Ace Capital Re Overseas Ltd. v. Central United Life Insurance Company

307 F.3d 24, 2002 U.S. App. LEXIS 21715, 2002 WL 31340708
CourtCourt of Appeals for the Second Circuit
DecidedOctober 18, 2002
DocketDocket 01-9449
StatusPublished
Cited by166 cases

This text of 307 F.3d 24 (Ace Capital Re Overseas Ltd. v. Central United Life Insurance Company) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Ace Capital Re Overseas Ltd. v. Central United Life Insurance Company, 307 F.3d 24, 2002 U.S. App. LEXIS 21715, 2002 WL 31340708 (2d Cir. 2002).

Opinion

SOTOMAYOR, Circuit Judge.

This is an appeal from orders entered by the United States District Court for the Southern District of New York (Chin, J.) on November 13, 2001, granting the motion of plaintiff-appellee ACE Capital Re Overseas Ltd. (“ACE”) to stay arbitration, ACE Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., No. 01 Civ. 2238(DC), 2001 WL 1415080 (S.D.N.Y. Nov.13, 2001), and on November 28, 2001, denying the cross-motion of defendant-appellant Central United Life Insurance Co. (“CUL”) to stay court proceedings and to compel arbitration.

The district court ruled that an arbitration clause incorporated in the parties’ reinsurance agreement was not broad and that ACE’s claim for rescission of the agreement based on fraudulent inducement was therefore not included within the scope of arbitration. We disagree, holding that under Hartford Accident & Indemnity Co. v. Swiss Reinsurance America Corp., 246 F.3d 219 (2d Cir.2001), the clause at issue here, requiring arbitration “[a]s a condition precedent to any right of action hereunder, [of] any dispute [that] shall arise between the parties hereto with reference to the interpretation of this Agreement or their rights with respect to any transaction involved,” is a broad one that encompasses the parties’ disputes regarding fraudulent inducement and contract termination. We reaffirm that this Court’s decision in In re Kinoshita & Co., 287 F.2d 951 (2d Cir.1961), concluding that the use of the phrase “arising under” results in a narrow arbitration clause, has been limited to its precise facts. We therefore vacate the district court’s order denying arbitration and remand for an order compelling arbitration.

BACKGROUND

I. Facts

In December 1997, ACE, an insurance company registered under the laws of Bermuda, executed an initial agreement to reinsure a block of health insurance policies that CUL, a Texas stock life insurance company, had acquired from Commonwealth National Life Insurance Company (“Commonwealth”). On or about March 31, 1998, ACE and CUL formalized the *27 terms of this agreement by entering into a Retrocession Agreement (the “Agreement”), dated October 1, 1997, pursuant to which ACE undertook to reinsure a portion of the Commonwealth block of policies. The Agreement contains an arbitration clause that states, in pertinent part:

As a condition precedent to any right of action hereunder, if any dispute shall arise between the parties hereto with reference to the interpretation of this Agreement or their rights with respect to any transaction involved, whether such dispute arises before or after termination of this Agreement, such dispute, upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two arbitrators so chosen.

In addition to the Agreement, CUL and ACE signed a Stop Loss Reinsurance Agreement, also dated October 1, 1997, under which CUL ceded to ACE 100% of the net liability of CUL under the covered policies in excess of CUL’s annual retention, namely, three million dollars. The Stop Loss Agreement contains an arbitration clause virtually identical to the one in the Agreement.

After the Agreement was executed, the Commonwealth block began to produce losses, and the parties entered into negotiations for a possible restructuring of their arrangement. On December 21, 1999, CUL’s president signed a document entitled “Proposal to Enter Into Restructured Reinsurance Arrangements” (the “Proposal”). This document proposed to “amend and restructure the outstanding reinsurance agreements between [CUL] and [ACE].” The Proposal also stated that the parties would “mutually agree to terminate the Retrocession Agreement,” effective January 1, 2000, and that the Stop Loss Reinsurance Agreement would be amended, effective as of the same date. The Proposal further provided that CUL and ACE would enter into a “New Reinsurance Agreement,” likewise effective January 1, 2000, covering a new block of insurance policies. At no point did the Proposal mention arbitration, but it did state that, with certain exceptions, “[t]he terms of the New Reinsurance Agreement shall be substantially similar to the terms of the current Retrocession Agreement.” The parties dispute, among other matters, whether the Proposal is a binding agreement or merely an agreement to agree.

II. Proceedings Below

On March 16, 2001, ACE commenced this action seeking a declaration that the Proposal is a binding contract that terminates the Agreement. At approximately the same time, CUL served ACE with a demand for arbitration pursuant to the arbitration provision of the Agreement. ACE filed an amended complaint on June 29, 2001, alleging, among other things, that while CUL and ACE were negotiating the Agreement, CUL had sued Commonwealth for millions of dollars on the ground that the reserves for the Commonwealth block were inadequate, and that CUL had performed other acts that rendered fraudulent CUL’s inducement of ACE to enter into the Agreement. Specifically, ACE argued that CUL’s failure to disclose these facts to ACE constituted a basis for rescission of the Agreement on grounds of fraudulent concealment and material nondisclosure.

In its November 13, 2001 order, the district court found that “[w]hile the arbitration clause in this case is not narrow, it is also not ‘a broad clause applicable to all claims under the agreement.’ ” ACE Capital, 2001 WL 1415080, at * 3. The court reasoned that the arbitration clause

*28 provides for the arbitration of only two types of disputes: (1) those involving “interpretation” of the Agreement; and (2) those involving the parties’ “rights with respect to any transaction” under the agreement. Because the language of the clause focuses on the interpretation of the agreement and the parties’ rights with respect to “any transaction,” a panoply of other potential disputes are excluded from coverage.

Id.

Addressing ACE’s claim for rescission of the Agreement based on fraudulent inducement, the district court stated that “the Second Circuit [has] clarified that more limited arbitration clauses do not encompass disputes over fraudulent inducement of the underlying contract and are to be resolved by the courts.” Id. at * 4. In support of this statement, the court cited Michele Amoruso E Figli v. Fisheries Development Corp., 499 F.Supp. 1074 (S.D.N.Y.1980), and, parenthetically, In re Kinoshita & Co., 287 F.2d 951 (2d Cir.1961). Id. The court then went on to hold that “[i]n view of the limited scope of the arbitration clause here, the fraud claims are to be resolved by this Court, not the arbitrators.” Id. Accordingly, the court granted ACE’s motion to stay arbitration and denied CUL’s cross-motion to stay court proceedings and to compel arbitration.

CUL appeals from the district court’s orders entered on November 13 and November 28, 2001. CUL filed a timely notice of appeal in the district court on December 12, 2001.

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307 F.3d 24, 2002 U.S. App. LEXIS 21715, 2002 WL 31340708, Counsel Stack Legal Research, https://law.counselstack.com/opinion/ace-capital-re-overseas-ltd-v-central-united-life-insurance-company-ca2-2002.