARIAS•U.S. and SaraMeier, a Senior Vice-President at Coulterwith twenty years of

non-profitexperience, will

serve as the newExecutive Director.

Birrell and Cerone are Certified ArbitratorsAt its meeting on November 14, the Board ofDirectors approved Scott P. Birrell and JamesF. Cerone as ARIAS•U.S. Certified Arbitrators,bringing the total to 205. Their profiles areavailable on the website; their biographiesare on page 32.

Forty-eight Sponsors Supported 20th AnniversaryGala DinnerThe number of sponsors of the 20thAnniversary Gala Reception and Dinnertotaled 48. These sponsors, at threesponsorship levels, helped fund theNovember 13 event. Sponsors’ names andlogos were on display at the dinner andwere featured in conference publications,the website, and the Quarterly. Platinumsponsors, the highest level, each had a tabledesignated and were able to invite otherconference attendees and registered gueststo join their tables for dinner. Informationabout the dinner can be found in the 2014Fall Conference Report on page 18.

Sponsor Logos Brighten Upthe ARIAS WebsiteARIAS·U.S. is continuing to feature logos ofthe sponsors of the 20th Anniversary GalaReception and Dinner which can beaccessed from the window on the homepage of the ARIAS•U.S. website.

ARIAS Board of Directors Announces New Management CompanyThe current contract to manage ARIAS•U.S.will expire on December 31, 2014. In theexercise of its duties as fiduciaries of theorganization, last fall, the Board authorizedthe issuance of a Request for Proposals for anew association management contract, toassure the continued success of theARIAS•U.S. mission as it embarks on thenext 20 years. The Board was gratified bythe number of proposals received and theinterest in ARIAS•U.S. expressed by severalqualified firms. Initial screening ofproposals was carried out by a sub-committee of the Strategic PlanningCommittee and the Board then interviewedthe leading candidates. As of January 1,2015, Coulter, a Charter Accredited

Association Management Company, willassume the management of ARIAS•U.S. andSara Meier, a Senior Vice-President at Coulterwith twenty years of non-profit experience,will serve as the new Executive Director. TheBoard acknowledges and is grateful for thecontributions that CINN has made to theorganization’s development. It is especiallyappreciative of the years of service anddedication of Bill Yankus, long-standingExecutive Director. At the November 13dinner, all attendees joined the Board inthanking him for his many years ofexemplary service on behalf of ARIAS•U.S. bypresenting him with the ARIAS Award(additional information is in the 2014 FallConference Report).

Intensive Workshop TrainsTwelve ArbitratorsThis year’s Intensive Arbitrator TrainingWorkshop took place on September 18 in the New York City offices of Squire PattonBoggs LLP. Presentations by three EducationCommittee members and three experiencedarbitrators provided a comprehensiveoverview of the arbitrator’s role and how tomanage it. And arguments by eightattorneys in four hearing rooms gave thetwelve students first-hand experience in twomock arbitration sessions, while the sixpresenters provided guidance andobservations, along the way. This intensivetraining is a requirement of ARIAS•U.S.certification for any candidate with little orno significant experience as an arbitrator.

Orr Certified as ARIAS UmpireAt its meeting on September 10, the Board ofDirectors approved Thomas S. Orr as anARIAS•U.S. Certified Umpire, bringing thenumber to 57.

Byrne Certified as ARIAS ArbitratorAlso, at its meeting on September 10, theBoard approved Matthew J. Byrne as anARIAS•U.S. Certified Arbitrator, bringing thenumber to 203. His biography is on page 32.

McComas Approved as ARIAS Qualified MediatorAt that same meeting, Albert McComas wasapproved as an ARIAS•U.S. QualifiedMediator, bringing that number to 36.

new and notices

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Thomas R. Newman

Arbitration is a contractual process forextrajudicial dispute resolution and bothfederal and state courts recognize andenforce the “long and strong public policyfavoring arbitration” as an alternative totraditional litigation in court.1 The potentialadvantages of arbitration includeconfidentiality, expertise of the decision-maker in the subject of the dispute, andspeed and economy, although not all may beattained in every case. As a negotiated termof the parties’ contract, however, the right toarbitrate, like all other contractual rights,may be waived or abandoned.

The general principles governing thedoctrine of waiver are well settled and, whileNew York cases are cited herein, theseprinciples are pretty much the samethroughout the United States and in federalcourts. “Waiver” is “the intentionalrelinquishment of a known right, with bothknowledge of its existence and an intentionto relinquish it.”2 Mere suspicion ofsomething is not enough. The knowledgerequired for a waiver of a right is “fullknowledge of all the facts upon which theexistence of the right depends.”3 The intentto waive must be clearly established. It maynot be inferred from a doubtful or equivocalact4 and “should not be lightly presumed.”5

Waiver can be express or inferred, but meresilence is not sufficient to establish waiver.Where a purported waiver is conditional,and the condition is unfulfilled, there is nowaiver.6

A party may waive its right to arbitrate byparticipating in “protracted litigation”regarding the same subject matter thatresults in demonstrable prejudice to theopposing party. That is the type of waiverconsidered more fully below. First, however,we note the general principles regardingwho decides whether there has been waiverin the context of a challenge to arbitration.

It is well-settled that whether a dispute isarbitrable is generally an issue for the courtto decide unless the parties have “evinced a‘clear and unmistakable’ agreement toarbitrate arbitrability as part of theiralternative dispute resolution choice.”7 InFirst Options of Chicago v Kaplan8 (“FirstOptions”), the Supreme Court of the UnitedStates stated, “Just as the arbitrability of themerits of a dispute depends upon whetherthe parties agreed to arbitrate that dispute, .. . so the question ‘who has the primarypower to decide arbitrability’ turns uponwhat the parties agreed about that matter.”

When deciding whether the parties agreedto arbitrate the question of arbitrability, theSupreme Court stated that courts generallyshould apply ordinary state-law principlesthat govern the formation of contracts, withone “important qualification” – “Courtsshould not assume that the parties agreedto arbitrate arbitrability unless there is‘clea[r] and unmistakabl[e]’ evidence thatthey did so.”9

When the question is who should decidearbitrability “the law reverses thepresumption” that is applied when thequestion is whether a particular dispute isarbitrable. In the latter case, there is a strongpresumption in favor of arbitration, and“[a]ny doubts concerning the scope ofarbitrable issues should be resolved in favorof arbitration.”10 Since a party can only beforced to arbitrate those issues it specificallyhas agreed to submit to arbitration, courtsare reluctant to interpret silence orambiguity on who should decide arbitrabilityas conferring upon the arbitrators the powerto do so.11

If it is found that the parties agreed tosubmit the arbitrability question itself toarbitration, then “the court’s standard forreviewing the arbitrator’s decision aboutthat matter should not differ from thestandard courts apply when they review anyother matter that parties have agreed toarbitrate. . . . That is to say, the court should

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

feature

Thomas R.Newman

Thomas R. Newman is counsel toDuane Morris LLP in its New York officeand co-author of Ostrager & Newman,Handbook on Insurance Coverage Dis-putes (16th ed. 2012). He specializes ininsurance and reinsurance coverage,arbitration and litigation, as counsel,expert witness and arbitrator. He is aFellow of the Chartered Institute of Ar-bitrators and has participated in nu-merous Bermuda Form arbitrations inLondon and Bermuda.

Waiver of Arbitration

The generalprinciples governingthe doctrine ofwaiver are wellsettled and, whileNew York cases arecited herein, theseprinciples are prettymuch the samethroughout theUnited States and infederal courts.

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

The crucial questionis whether, under

the circumstances ofthe particular case,the defaulting party

acted“‘inconsistently’ with

the arbitrationright.” This “requires

a finding that theparty engaged in

litigation to such anextent as to

“manifest[ ] apreference clearlyinconsistent with

[its] later claim thatthe parties were

obligated to settletheir differences byarbitration’ . . . and

thereby elected tolitigate rather than

arbitrate.”

give considerable leeway to the arbitrator,setting aside his or her decision only incertain narrow circumstances,”12 such asthose set out in section 10 of the FederalArbitration Act (“FAA”), 9 U.S.C. § 10.

In Howsam v. Dean Witter Reynolds, Inc.,13the Supreme Court stated that “thepresumption is that the arbitrator shoulddecide “allegation[s] of waiver, delay, or a likedefense to arbitrability.” “[P]roceduralissues, even if potentially dispositive, are leftto the arbitrator while substantivequestions about the kind of disputesintended for arbitration are reserved for thecourt, absent clear and unmistakableevidence to the contrary.”14 Few courts havehad occasion to consider the impact ofHowsam on the doctrine of waiver ofarbitration by conduct, and while some havefollowed Howsam to conclude thatlitigation conduct waiver issues must bedecided by arbitrators, other courts havecontinued to themselves decide whetherthere has been a waiver of the right toarbitrate.

For example, the Eight Circuit has held thatwaiver is presumptively an issue for thearbitrator, and not for the courts, at leastwhere the conduct allegedly constitutingwaiver is due to litigation in some othercourt.15 The First and Fifth Circuits bothhave held that where the alleged waiver isdue to litigation conduct, as opposed toother types of action or inaction, the issueof waiver should be determined by thecourt rather than an arbitrator.16

Although the Second Circuit has not ruledon this specific issue, lower courts in thatCircuit have continued to apply SecondCircuit precedent preceding Howsam tohold that waiver of the right to arbitrate incases involving litigation conduct is for thecourt to decide.17 Thus, in Ralph Lauren Corp.v. United States Polo Ass’n,18 the court noted,“[t]raditionally, courts, not arbitrators, havedecided claims of waiver of the right toarbitrate based on participation inprotracted litigation. . . . Moreover, there arepolicy reasons for the court to decidewhether a party has waived its right toarbitration through prior litigation—namely, the district court has the inherentpower to control its own docket and toprevent abuse in its proceedings, such asforum shopping.”

Whether the right to arbitration has beenwaived “is factually specific and not

susceptible to bright line rules.”19 The crucialquestion is whether, under thecircumstances of the particular case, thedefaulting party acted “‘inconsistently’ withthe arbitration right.”20 This “requires afinding that the party engaged in litigationto such an extent as to “manifest[ ] apreference clearly inconsistent with [its] laterclaim that the parties were obligated tosettle their differences by arbitration’ . . . andthereby elected to litigate rather thanarbitrate.”21 The party seeking a finding thathis opponent has waived a conceded right toarbitration has a “heavy burden”22 and “[t]hekey to a waiver analysis is [a demonstrationof ] prejudice” to the opposing party.23

Where waiver of the right to arbitrate isclaimed because a party has engaged inlitigation, two types of prejudice may beclaimed: substantive prejudice and prejudicedue to excessive delay or costs incurred as aresult of a party’s pursuit of litigation priorto seeking relief in arbitration.

“Prejudice can be substantive, such as whena party loses a motion on the merits andthen attempts, in effect, to relitigate theissue by invoking arbitration, or it can befound when a party too long postpones hisinvocation of his contractual right toarbitration, and thereby causes his adversaryto incur unnecessary delay or expense.”24

Substantive prejudice may also result whenthe other party has participated insubstantial motion practice in an action, orseeks arbitration after engaging in discoverythat is unavailable in arbitration.25

Mere delay in seeking arbitration will notbe found to constitute a waiver of the rightto arbitrate unless the opposing party canshow that it has been prejudiced by thedelay and there is no “bright line” test todetermine whether such prejudice exists.26

“[N]either a particular time frame nordollar amount automatically results in sucha finding — but it is instead determinedcontextually, by examining the extent ofthe delay, the degree of litigation that haspreceded the invocation of arbitration, theresulting burdens and expenses, and theother surrounding circumstances.”27 Delayprior to the onset of litigation is oftennecessary to allow the parties to engage ingood faith efforts to resolve their disputeand the fact that the parties engaged inpreliminary negotiations concerning asettlement is not sufficient to waivearbitration.28 It also is of moment that the

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

In determining whatconstitutes“protractedlitigation” for awaiver analysis, “thecourt shouldconsider threefactors: (1) theamount of timebetween thecommencement ofthe action and therequest forarbitration; (2) theamount of litigationthus far; and (3)proof of prejudice tothe opposing party.”

party seeking arbitration did not do so untilafter the other party filed a lawsuit againstit.29

In Cusimano v. Schurr,30 the New YorkAppellate Division, First Department,reversed a judgment staying arbitration ofall claims against the defendant on statuteof limitations grounds and stayed the actionpending arbitration of non-time-barredclaims. The court found, “A delay of one yeardoes not, in itself, amount to protractedlitigation. . . . Further, the expense theaccountants incurred in responding toplaintiffs’ procedural motion and subpoenasdoes not, by itself, establish waiver. . . .‘pretrial expense and delay, without more,does not constitute prejudice sufficient tosupport’ waiver.’”31 The court found thatwhile plaintiffs could have sought arbitrationsooner, “the fact that they did not file asubstantive motion or obtain discoverymaterial that would not have been availablein arbitration weighs in favor of allowingarbitration to proceed.” When the issue iswaiver, ‘any doubts concerning whetherthere has been a waiver are resolved in favorof arbitration.’”32

Pretrial expense and delay, without more,does not constitute prejudice. For example,in Blimpie Int’l, Inc. v. D’Elia,33 respondent hadengaged in minimal discovery and had notengaged in motion practice prior to seekingarbitration. All discovery was produced byrespondent (the party seeking arbitration)and no depositions had been taken. Sincethe appellants (who sought to stay thearbitration) benefitted from the limiteddiscovery undertaken, the court held theycould not claim prejudice; it grantedrespondent’s motion for a stay of the mainaction pending arbitration of appellant’scounterclaims.34

“Not every foray into the courthouse effectsa waiver of the right to arbitrate.”35 A partydoes not waive the right to arbitrate “simplyby pursuing litigation, but by ‘engag[ing] inprotracted litigation that results in prejudiceto the opposing party.”36 In determiningwhat constitutes “protracted litigation” for awaiver analysis, “the court should considerthree factors: (1) the amount of timebetween the commencement of the actionand the request for arbitration; (2) theamount of litigation thus far; and (3) proof ofprejudice to the opposing party.”

The party opposing arbitration will not befound to have been prejudiced simply

because the demand for arbitration was notmade until after judicial proceedings werecommenced against it. Thus, wheredefendant asserted its right to arbitrate onlytwo months after plaintiff filed its complaintand there had been no discovery or othersignificant pre-trial activity, the court foundthat defendant had not waived its right toarbitrate.37 However, the proximity of a trialdate when arbitration is first sought isrelevant.38

Where claims that are or have been litigatedin court and then are sought to be arbitratedare entirely separate, no waiver of arbitrationwill be implied from the fact that litigationwas commenced in court on other claims;and this is so even though the claims all arisefrom the same agreement.39

Another instance where prior litigation willnot result in a finding of waiver is “whereurgent need to preserve the status quorequires some immediate action whichcannot await the appointment ofarbitrators.”40 In such cases, there is neitherwaiver nor an election of remedies if theplaintiff applies to the court for protectiverelief to preserve the status quo whilesimultaneously exercising his contractualright to demand arbitration.

A litigant “may not compel arbitration whenits use of the courts is ‘clearly inconsistentwith [its] later claim that the parties wereobligated to settle their differences byarbitration.”41 Waiver is more likely to befound the longer the litigation goes on, themore a party avails itself of the opportunityto litigate and obtain discovery that may notbe available in arbitration, and the more thatthe litigation results in prejudice to theopposing party.

When the parties have engaged in extensivediscovery or litigated the merits of a claim,prejudice will be found.42 Thus, where a partytakes advantage of broad discovery devicesavailable in litigation, the prejudice to theopponent stems from the fact that similardiscovery would not be available as of right inarbitration. When a pre-trial motion is madethat addresses the substantive merits of aclaim prior to moving to compel arbitration,prejudice may be found in the opponenthaving to prematurely reveal its case inresponding papers and arguments.43

Com-Tech Associates v. Computer AssociatesInternational,44 is one of those “rare cases” inwhich the defendants’ conduct resulted inprejudice to the plaintiffs resulting in a

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

However, assuminghe acts promptly,

“so long as thedefendant’s actionsare consistent withan assertion of theright to arbitrate,

there is no waiver.”Thus, entering a

stipulation to extendthe time to answer

is a purely defensiveaction not

inconsistent with alater attempt to

force arbitration.

waiver of the right to compel arbitration.The defendants did not assert the defenseof arbitration in their answers, extensivelydeposed the plaintiffs and waited untilshortly before the scheduled completion ofdiscovery, only four months before thescheduled trial date, to first raise the issueof arbitration in an omnibus motion forjudgment on the pleadings and partialsummary judgment, thereby forcingplaintiffs to litigate arbitrable issues. Thecourt found these “maneuvers put plaintiffsto considerable additional expense” andthat to permit a party to “delay assertion ofa contractual right to compel arbitrationuntil the eve of trial defeats one of thereasons behind the federal policy favoringarbitration: that disputes be resolvedwithout ‘the delay and expense oflitigation.’”45

Kramer v. Hammond46 is another case wherethe court found prejudice and a waiver ofarbitration. Hammond entered into anagreement with a number of Californiainventors to license a medical device. Theagreement contained a broad arbitrationclause. Kramer was the attorney for theCalifornia inventors. The parties agreed thatHammond would have the option to licensethe invention, provided he raised thenecessary capitalization. When Hammondwas unable to do so, his option expired. Theparties signed a new subscriptionagreement which reduced Hammond’sresponsibilities and ownership rights in thecorporation. He found this objectionableand sued.

Hammond filed suit in March of 1986 inSouth Carolina alleging “a conspiracy and anagreement to fool, cheat and manipulate”him in order to “greatly dilute and/or takeaway” his rights in the corporation. Kramerunsuccessfully moved to dismiss the actionas against him for lack of personaljurisdiction. He appealed to the SouthCarolina Supreme Court, which affirmed thedecision He then moved to stay the actionpending his petition in the United StatesSupreme Court for a writ of certiorari. Whena stay was denied in July of 1990, Kramerfiled an answer in which, for the first time,he raised the arbitration clause as anaffirmative defense.

Meanwhile, Hammond had commenced anidentical suit in New York, apparently toprotect his rights in the event the SouthCarolina court determined that it lacked

personal jurisdiction over Kramer. Kramernoticed Hammond’s deposition and a fewdays later answered the complaint, assertingsix affirmative defenses, but not thearbitration clause. He also advanced fourcounterclaims and, shortly thereafter, movedfor summary judgment.

The Second Circuit reversed the districtcourt’s judgment granting Kramer’s motionto compel arbitration noting that “over fouryears passed between the time thatHammond first brought suit and Kramer atlast raised the arbitration clause as a bar. . . .[and,] before invoking the arbitration clause,Kramer had litigated issues to the higheststate courts of New York and South Carolina,and had petitioned the United StatesSupreme Court for a writ of certiorari. Byengaging in such aggressive, protractedlitigation for over a four-year period, Kramerwaived his contractual right to arbitration. Toallow him to invoke arbitration at this latedate would severely prejudice Hammond,who has expended a great deal of time andmoney in contesting Kramer’s motions andappeals. It would also undercut the veryrationale — speed and efficiency — thatsupports the strong presumption in favor ofarbitration in the first place.”47

Although the party who commences anaction may generally be assumed to havewaived any right it may have had to submitthe issues to arbitration, this assumptiondoes not apply to a defendant. Nevertheless,“a defendant’s right to compel arbitrationdoes not remain absolute regardless of thedegree of his participation in the action.”48 Adefendant may also be found to have waivedhis right to arbitration.

However, assuming he acts promptly, “solong as the defendant’s actions areconsistent with an assertion of the right toarbitrate, there is no waiver.”49 Thus,entering a stipulation to extend the time toanswer is a purely defensive action notinconsistent with a later attempt to forcearbitration.50 And merely answering on themerits and even asserting a counterclaim orcross-claim, without more, will notnecessarily constitute a waiver.51 On theother hand, contesting the merits, as by amotion to dismiss or for summaryjudgment, is an acceptance of the judicialforum and waives any right the defendantmay have had to seek a stay of the action infavor of arbitration.52 As noted above, thestrong public policy in favor of arbitration

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P A G E 1 2means that “any doubts concerningwhether there has been a waiver areresolved in favor of arbitration.”53▼

ENDNOTES1 Smith Barney Shearson Inc. v. Sacharow, 91 N.Y.2d 39, 49,

689 N.E.2d 884, 889, 666 N.Y.S.2d 990, 995 (1997); Lead-ertex v. Morganton Dyeing & Finishing Corp., 67 F.3d 20,25 (2d Cir. 1995).

2 City of New York v. State, 40 N.Y.2d 659, 669, 389N.Y.S.2d 332, 340 (1976). 1 Ostrager & Newman, Hand-book on Insurance Coverage Disputes § 2.06[a] (16th ed.2012).

3 S. & E. Motor Hire Corp. v. New York Indem. Co., 255 N.Y.69, 72, 174 N.E. 65, 74-75 (1930); Amrep Corp. v. Am. HomeAssur. Co., 81 A.D.2d 325, 440 N.Y.S.2d, 244, 247 (1st Dep’t1981).

4 Horne v. Radiological Health Servs., P.C., 83 Misc.2d 446,371 N.Y.S.2d 948, 961 (Suffolk Co. 1975), aff’d, 51 A.D.2d544, 379 N.Y.S.2d 374 (2d Dep’t 1976).

5 Gilbert Frank Corp. v. Federal Ins. Co., 70 N.Y.2d 966, 968,520 N.E.2d 512, 514, 525 N.Y.S.2d 793, 795 (1988).

6 Thompson v. Postal Life Ins. Co., 226 N.Y. 363, 123 N.E. 750(1919).

7 Matter of Smith Barney Shearson v Sacharow, 91 N.Y.2d39, 45, 689 N.E.2d 884, 887, 666 N.Y.S.2d 990,993 (1997).

8 514 U.S. 938, 943-945 (1995).9 Id. at 944.10 Id. Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,

Inc., 473 U.S. 614, 626, 87 L. Ed. 2d 444, 105 S. Ct. 3346(1985), quoting Moses H. Cone Mem’l Hosp. v. MercuryConstr. Corp., 460 U.S. 1, 24-25, 74 L. Ed. 2d 765, 103 S. Ct.927 (1983); Security Life Ins. Co. of Am. v. SouthwestReinsure, Inc.,. 2013 U.S. Dist. LEXIS 17786 at *13 (D.Minn. 2013); North River Ins. Co. v. Transamerica Occi-dental Life Ins. Co., 2002 U.S. Dist. LEXIS 10637 at *23(ND Tex. 2002).

11 514 U.S. at 945.12 Id. at 943.13 537 U.S. 79, 85 (2002); see also Green Tree Fin. Corp. v.

Bazzle, 539 U.S. 444, 452 (2003).14 Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 11 (1st

Cir. 2005).15 National Am. Ins. Co. v. Transamerica Occidental Life Ins.

Co., 328 F.3d 462, 466 (8th Cir. 2003); see also BellevueDrug Co. v. Advance PCS, 333 F. Supp. 2d 318, 324 (E.D. Pa.2004) (relying on Howsam for the proposition that “itappears that . . . the issue of whether the defendant,by litigating in this Court the present case, haswaived the right to demand arbitration should prop-erly be presented in the first instance to the arbitra-tor”).

16 Marie v. Allied Home Mortgage Corp., 402 F.3d 1, 11 (1stCir. 2005); Tristar Fin. Ins. Agency, Inc. v. Equicredit Corp.of America, 97 Fed. Appx. 462, 464 (5th Cir. 2004); seealso Am Gen. Home Equity, Inc. v. Kestel, 253 S.W.3d 543,551-52 (Ky. 2008) Howsam did not actually reach thequestion of litigation-conduct waiver. RatherHowsam focused upon whether a party waived its ar-bitration rights by not complying with a contractualtime limitation for asserting arbitration.

17 See cases collected in Apple & Eve, LLC v. Yantai N.Andre Juice Co., 610 F. Supp. 2d 226, 231 (EDNY 2009).“Waiver operates as “an equitable defense” and is ap-propriately decided by the Court.” Doctor’s Associates,Inc. v. Distajo, 66 F.3d 438, 454-56 (2d Cir. 1995).

18 2014 U.S. Dist. LEXIS 123968 *12 (SDNY 2014).19 Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d 102,

105 (2d Cir. 2002).20 Midwest Window Sys., Inc. v. Amcor Indus., Inc., 630

F.2d 535, 537 (7th Cir. 1980). 21 Matter of Cusimano v Berita Realty, LLC, 103 A.D.3d 720,

721, 959 N.Y.S.2d 711, 712 (2d Dept 2013).

22 Security Life Ins. Co. of Am. v. Southwest Reinsure, Inc.,.2013 U.S. Dist. LEXIS 17786 at *19 (D. Minn. 2013);Sweater Bee by Banff v Manhattan Indus., 754 F.2d 457,466 (2d Cir. 1985); Morrie Mages & Shirlee MagesFound. v. Thrifty Corp., 916 F.2d 402, 405 (7th Cir. 1990).

23 Id. See also Hoxworth v. Blinder, Robinson & Co., 980F.2d 912, 925 (3d Cir. 1992); Rush v. Oppenheimer & Co.,779 F.2d 885, 887 (2d Cir. 1985).

24 Thyssen, Inc. v. Calypso Shipping Corp., S.A., 310 F.3d at105; Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir.1991).

25 Kramer v. Hammond, 943 F.2d 176, 179 (2d Cir. 1991);Leadertex v. Morganton Dyeing & Finishing Corp., 67F.3d 20, 25-26 (2d Cir. 1995).

26 Id.27 Kramer v. Hammond, 943 F.2d at 179.28 Dickinson v. Heinold Securities, Inc., 661 F.2d 638, 641

(7th Cir. 1981).29 Id.30 2014 N.Y. App. Div. LEXIS 5602 at*11 (1st Dept Aug. 7,

2014).31 Id. at *15.32 Id. at *16; Leadertex, 67 F.3d at 25. 33 277 A.D.2d 69, 70, 716 N.Y.S.2d 384 (1st Dept 2000). 34 277 A.D.2d at 70, 716 N.Y.S.2d at 385.35 Sherrill v. Grayco Builders, Inc., 64 N.Y.2d 261, 475 N.E.2d

772, 776, 486 N.Y.S.2d 159, 163 (1985); Argonaut Ins. Co. v.Reinsurance Corp. of N.Y., 1994 U.S. Dist. LEXIS 6020 (ND Ill. 1994).

36 Cusimano v. Schurr, __ A.D.3d __ , __N.Y.S.2d __, 2014N.Y. App. Div. LEXIS 5602 at *11 (1st Dept Aug. 7, 2014);Kramer v. Hammond, supra, 943 F.2d at 179.

37 Argonaut Ins. Co. v. Reinsurance Corp., 1994 U.S. Dist.LEXIS 6020 at *8 (ND Ill. 1994); Morrie & Shirlee MagesFound. v. Thrifty Corp., 916 F.2d 402, 405 (7th Cir. 1990)

38 Leadertex, 67 F.3d at 25; Com-Tech Assocs. v. ComputerAssocs. Int’l, Inc., 938 F.2d 1574, 1576-77 (2d Cir. 1991).

39 Sherrill v. Grayco Builders, Inc., supra, 64 N.Y.2d at 273,475 N.E.2d at 776, 486 N.Y.S.2d at 163; Denihan v Denihan,

34 N.Y.2d 307, 310, 313 N.E.2d 759, 357 N.Y.S.2d 454(1974).

40 Sherrill v. Grayco Builders, Inc., supra. See also Zachariouv Manios, 68 A.D.3d 539, 540, 891 N.Y.S.2d 54, 56 (1stDept 2009); Preiss/Breismeister Architects v WestinHotel Co.-Plaza Hotel Div., 56 N.Y.2d 787, 789, 452N.Y.S.2d 397 (1982).

41 Stark v Molod Spitz DeSantis & Stark, P.C., 9 NY3d 59,66-67, 845 NYS2d 217 (2007).

42 Windward Agency v. Cologne Life Reinsurance Co., 1997U.S. Dist. LEXIS 4154 at *14 (ED Pa. 1997).

43 Id.44 938 F.2d 1574, 1576 (2d Cir. 1991). 45 Id; see also Flores v Lower E. Side Serv. Ctr., Inc., 4 N.Y.3d

363, 372, 828 N.E.2d 593, 795 N.Y.S.2d 491 (2005). 46 943 F.2d 176, 179 (2d Cir. 1991).47 Id. 48 De Sapio v. Kohlmeyer, 35 N.Y.2d 402, 405, 321 N.E.2d

770, 772, 362 N.Y.S.2d 843, 846 (1974).49 Id.50 Id.51 Gavlik Constr. Co. v. H.F. Campbell Co., 526 F.2d 777, 783

(3d Cir. 1975).52 Id. 53 Leadertex, 67 F.3d at 25.

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

On the other hand,contesting themerits, as by amotion to dismiss orfor summaryjudgment, is anacceptance of thejudicial forum andwaives any right thedefendant may havehad to seek a stayof the action infavor of arbitration.As noted above, thestrong public policyin favor ofarbitration meansthat “any doubtsconcerning whetherthere has been awaiver are resolvedin favor ofarbitration.”

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

In each issue of the Quarterly, this columnlists employment changes, re-locations, andaddress changes, both postal and email thathave come in during the last quarter, so thatmembers can adjust their addressdirectories.

Although we will continue to highlightchanges and moves here, remember thatthe ARIAS•U.S. Membership Directory on thewebsite is updated frequently; you canalways find there the most currentinformation that we have on file. If you seeany errors in that directory, please notify usat [email protected].

Do not forget to notify us when youraddress changes. Also, if we missed yourchange below, please let us know, so that itcan be included in the next Quarterly.

Recent Moves and AnnouncementsKlaus Kunze has relocated to 919 RiverviewPlace, Cincinnati, OH 45202, phone 513-381-1687, cell917-224-3970, [email protected].

David L. Fox’s new address for all purposes is150 West End Avenue,  Apt 29D, New York,NY  10023, email [email protected].

After 24 years at the same location, MoundCotton Wollan & Greengrass has moved tobigger, better, and state-of-the-art officeslocated at One New York Plaza, 44th Floor,New York, NY 10004. Phone numbers andemail addresses remain the same.

J. Russell Stedman’s new address is: Hinshaw& Culbertson LLP, One California Street, 18thFloor, San Francisco, CA 94111-1826, phone415-743-3705, fax 415-834-9070, [email protected].

Williams Lopatto has moved to 1707 L St.,N.W. Suite 550, Washington, DC 20036.Phone and email remain the same. 

David V. Axene’s full address is Axene HealthPartners, LLC, 38975 Sky Canyon Drive, Suite204, Murrieta, CA 92563, phone 951-294-0841, email [email protected]. Be sure to catch the Suite number as “204.”

James J. Powers is no longer in Mahwah.But, you can find him at 412 Ridgely Court,Pompton Plains, NY 07444.

Katherine Billingham has joined Scottish Re,a life and annuity reinsurance company inCharlotte, as Assistant Vice President andAssociate Counsel. She works with theGeneral Counsel in the management of thelegal disputes, supervision of arbitrations,

litigation and mediation,contract matters, regulatorycompliance and corporategovernance. She continues toprovide services as Umpire andArbitrator to the reinsuranceindustry, both property/casualtyand life reinsurance. Contactinformation remains thesame.▼

memberson themove

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2015 Fall Conference

November 12-13, 2015NEW YORK HILTON MIDTOWN

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Page 14: ARIAS Fourth Quarter 2014 Quarterly

Dale Crawford

For the potential arbitrator or consultingexpert, the phone call always goes in one oftwo distinct directions. The caller identifieshim/herself as an attorney, and theconversation quickly turns to the business athand:

I represent Honesty InsuranceCompany. Three years ago, myclient entered into an agreementwith Reliable Managing GeneralAgency to write business on ourbehalf. We have found that Reliableviolated the agency agreement inmultiple ways, failed to discloserequired information, and may havefraudulently withheld funds owedmy client. We have filed forarbitration under the terms of thecontract for damages and premiumfunds owed.

—or—

I represent Reliable ManagingGeneral Agency. Two years ago, myclient agreed to represent HonestyInsurance Company to producebusiness. We have carefullyfollowed every term of the contract,made all records available toHonesty, and remitted all premiumsas required. Now Honestycancelled the contract, failed to payearned commissions and profitsharing, and has filed suit.

The dispute resolution process then follows,and may result in a lengthy and expensiveconflict for both sides. While litigation is notuncommon in the insurance industry, thesedisputes are not over benefits from aninsurance policy, but are rather conflictsbetween two business partners that involvea frequency and repetition of the sameissues - violation of contract terms, lack ofdisclosure, and misapplication of funds.Anyone who has been in the business for a

significant time has seen the identicalscenario repeated over many years. Why is itnot infrequent for the term MGA to beinherently associated with instances ofdownright corruption or fraud and why dothese battles continue to develop amongexperienced industry executives on bothsides?1

First, a caveat is necessary that cannot beoveremphasized. There is a wide andsuccessful industry of MGA’s that have beenin operation for many years, and enjoylucrative symbiotic relationships withspecialty carriers operating in thisenvironment. The business is usually writtenthrough insurers with rate and coverageflexibility. These MGA’s are an important andvital part of the property-casualty industry;they are creative, innovative professionalswho utilize specialized skills to locate andwork with insurers to fill gaps left by thestandard carriers.

In contrast to the stable, long-termaffiliations with specialty carriers are thoseMGA relationships that are the typicalbreeding grounds for disputes. Severalcharacteristics are common in thesecircumstances:

1. A contract that applies only to programbusiness. Instead of broad, across-the-board surplus lines business of generalliability, property, and auto, these contractswill have narrow restrictions - typically,some singular line of business. It may besome form of professional liability,contractors of a certain type, or somenarrow industry. The focus is a relativelysmall group of homogenous exposures.

2. A lack of operating history of the program.These are usually new ventures, perhapswith a producer who has access to theprospective group and expectations toexpand on what may be a small base ofaccounts anticipated to grow considerablywith an insurance program tailored to thecoverage objectives of the members.

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

P A G E 1 4

feature

Dale Crawford

Dale Crawford is former insurance andreinsurance executive who providesservices an an arbitrator, umpire, andexpert witness in complex insuranceand reinsurance disputes.

Managing General Agency Disputes: Why They Recur And Some Thoughts For Prevention

Why is it notinfrequent for theterm MGA to beinherently associatedwith instances ofdownright corruptionor fraud and why dothese battlescontinue to developamong experiencedindustry executiveson both sides?

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

First, from thestandpoint of the

MGA, these areentrepreneurs out to

create a marketniche for themselves

and build asuccessful business.

Properly managedand if successful,they can be quite

rewarding throughcommission income,contingent bonuses

based onunderwriting results,

and building abusiness with a

substantial value.For an insurer, it

can be a potentiallyattractive enterpriseas well – a chanceto expand into newlines or classes of

business andincrease profits.Why then do so

many go so wrong?

3. A producer - either retail or MGA - thathas relatively little or no experience inmanaging a program. The owners of theMGA may have some experience with thebusiness, but had been operating withoutunderwriting authority; the business hasbeen previously written in the traditionalsystem of submission and individualacceptance by the insurers.

4. The insurance company joining with theMGA has no previous history with thetype of business to be written. A personalexperience comes to mind involving alarge retail jewelry chain that owned aninsurance subsidiary whose sole purposewas to provide insurance for merchandisesold and financed. This was low limit, firstparty coverage that the stores requiredborrowers to carry during the term offinance. A new MGA convinced theinsurer to write commercial umbrellaliability through a complex web includinga reinsurance broker and reinsurer thatwould, supposedly, fully protect theinsurer from ultimate loss. The resultswere predictably disastrous. Thereinsurers denied coverage andattempted to rescind. This leap fromproperty coverage on financed jewelry tocommercial umbrella through MGA’s wasnot all that unusual. For added measure,this took place during a highlycompetitive era in the industry whencompetition was brutal, such that rock-bottom terms and pricing were necessaryto write business.

Anyone involved in the excess and surpluslines or reinsurance industries has seenthese MGA scenarios play out at least sincethe 1970’s. Yet attorneys, arbitrators andconsulting experts still see these types ofMGA arrangements. Since the same issuescontinue as the core of these disputes, therehave to be reasons why these continue,almost always following a very similarpattern. Thirty years of observations withinthe industry and an additional dozen indispute resolution provide a viewpoint intothe rationality and business dynamics thatcreate these situations.

First, from the standpoint of the MGA, theseare entrepreneurs out to create a marketniche for themselves and build a successfulbusiness. Properly managed and ifsuccessful, they can be quite rewardingthrough commission income, contingentbonuses based on underwriting results, and

building a business with a substantial value.For an insurer, it can be a potentiallyattractive enterprise as well – a chance toexpand into new lines or classes of businessand increase profits. Why then do so manygo so wrong?

The answers are frequently found in theessential nature of the enterprise itself. Forthe insurer, this is most often anintroduction into a new class of business inwhich it lacks an experience base. Instead ofa building its own internal institutionalknowledge, this is delegated outside theorganization to the MGA. Thus the insurerdoes not have and is not acquiring theoverall comprehension and subtleties of thebusiness; instead it relies on the MGA whileremaining responsible for the results. Ifproperly analyzed, what would induce aninsurer to enter into such an arrangement?The answer appears to be opportunity-aninsurance executive envisions theopportunity to enter a new line of businessand increase volume with projections ofsignificant profits. The real attraction is thatthis can be done with virtually no effort orupfront cost to the insurer. The expansioncan be accomplished without addingpersonnel, office space, and processingfacilities; the insurer only has to take thepremium and the MGA performs all thefunctions, often also processing claims. Thisattractiveness and ease of entry tends tomask the real danger in transferringunderwriting authority outside the building.The prospective insurer is often provided anadditional sweetener where the MGAobtains reinsurance to protect the insurerfrom loss. This can be structured as totalprotection, where all underwriting risk isreinsured, or the issuing carrier retains only asmall participation. In the former, theinsurer then becomes only a front andreceives a fee of a certain percentage ofpremiums; in the latter, risk is significantlyminimized.

When these ventures borne of mutualoptimism begin to lose luster, it typicallyresults from claims activity. Losses occurthat exceed the anticipated levels. Based onthe severity and circumstances, the insurermay simply terminate the contract and walkaway. Often, however, the problems mayescalate dramatically. If there is reinsurance,that protection may prove illusory. In somecases, the reinsurance never existed becausethe MGA simply did not obtain theprotection. In others, the reinsurer denied

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

agreement should be a comprehensiveroad map for all aspects of theoperation and should be followed.Additionally, any exceptions or sideagreements should be immediatelywritten and communicated to the otherside and internally within bothorganizations. Any discussions resultingfrom visits should likewise bememorialized. In the event of a dispute,it is to the advantage of both sides tohave a complete paper trail of allagreements.

Insurance is a microcosm of theincreasingly complex global venture offinance, and there will continue to beopportunities for creative entrepreneurswho identify needs, design solutions,and establish long-lasting effectivepartnerships. These observations areintended to aid those who will have theopportunities and desire toparticipate.▼

1 The term Managing General Underwriter isoften used synonymously with Managing Gen-eral Agency. The two will be used together hereand referenced as MGA.

2 For a complete text of the Act, go towww.naic.org.

Insurance is a microcosmof the increasinglycomplex global venture offinance, and there willcontinue to beopportunities for creativeentrepreneurs whoidentify needs, designsolutions, and establishlong-lasting effectivepartnerships.

liability based on fraud ormisrepresentation or it may havebecome insolvent. Then the insurerfinds not only are the losses more thanprojected, but also that the protectionit relied upon does not exist. Typicallyonce problems have been identified,the insurer will conduct anunderwriting and financial audit.Based on the results, arbitration or alawsuit may soon follow.

When the dispute escalates to outsideresolution, the issues are typicallycomplex and focus on numerousdiscrete issues such as violation of theMGA’s authority includingunderwriting classifications andpricing; failure to report and disclose;and often include misappropriation offunds. An arbitration panel or jurymust sort through these and decidewhether the MGA committed thealleged improprieties or whether itwas nothing more than underwritingresults worse than anticipated; in otherwords, simply a business deal gonebadly. Based on numerousobservations over the years, thereseems to be an element of truth bothways. In some instances, the MGA wasdownright fraudulent, with egregiousviolations of underwriting authorityand absconding with premiums. Otherinstances were more benign, andappear to be little or nothing morethan poor underwriting experience. Inthe latter instance, instead ofacknowledging an unsuccessful - albeitcostly - business relationship, theexecutive or management teamresponsible for the MGA venture maybe under pressure to place the blameelsewhere; thus the desire to “make theMGA pay” for its transgressions andrecover the underwriting losses.

Since these scenarios have beenrepeating for at least 40 years, what isthe realistic likelihood that insurers willadopt the necessary vigilance to refrainfrom granting underwriting authorityfor classes of business in which theyhave no experience or that MGA’s willuniversally act with total adherence toall contractual requirements? Theanswer might unfortunately be nodifferent than the high tech or housingbubbles preventing future financialcalamities. Perhaps the most

fundamental reason why thesescenarios will continue is the inherentfoundation for conflict of interestwhere the MGA is charged withproviding the vigilance necessary forsuccessful underwriting while beingcompensated by commission based onthe volume of business written.

It bears mention here that this inherentconflict of interest has been addressedby the National Association ofInsurance Commissioners in itsadoption of the NAIC Model No. 225,known as the Managing GeneralAgents’ Act, which sets restrictions onthe powers that may be granted toMGA’s. Each state has adopted this insome form.2 The extent to which thisAct will reduce or eliminate thesedisputes remains to be seen.

Just as with traditional, long-standingMGA arrangements of writing multiplelines and classes with experiencedpartners on both sides, there can belegitimate opportunities in newventures. How can there be potentiallysuccessful prospects for both sides,while protecting the insurer andcreating a successful business for theMGA? Here are a few basic tenets:

Above all else, understand the business.If an insurer has no internal expertise ina certain class or line of business,consider long and hard before makingan entry by delegating underwritingauthority to an outside entity. If adecision is made to go forward,examine and evaluate the business justas if it were part of the internalunderwriting function.

Audit, audit, audit. Both parties benefitby the insurer visiting frequently toreview files and financial records.Underwriting audits should include allsubmissions to show exactly how thecontract provisions are being applied.The applications that are declined canprovide valuable insight into theoperating practices and compliancewith contract provisions. At the sametime, have an open and continuousdialogue between the MGAmanagement and the responsibleexecutives at the insurer.

Document, document, document. Theimportance of documentation cannotbe exaggerated. First, the MGA

Page 17: ARIAS Fourth Quarter 2014 Quarterly

ANNIVERSARY GALA DINNER

ARIAS•U.S. thanks our platinum, gold, and silver sponsors for supporting the Gala Dinner on November 13.

Day Pitney LLPDebevoise & Plimpton LLP

Edwards Wildman Palmer LLP

Morris, Manning & Martin LLPSaul Ewing LLP

Daniel E. Schmidt IV

White and Williams LLP

ACE GroupBudd Larner, P.C.

Butler Rubin Saltarelli & Boyd LLPCahill Gordon & Reindel LLP

Chadbourne & Parke LLPChaffetz Lindsey LLP

Choate, Hall & Stewart LLPClyde & Co LLP

Crowell & Moring LLPFoley & Lardner LLPFTI Consulting, Inc.

Hinshaw & Culbertson LLP

Locke Lord LLPMound Cotton Wollan & Greengrass

Schiff Hardin LLPSidley Austin LLP

Simpson Thacher & Bartlett LLPSquire Patton Boggs (US) LLP

Steptoe & Johnson LLPStroock & Stroock & Lavan LLP

Thomson ReutersRichard L. WhiteWinter Reporting

Wollmuth Maher & Deutsch LLP

Page 18: ARIAS Fourth Quarter 2014 Quarterly

P A G E 1 8

Over 400 Turn Out to The 2014 Fall Conference and Annual Meeting drew 406 paid attendees to theNew York Hilton Midtown Hotel on November 13 and 14. Entitled “The Arbitra-tors Speak: Insight and Perspective from the Arbitrators, Themselves,” the con-ference focused extensively on the view of arbitration as arbitrators see it.

The conference presented experienced arbitrators’ views on how to conduct atraditional reinsurance organizational meeting, discovery, andbriefing; how to conduct an evidentiary hearing involving lifereinsurance issues; how to conduct an arbitration involvinghealth reinsurance issues; and how to conduct an insurancearbitration involving direct insurance with cross border issues.

It addressed best practices from the arbitrators’ perspective,explaining what works and what does not work. Participantsparticipated in breakout sessions on life reinsurance and

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1 9 P A G E

Hear Arbitrators Speakethics in which they were able to ask questions and express their views.

The conference opened with a keynote address from Ambassador Frank G. Wisner,who has served as Under Secretary of Defense, Under Secretary of State,ambassador to four countries, currently as a Director of AIG Property Casualty, Inc.,and International Affairs Advisor to Squire Patton Boggs LLP. His deeply insightfulcomments were widely praised among attendees.

In the opening panel discussion, moderated by Lawrence S. Greengrass, fourexperienced arbitrators, Jonathan F. Bank, Mary Ellen Burns, Susan S. Claflin, andJohn D. Cole, discussed specific approaches for making the organizationalmeeting, discovery, and briefing as efficient and productive as possible. Theycandidly shared which approaches to these parts of the arbitration process areeffective and which are not.

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

The second Thursday morning panel, moderated by David M.Raim, focused on life reinsurance, a developing segment forarbitration. Experienced arbitrators from this segment, Paul E.Dassenko, Caleb L. Fowler, Denis W. Loring, and Diane M.Nergaard, gave their opinions on best practices and commonpitfalls for counsel in conducting the evidentiary hearing of alife reinsurance arbitration. The scenario of a fictional casewas also discussed in preparation for afternoon breakouts.

Before breaking for lunch, Mark S. Gurevitz highlighted anumber of themes and issues that are presented by the NewARIAS•U.S. Code of Conduct that would be addressed in theethics breakout sessions that afternoon.

Following the life reinsurance and ethics breakouts, thesecond-ever ARIAS•U.S. speed dating sessions took place in sixseparate rooms. Arbitrators, prospective arbitrators, andothers who market their services to companies and law firmsengaged in timed pitches (eight minutes after which a whistlesignaled time to move on) intended to give them experiencein promoting themselves in short interactions. As happenedin Key Biscayne, those involved found the experience useful fortraining and, in many cases, specifically useful in establishingconnections that would not have happened, otherwise.

Closing out the afternoon, at the 2014 Annual MembershipMeeting, outgoing Chairman Jeffrey M. Rubin summarizedthe accomplishments of the past year, principally completionof the ARIAS•U.S. Neutral Panel Rules and the StreamlinedRules for Small Claim Disputes. He thanked the Board for itscontributions toward bringing these projects to fruition.President Eric S. Kobrick presented Mr. Rubin with theMeritorious Service Award. In addition, Mr. Rubin presentedthe Outstanding Service Award to Christina Claudio, who isretiring as Assistant to the Executive Director after eight years.Members then elected one new Board member, Brian Snover,

Chairman Rubin opened the conference. John Nonna introduced the keynote speaker.

Ambassador Frank G. Wisner

and re-elected three, Ann L. Field, Elizabeth A. Mullins, andJohn M. Nonna. Election details are in a following report.

Also, at the Annual Meeting, the ARIAS•U.S. financial resultsfor the last fiscal year (ended June 30, 2014) were presented byTreasurer Peter A. Gentile. He pointed out that lowerattendance at the Spring Conference, lower than expecteddues income, and unexpected higher Fall Conference costs hadreduced net return. For the year, there was a net gain of$20,193, instead of a budgeted net contribution to the reserveof $111,575. The slides from this presentation are available inthe Members Area of the website, accessed through theMembership menu.

Of course, the unique event of this conference was the 20thAnniversary Gala Reception and Dinner. This celebration,which took place on Thursday evening, attracted 450ARIAS•U.S. members and guests.

Page 21: ARIAS Fourth Quarter 2014 Quarterly

T. Richard Kennedy were read by Mr.Kennedy’s son, Stephen M. Kennedy.Attending other founders were introducedand applauded, and all past and currentBoard members were recognized. Then,Daniel E. Schmidt IV looked back at those

who had major influences onthe development of ARIAS

who had passed on.

The climax of the three-days of events came inthe final dinner speech,when Jeffrey Rubinawarded the ARIAS

Award (see insert onpage 29) to retiring

12-year Executive DirectorBill Yankus, who received two

standing ovations.

During the dinner, a quartet made up ofstudents from the Juilliard School of Music inNew York City filled the room with classicjazz. Overall, it was a nostalgic and joyousevent.

On Friday morning, Jeffrey M. Rubin andScott P. Birrell, leaders of the Arbitration Task

2 1 P A G E

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

GENERAL SESSIONS

During the five-course dinner, a timeline ofthe past 20 years was presented by Daniel L.FitzMaurice, including marking of keymilestones, photos of past events, andgraphs of trends over the years. Ann L. Fieldfollowed with presentation of a montage ofscenes and graphics from the past,accompanied by music, which then silentlyrepeated on screens during the dinner. Later,messages from CINN Chairman SteveAcunto and ARIAS•U.S. founding Chairman

Moderator Lawrence S. Greengrass along with Arbitrators (l-r) MaryEllen Burns, John Cole, Jonathan Bank, and Susan Claflin

Moderator David Raim along with Arbitra-tors (l-r) Diane Nergaard, Denis Loring,Caleb Fowler, and Paul Dassenko

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

AROUND THEBREAKOUTS

Mark Gurevitz -Preparing for Ethics

Force, provided an overview of the new ARIAS•U.S. Neutral Panel Rulesand the new Streamlined Rules. These will be presented in full reviewat the 2015 Spring Conference.

In the most spirited panel of the conference, Eric S. Kobrick, Chair of theEthics Discussion Committee, moderated a panel of four veteranarbitrators and umpires, Mark S. Gurevitz, Martin D. Haber, DavidThirkill, and Richard G. Waterman, in a discussion of the new Code ofConduct. A number of dissenting opinions were heard, especially withregard to the rules being considered requirements, rather thanguidelines.

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

AROUND THESPEED TRACK

Bob Lewin and Joe Schiavone –

Preparing the Racers

Chip Healy signalstime to shift

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

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P A G E 2 6

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

ANNUAL MEETING

Mary Kay Vyskocil Nominates

Eric Kobrick counts votes

Retiring Chairman Rubin receives award

Retiring Christina Claudio receives award Peter Gentile presents Treasurer’s report

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

GALA RECEPTION AND DINNER

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P A G E 2 8

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

GALA RECEPTION AND DINNER

Peter R. Chaffetz moderated a panelthat discussed key recurring proceduraland legal issues in the arbitration ofdirect coverage disputes under the IBARules on Taking of Evidence inInternational Arbitration. Participatingwere Jonathan Sacher, Klaus H. Kunze,William (Rusty) Park (a professor atBoston University), Jonathan Rosen, andDaniel E. Schmidt IV. The conversationhighlighted the differences between a

cross-border insurance coveragearbitration and a domestic reinsurancearbitration.

The final panel session of theconference, moderated by JenniferDevery, discussed the ways that areinsurance arbitration that focuses onhealth issues differs from issues thatarise in other contexts. Panel membersBruce A. Carlson, Susan E. Mack, and

Thomas M. Zurek also keyed in onarbitrators’ perspectives about processesthat make health reinsurancearbitrations efficient, as well as methodsto put on an effective case involvinghealth covers.

As cold winds began to blow on the lastday, members began looking forward tothe 2015 Spring Conference at TheBreakers on May 6-8.▼

Dinner Moderator Mary Kay Vyskocil Dan FitzMaurice lays out timeline.

Ann Field presents visuals from the past(available on the website).

Betty Mullins presents each Founding Boardmember.

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ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

Steve Kennedy extends his father’s wishes. Eric Kobrick presents all current and for-mer Board members.

Dan Schmidt IV recalls significant peoplewho have passed on.

Jeff Rubin presents the ARIAS Award to Bill Yankus.

THE ARIAS AWARD presented by Jeff Rubin

The ARIAS Award is given, at the discretion of the Board, to an individual who, through his or her own conduct andinitiative, has epitomized the objectives of ARIAS•U.S. It is the highest honor the Board can bestow on an individual.

The recipient of the ARIAS Award tonight has worked selflessly and tirelessly on behalf of the Association. Whiledoing so, he has exhibited the highest standards of professionalism, competency, dedication and integrity. His very pres-ence has come to be associated with ARIAS and all that it stands for and has been a source of inspiration to those whohave had the good fortune of working with him. There is no question that ARIAS would not be all that it is today with-out his efforts.

On a personal level, I am a better executive as a result of all that I have learned from working closely with him over thepast seven years.

It is my privilege and honor to present the ARIAS Award to Bill Yankus.

Inscription: In recognition of your towering contributions to ARIAS•U.S. as its long-standing Executive Director. Through your unwavering dedication and steadfast leadership, you have played an unparalleled role in enabling ARIAS•U.S.to become the leading trade association for the insurance and reinsurance arbitration industry.

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P A G E 3 0

Eric S. Kobrick, Vice President, DeputyGeneral Counsel & General Counsel, Claims,Reinsurance, Operations and Technology atAmerican International Group, Inc. (AIG), waselected Chairman of ARIAS•U.S. at its 2014Fall Conference in New York City. Hesucceeds Jeffrey M. Rubin, Senior VicePresident, Director Global Claims at OdysseyReinsurance Company, who has retired fromthe Board. Elizabeth A. Mullins, ManagingDirector and head of Global DisputeResolution & Litigation at Swiss Re AmericaHolding Corporation (Swiss Re), was electedPresident succeeding Mr. Kobrick.

Also at the conference, James I. Rubin, headof the reinsurance litigation and arbitrationpractice at Butler Rubin Saltarelli & Boyd LLP,and Ann L. Field, Vice President in ZurichInsurance Group’s Reinsurance Department,were elected Vice Presidents.

In addition, at its Annual Meeting heldduring the conference, ARIAS•U.S. membersre-elected three Board members and electedone new member. Ms. Field, Ms. Mullins,and John Nonna of Squire Patton Boggs (US)LLP were elected to second, three-yearterms. Brian Snover, Senior Vice Presidentand General Counsel at BerkshireHathaway’s Reinsurance Division, waselected to a first term, succeeding Mr. Rubinas a reinsurance representative.

At AIG, in addition to a wide variety of otherresponsibilities, Mr. Kobrick overseesreinsurance dispute resolution (litigation,arbitration and insolvency proceedings), aswell as reinsurance contract wording,regulatory, and transactional issues. He isan ARIAS•U.S. Certified Arbitrator, served onthe ARIAS•U.S. Long Range PlanningCommittee, and was Chairman of theARIAS•U.S. Ethics Discussion Committee. Healso serves on the Finance and ExecutiveCommittees.

Mr. Kobrick received a B.A. in Governmentfrom Cornell University and a J.D. fromColumbia Law School. Prior to joining AIG,he clerked for Judge Miriam GoldmanCedarbaum of the United States DistrictCourt for the Southern District of New York,and he was an associate at SimpsonThacher & Bartlett LLP in New York City.

At Swiss Re, Ms. Mullins leads a team oflawyers with global responsibility foradvising on and managing a wide range ofdisputed matters and investigationsincluding certain insurance and reinsurancedisputes. She is Chairman of the ARIAS•U.S.Certification Committee, Co-Chair of theStrategic Planning Committee, and serveson the Finance and Executive Committees.

Ms. Mullins received both her B.A. and J.D.degrees from New York University and is amember of the Bar of the State of New York.Prior to joining Swiss Re, she was a litigationpartner with Stroock & Stroock & Lavan LLPin New York City.▼

Eric Kobrick and Elizabeth MullinsChosen as ARIAS•U.S. Chairman and President for 2015

report

Elizabeth A. Mullins

Eric S. Kobrick

James I. Rubin

Brian Snover

Ann L. Field

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Law Committee Case SummariesSince March of 2006, in a section of the ARIAS•U.S. websiteentitled “Law Committee Reports,” the Law Committee hasbeen publishing summaries of recent U.S. cases addressingarbitration and reinsurance-related issues. Individual membersare also invited to submit summaries of cases, legislation,statutes or regulations for potential publication by thecommittee.

As of December 2014, there were 97 published case summariesand five regulation summaries on the website. A comprehensivelisting of relevant state statutes is also provided. The committeeencourages members to review the existing summaries and toroutinely peruse that section for new additions.

Provided below is one case summary taken from the LawCommittee Reports.

Transatlantic Reinsurance Co. v. Nat’l Indem. Co. No. 14 C 1535, 2014 WL 2862280 (N.D. Ill. filed June 24, 2014)

Court: United States District Court, N.D. Illinois, Eastern Division

Dates Decided: June 24, 2014

Issues Decided: Under what circumstances may non-signatories to a reinsurance agreement containing an agreement toarbitrate be compelled to arbitrate?

Submitted by Elizabeth V. Kniffen

In Transatlantic Reinsurance Co. v. National Indemnity Co., the United States District Court for the Northern District of Illinoisdenied Transatlantic Reinsurance Company’s (“TRC”) motion to compel National Indemnity Company (“NICO”) to join in anongoing arbitration between Continental Insurance Company (“Continental”) and TRC.

Continental entered into a blanket casualty excess of loss reinsurance agreement with TRC, under which TRC indemnifiedContinental with respect to net excess liability accrued by Continental in a variety of classes of general and specialty casualtyinsurance business, effective January 1, 1985 (the “Reinsurance Agreement”). The Reinsurance Agreement between Continentaland TRC contained an arbitration agreement providing that “if any dispute shall arise between the COMPANY [Continental] andthe REINSURERS [TRC] with reference to the interpretation of this AGREEMENT or their rights with respect to any transactioninvolved,” the dispute would be submitted to arbitration.

In 2010, Continental purchased reinsurance from NICO for asbestos and environmental risks pursuant to a Loss Portfolio Transferagreement (“LPT Agreement”) with NICO. Continental also entered into an Administrative Services Agreement (“ASA Agreement”)with NICO, providing for the administration of “Third Party Reinsurance Agreements” whereby NICO acts as Continental’s agentand is responsible for collecting reinsurance proceeds on behalf of Continental and pursuing reinsurance recoveries on behalf ofand in the name of Continental.

After TRC stopped making payments to Continental in 2012, Continental commenced arbitration against TRC in March 2013. TRCfirst demanded that NICO join the arbitration as a Petitioner and later filed suit seeking to compel NICO to arbitrate in theContinental-TRC arbitration.

The court held that a party may not be compelled to arbitrate a dispute absent an agreement to do so. Citing 417 F.3d 682, 687(7th Cir. 2005), the court held that the Seventh Circuit recognized five doctrines through which a non-signatory can be bound byan arbitration agreement entered into by others: (1) assumption; (2) agency; (3) estoppel; (4) veil piercing; and (5) incorporation byreference.

The court rejected each of TRC’s arguments that NICO should be compelled to arbitrate. First, the court held that the arbitrationclause in the Reinsurance Agreement included narrow language specifying that the dispute must “arise between the COMPANYand the REINSURERS” and therefore could not be construed broadly to include disputes with non-signatories. Second, the courtrejected TRC’s argument that by entering into the Loss Portfolio Transfer, NICO assumed the Reinsurance Agreement. To be boundunder the theory of assumption, the non-signatory must “manifest a clear intent to arbitrate the dispute.” The court found thatNICO entered into a separate transaction with Continental and did not assume the obligation to arbitrate under the ReinsuranceAgreement. Third, the court held that the Reinsurance Agreement had not been incorporated by reference into the LPTAgreements. The court reasoned that the language in the LPT and ASA Agreements was not sufficiently explicit and specific toincorporate by reference the arbitration provision of the Reinsurance Agreement. Finally, the court held that because NICO’sbenefit under the LPT and ASA Agreements only indirectly related to the Reinsurance Agreement, NICO could not be estoppedfrom refusing to arbitrate under the theory of estoppel.

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Scott P. BirrellScott Birrell is Vice President and AssociateGeneral Counsel for The TravelersCompanies, Inc. As head of the TravelersReinsurance Legal Group, Mr. Birrell hasoversight of all ceded and assumedreinsurance litigation and arbitration for theCompany as well as certain oversightresponsibilities relative to commutation,regulatory, wording and transactional issues.Prior to joining Travelers, he was in privatepractice, specializing in the litigation andtrial of general commercial andinsurance‐related matters.

From 2001 through 2007, Mr. Birrell wascertified as an Arbitrator and Fact Finder bythe Connecticut Judicial Branch and, in thatcapacity, conducted mediations, arbitrations,and evidentiary hearings on a pro-bonobasis. He currently serves as a member ofthe ARIAS•U.S. Arbitrator and UmpireCertification Committee and as Co‐Chair ofthe ARIAS Arbitration Task Force. In additionto certification through ARIAS•U.S., Mr. Birrell is certified as an arbitrator withThe Association of Insurance & ReinsuranceRun‐Off Companies (AIRROC).

Mr. Birrell received his undergraduate degreefrom the University of Colorado and his JurisDoctorate, cum laude, from the NewEngland School of Law in Boston,Massachusetts, and is an adjunct facultymember of the University of ConnecticutSchool of Law.

Matthew ByrneMatthew Byrne is Vice President, UnitManager and Claims Counsel at XLReinsurance America Inc. He has over 20years of experience in reinsurance claimsacross all property and casualty line ofbusiness.

At XL Re America, Mr. Byrne acts as claimscounsel to the full claims group on large,complex, and disputed claims. He alsomanages the group’s legacy businessprimarily involving asbestos and pollutionclaims. In addition, he leads a team thatreports to and makes recommendations tosenior management on commutations.

Prior to joining XL in 2005, Mr. Byrnepracticed law as a Partner in a law firm,where he specialized in reinsurancearbitration and litigation.

Mr. Byrne is a member of the New York StateBar and is admitted to practice in the FederalCourts of the Southern and Eastern Districtsof New York. He is also Authorized HouseCounsel in the State of Connecticut. Inaddition, he has received the designation ofRegistered Professional Liability Underwriter.

Mr. Byrne received his Bachelor’s Degree inBusiness Administration from the StateUniversity of New York at Albany and his J.D.from Brooklyn Law School.

James F. CeroneJames Cerone earned a BS in Business fromVillanova University and an MBA from theUniversity of Chicago, Graduate School ofBusiness. His experience in all lines ofproperty casualty insurance began over 50years ago and continues. His concentrationis in the area of claims. He has worked nearlyequally in the claim departments of insurersand for consulting firms providing services toregulators, insurers, self-insurers, brokers,governmental entities, and to buyers andsellers of insurers.

Mr. Cerone has gone through all the chairs ofa claim department from adjuster to servingas senior claim officer at four insurersincluding service as Executive VP at TheTravelers. As a claim consultant, he served asVice President with Tillinghast; KramerCapital Consultants; and, Equity Principalwith Milliman and Robertson where hefounded the claims consulting practice.

Since 1997, Mr. Cerone has served as anarbitrator and umpire in property casualtymatters. He also served as a Special Masterin the Federal Courts at Atlanta. He has beenretained by both policyholders and insurancecompanies as a claim adjusting expert in 32litigations and hearings at the state andFederal levels across the country. He formedhis own consulting practice in 1998 inChicago. He relocated to NYC in 2012.

in focus

Profiles of all certified arbitratorsare on the website at www.arias-us.org

Scott P. Birrell

Recently Certified Arbitrators

ARIAS•U.S. QUARTERLY - FOURTH QUARTER 2014

James F.Cerone

MatthewByrne

Page 33: ARIAS Fourth Quarter 2014 Quarterly

Back to the

Breakers!www.thebreakers.com

THE BREAKERSPALM BEACH, FLORIDA

May 6-8, 2015 Save the Date…

ARIAS•US intersperses Spring Conference visits to other venues to

avoid having The Breakers become too routine, but the record of good

experiences there compels us to return. Block out the dates of May 6-

8, 2015 to avoid planning anything else. Many members have said we

should always have ARIAS•U.S. Spring Conferences at The Breakers,

but a change of scenery helps us to keep our Breakers experiences fresh.

Plan to be there for our 2015 return!

Page 34: ARIAS Fourth Quarter 2014 Quarterly

Sincerely,

Eric S. Kobrick Elizabeth A. Mullins

Chairman President

P A G E 3 4

Do you know someone who is interested inlearning more about ARIAS•U.S.? If so, pass on this letter of invitation and membership application.

An Invitation…The rapid growth of ARIAS•U.S. (AIDAReinsurance & Insurance Arbitration Society) sinceits incorporation in May of 1994 testifies to theincreasing importance of the Society in the field ofreinsurance arbitration. Training and certification ofarbitrators through educational seminars,conferences, and publications has assistedARIAS•U.S. in achieving its goals of increasing thepool of qualified arbitrators and improving thearbitration process. As of November 2014,ARIAS•U.S. was comprised of 286 individualmembers and 105 corporate memberships, totaling798 individual members and designated corporaterepresentatives, of which 205 are certified asarbitrators, 57 are certified as umpires, and 36 arequalified as mediators.

The Society offers its Umpire AppointmentProcedure, based on a unique software programcreated specifically for ARIAS, that randomlygenerates the names of umpire candidates from thelist of ARIAS•U.S. Certified Umpires. Theprocedure is free to members and non-members. It is described in detail in the Selecting an Umpiresection of the website.

Similarly, a random, neutral selection of all threepanel members from a list of ARIAS CertifiedArbitrators is offered at no cost. Details of theprocedure are available on the website underNeutral Selection Procedure.

The website offers the "Arbitrator, Umpire, andMediator Search" feature that searches the extensivebackground data of our Certified Arbitrators. Thesearch results list is linked to their profiles,containing details about their work experience andcurrent contact information.

Over the years, ARIAS•U.S. has held conferencesand workshops in Chicago, Marco Island, SanFrancisco, San Diego, Philadelphia, Baltimore,Washington, Boston, Miami, New York, PuertoRico, Palm Beach, Boca Raton, Las Vegas, Marinadel Rey, Amelia Island, Key Biscayne, andBermuda. The Society has brought together manyof the leading professionals in the field to supportits educational and training objectives.

For many years, the Society published theARIAS•U.S. Membership Directory, which wasprovided to members. In 2009, it was broughtonline, where it is available for members only.ARIAS also publishes the ARIAS•U.S. PracticalGuide to Reinsurance Arbitration Procedure, TheARIAS•U.S. Rules for the Resolution of U.S.Insurance and Reinsurance Disputes, and theARIAS•U.S. Code of Conduct. These onlinepublications … as well as the ARIAS•U.S. Quarterlyjournal, special member rates for conferences, andaccess to educational seminars and intensivearbitrator training workshops, are among thebenefits of membership in ARIAS.

If you are not already a member, we invite you toenjoy all ARIAS•U.S. benefits by joining. Complete information is in the Membership area ofthe website; an application form and an onlineapplication system are also available there. If youhave any questions regarding membership, pleasecontact Sara Meier, Executive Director, [email protected] or 703-506-3260.

Join us and become an active part of ARIAS•U.S.,the leading trade association for the insurance andreinsurance arbitration industry.

Page 35: ARIAS Fourth Quarter 2014 Quarterly

MembershipApplication

AIDA Reinsurance & Insurance Arbitration Society7918 JONES BRANCH DR., SUITE 300MCLEAN, VA 22102

Online membership application is available

with a credit card through “Membership”

at www.arias-us.org.

Complete information about

ARIAS•U.S. is available at

www.arias-us.org.

Included are current

biographies of all

certified arbitrators,

a current calendar of

upcoming events,

online membership

application, and

online registration

for meetings.

703-506-3260

Fax: 703-506-3266

Email: [email protected]

NAME & POSITION

COMPANY or FIRM

STREET ADDRESS

CITY/STATE/ZIP

PHONE CELL

FAX E-MAIL

Fees and Annual Dues: Effective 10/1/14

INDIVIDUAL CORPORATION & LAW FIRM

INITIATION FEE $500 $1,500

ANNUAL DUES (CALENDAR YEAR)• $450 $1,500

FIRST-YEAR DUES AS OF APRIL 1 $300 $1,000 (JOINING APRIL 1 - JUNE 30)

FIRST-YEAR DUES AS OF JULY 1 $150 $500 (JOINING JULY 1 - SEPT. 30)

TOTAL (ADD APPROPRIATE DUES TO INITIATION FEE) $ $

* Member joining and paying the full annual dues after October 1 is considered paid through the following calendar year.

** As a benefit of membership, you will receive the ARIAS•U.S. Quarterly, published four times a year. Approximately $40 of your dues payment will be allocated to this benefit.

Payment by check: Enclosed is my check in the amount of $____________Please make checks payable to ARIAS•U.S. (Fed. I.D. No. 13-3804860) and mail with registration form to: By First Class mail: ARIAS•U.S., 6599 Solutions Center, Chicago, IL 60677-6005 By Overnight mail: ARIAS•U.S., Lockbox #776599, 350 E. Devon Ave., Ithaca, IL 60143

Payment by credit card: Fax to 703-506-3266 or mail to ARIAS•U.S., 7918 Jones Branch Dr.,Suite 300, McLean, VA 22102.Please charge my credit card: (NOTE: Credit card charges will have 3% added to cover the processing fee.)

■■ AmEx ■■ Visa ■■ MasterCard in the amount of $_________________

Account no. ______________________________________

Exp. _______/_______/_______ Security Code ____________________________

Cardholder’s name (please print) ____________________________________________

Cardholder’s address __________________________________________________

Signature ____________________________________________________________

NOTE: Corporate memberships include up to five designated representatives. Additional representatives may be designated for an additional $425 per individual, per year.Names of designated corporate representatives must be submitted on corporation/organiza-tion letterhead or by email from the corporate key contact and include the following information for each: name, address, phone, cell, fax and e-mail.

By signing below, I agree that I have read the ARIAS•U.S. Code of Conduct and the By-Laws ofARIAS•U.S. and agree to abide and be bound by the ARIAS•U.S. Code of Conduct and the By-Laws of ARIAS•U.S. The By-Laws are available at www.arias-us.org under the About ARIASmenu. The Code of Conduct is available under the Resources menu.

________________________________________________Signature of Individual or Corporate Member Applicant

Page 36: ARIAS Fourth Quarter 2014 Quarterly

Board of Directors

Chairman Eric S. Kobrick

American International Group, Inc.80 Pine Street, 35th FloorNew York, NY [email protected]

President Elizabeth A. Mullins

Swiss Re America Holding Corporation175 King StreetArmonk, NY [email protected]

Vice PresidentAnn L. Field

Zurich Insurance Group1400 American LaneSchaumburg, IL [email protected]

Vice PresidentJames I. Rubin

Butler Rubin Saltarelli & Boyd LLPThree First National Plaza70 West Madison StreetChicago, IL [email protected]

Michael A. FrantzMunich Re America 555 College Road EastPrinceton, NJ [email protected]

Deirdre G. Johnson Crowell & Moring LLP1001 Pennsylvania Avenue NWWashington, D.C. [email protected]

Mark T. Megaw ACE Group Holdings436 Walnut StreetPhiladelphia, PA [email protected]

John M. Nonna Squire Patton Boggs (US) LLP1185 Avenue of the AmericasNew York, NY 10036Phone: [email protected]

Brian Snover Berkshire Hathaway Group100 First Stamford Place Stamford, CT 06902 Phone: [email protected]

Chairman EmeritusT. Richard Kennedy

Directors EmeritiCharles M. FossMark S. GurevitzCharles W. Havens IIIRonald A. Jacks*Susan E. MackRobert M. ManginoEdmond F. Rondepierre*Daniel E. Schmidt, IV

*deceased

AdministrationTreasurer

Peter A. Gentile7976 Cranes Pointe WayWest Palm Beach, FL. [email protected]

Executive Director/ Corporate SecretaryWilliam H. Yankus

Senior Vice PresidentCINN Worldwide, Inc.P.O. Box 9001Mt. Vernon, NY 10552914-966-3180 ext. [email protected]

(After January 1, 2015)Executive Director/Corporate SecretarySara MeierARIAS•U.S.7918 Jones Branch Dr., Suite 300McLean, VA 22102Phone: 703-506-3260Fax: [email protected]