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In affirming a district court ruling that the arbitrators must decide whether the arbitration proceedings should be consolidated, the Third Circuit Court of Appeals held that consolidation is a procedural question for the arbitrators rather than a “question of arbitrability” for the court.
In Certain Underwriters at Lloyd’s London v. Westchester Fire Insurance Co., No. 06-1457, 2007 WL 1673876 (3d Cir. June 12, 2007), Lloyd’s and Westchester entered into a series of reinsurance contracts under two separate reinsurance programs: (1) a comprehensive reinsurance program that consisted of six virtually identical contracts covering different time periods; and (2) a risk-specific reinsurance program consisting of two virtually identical contracts covering different time periods.
All of the reinsurance contracts contained an arbitration agreement. Accordingly, when a dispute arose over the payment of asbestos claims, Westchester sent two arbitration demand letters to Lloyd’s – one invoking the comprehensive reinsurance contracts and the other invoking the risk-specific reinsurance contracts.
In response, Lloyd’s filed a petition to compel arbitration, seeking an order compelling eight separate arbitrations (i.e., one for each contract). In opposition, Westchester argued that there should be only two arbitrations (i.e., one for each reinsurance program). The district court ruled that the arbitrators must decide whether there should be a consolidated arbitration for each program or a separate arbitration for each contract.
On appeal, Lloyd’s argued that the district court erred in submitting the question of consolidation to the arbitrators. The Court rejected this argument based on Green Tree Financial Corp. v. Bazzle, 539 U.S. 444 (2003), in which a plurality of the Supreme Court held that the permissibility of class-wide arbitration was a question for the arbitrator rather than the court.
As the Court explained, under Bazzle and Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (2002), there are two presumptions pertaining to the division of authority between courts and arbitrators: (1) “questions of arbitrability” (as that term is narrowly defined) are for the court; and (2) all other questions (e.g., procedural questions) are for the arbitrator. Applying these presumptions, the Court held that the permissibility and propriety of consolidation was a procedural question for the arbitrators.
This case involved the consolidation of issues rather than the consolidation of parties. The National Arbitration Forum Code of Procedure distinguishes between these two forms of consolidation. Under Rule 19(A), the consolidation of parties is permissible only if agreed to by the parties or required by law. Under Rule 19(C), the consolidation of issues is permissible if it “promotes fairness, efficiency, or economy.”
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