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A federal court in Kansas ruled that a minor delay was not justification for enforcing an "adverse selection clause" that would have given the other party an opportunity to select both party-appointed arbitrators.
In Ancon Insurance Co. (U.K.) v. GE Reinsurance Corp., No. 06-2106 CM, 2007 WL 960050 (D. Kan. Mar. 30, 2007), Ancon subscribed to reinsurance contracts with GE. The reinsurance contracts contained an arbitration agreement with an adverse selection clause. Under the adverse selection clause, if a party failed to select its party-appointed arbitrator within thirty days of receiving an arbitration demand, the other party could select an arbitrator in their place.
When GE demanded arbitration, Ancon was five days late selecting its arbitrator. In response, GE invoked the adverse selection clause and selected an arbitrator in place of Ancon's party-appointed arbitrator. Both parties sought a court order confirming their selection as Ancon's party-appointed arbitrator.
The Court ruled that the adverse selection clause should not be enforced in light of "the very short delay" and the omission of any "time is of the essence" clause. Also, GE failed to demonstrate any prejudice. Above all else, the Court reasoned that "the parties' agreement should be interpreted and enforced with its dominant purpose in mind, which of course is to secure resolution of the parties' disputes by an impartial arbitration panel such that both parties have confidence in the outcome." Accordingly, the Court confirmed Ancon's selection.
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