(Article from Insurance Law Alert, December 2022)
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A California trial court denied a motion to compel consolidated arbitration of an entity’s dispute with two reinsurers relating to the same claim. Schools Ins. Authority v. General Reinsurance Corp., No. 34-2022-00326377 (Cal. Super. Ct. Nov. 23, 2022).
Schools Insurance Authority (“SIA”), an entity that administers risk for public school districts, entered into separate reinsurance agreements with General Reinsurance Corp. and Great American Insurance Company, both of which contained arbitration provisions. After SIA paid $2.6 million to settle a claim against a school district, it sought indemnification from the reinsurers. Both denied coverage on the basis that the claim was outside the effective date of their coverage periods. The parties tentatively agreed to a consolidated arbitration but were not able to agree on certain rules, including the appointment of an arbitrator. SIA sought to compel the reinsurers to participate in a consolidated arbitration pursuant to the California Code of Civil Procedure, which permits a court to consolidate arbitration proceedings when certain factors are met.
The court denied the motion to compel consolidated arbitration, ruling that California’s procedural rules were inapplicable based on the explicit reference to the Federal Arbitration Act ("FAA") in the agreement between General Reinsurance and SIA. The court explained that where, as here, an agreement states that claims must be arbitrated pursuant to the FAA and there is no other provision indicating an intent to incorporate California arbitration law, the arbitration is governed exclusively by the FAA’s procedures rather than state procedural law.
The court noted that the agreement contained a provision stating that it would be interpreted in accordance with California law, but explained that such reference (which was not within the arbitration provision) was a choice of law provision and did not evidence an intent to substitute state arbitration procedural rules for the default FAA procedural rules. The court stated: “Again, the governing language in the arbitration provision only refers to the FAA and the general choice-of-law provision only provides that the contract is governed by and interpreted pursuant to California law. There is no statement that the contract is ‘enforced’ pursuant to California law.”
In addition, the court rejected SIA’s contention that General Reinsurance implicitly waived any objection to a consolidated arbitration. The court reasoned that even though the parties tentatively agreed to some form of a consolidated arbitration, General Reinsurance did not consent to the specific consolidated arbitration request by SIA in accordance with California procedural law.
Finally, the court emphasized that notwithstanding its ruling, the parties were free to reach any agreement regarding a consolidated arbitration and that any decisions relating to a consolidated arbitration would be made by the arbitrator, not the court.