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Scottsdale Insurance Co. v. John Deere Insurance Co.

United States District Court, D. Arizona

February 16, 2016

In re Arbitration Proceeding Between Scottsdale Insurance Company, Petitioner,
v.
John Deere Insurance Company, Respondent.

ORDER

Paul G. Rosenblatt United States District Judge

Petitioner Scottsdale Insurance Company (“Scottsdale”) commenced this action by filing a Petition for an Order to Modify or Correct Arbitration Award (Filed Doc. 18). In response thereto, respondent John Deere Insurance Company (“John Deere”) filed a Cross-Application for Confirmation of Arbitration Award and Entry of Judgment (Filed Doc. 26). Pending before the Court are Scottsdale’s Motion for an Order to Modify or Correct Arbitration Award (Filed Doc. 19) and John Deere’s Motion to Confirm Award and Enter Judgment (Filed Doc. 22). Having considered the parties’ memoranda, the Court finds that the arbitration award should be confirmed as entered by the arbitration panel.[1]

Background

This diversity of citizenship-based matter arises from two reinsurance agreements between the parties. Scottsdale, after settling a consolidated class action proceeding, known as the Billieson action, against its insured for $57 million, allocated the settlement amount equally between the two policy years covered by its insurance and then billed the loss payment to its reinsurers, one of which was John Deere, as ten occurrences in each policy year. Scottsdale billed John Deere the sum of $1, 173, 014.26 based on its calculation of the percentage of loss that John Deere assumed through its reinsurance agreements. John Deere disputed Scottsdale’s settlement amount and the manner in which Scottsdale allocated the settlement to various occurrences. Pursuant to a binding arbitration provision in the reinsurance agreements, the parties submitted their dispute to a three-person arbitration panel consisting of insurance and reinsurance professionals. The arbitration panel, after conducting a three-day hearing and considering additional post-arbitration briefing, issued its final award on January 14, 2015. The final award stated in its entirety:

    After conducting a final hearing in this arbitration between Scottsdale Insurance Company (“Scottsdale”), on the one hand; and John Deere Insurance Company (“John Deere”), on the other hand; on October 28, 2014, October 29, 2014 and December 17, 2014; considering testimony, documentary evidence, briefs, and arguments of the parties; and deliberating on these matters, the Panel, hereby;

    1. Declares that the September 15, 2002 trial court ruling in the Billieson action is not binding on Scottsdale as “law of the case”;

    2. Directs John Deere to pay its respective share of reinsurance, based on an adjusted settlement amount of $43.16 million for reinsurance billing purposes, which results in a total payable by John Deere of $888, 198.12 within fourteen (14) calendar days of this award;

    3. The Panel determined that no other further relief is award in this arbitration[.]

John Deere has paid Scottsdale the amount ordered by the arbitration panel.

Discussion

In its petition, Scottsdale seeks to modify and correct the arbitration award pursuant to § 11(a) of the Federal Arbitration Act (“FAA”), 9 U.S.C. § 11(a), and the Arizona Uniform Arbitration Act, A.R.S. § 12-1513(A)(1); in its memoranda, Scottsdale relies mainly on Arizona law to support its position, whereas John Deere contends that the FAA governs this matter.

Both reinsurance agreements provided that “[t]o the extent not otherwise mutually agreed or provided for in this Article, the procedures and rules applicable to arbitration under the laws of the state of Arizona, as from time to time set forth, will govern the procedures of the arbitration with the appointed umpire fulfilling the rule and authority of the judge unless the parties otherwise mutually agree.” The same arbitration article in both agreements further provided that “[e]ither party may apply to the United States District Court in Arizona for an order confirming the award; a judgment of such Court will thereupon be entered on the award.”

The Court concludes that while Arizona law governed the procedures applicable to the arbitration process itself, the parties’ arbitration provision does not clearly and unambiguously provide that Arizona law is to govern the procedure for confirming the arbitration award. Fidelity Federal Bank v. Durga Ma Corp., 386 F.3d 1306, 1311-12 (9th Cir.2004) (Court noted that there is a strong presumption that the FAA, not state law, supplies the rules for arbitration and that to overcome that presumption, the parties to an arbitration agreement “must evidence a clear intent to incorporate state rules for arbitration.”) Based on this standard, the court concluded that an arbitration clause providing that disputes were to be resolved by arbitration “in accordance with the laws of the State of California and the rules of the American Arbitration Association” meant that the parties elected California substantive law but federal procedural law and that a challenge to the arbitration award had to be resolved under the FAA.) (some internal quotation marks omitted). The Court will thus resolve the issues involved in this action pursuant to the FAA. Cf. Kyocera Corp. v. Prudential-Bache Trade Services, Inc., 341 F.3d 987, 1000 and 1003 (9th Cir.2003) (en banc) (Court, in concluding that “[p]rivate parties may design an arbitration process as they wish, but once an award is final for the purpose of the arbitration process, Congress has determined how the federal courts are to treat that award[, ]” further stated that “[o]nce a case reaches the federal courts, ... the private arbitration process is complete, and because Congress has specified standards for confirming an arbitration award, federal courts must act pursuant to those standards and no others.”)

Under the FAA, the Court’s authority to review an arbitration award is exceedingly limited. Id., at 998 (The FAA provides “an extremely limited review authority[.]”); accord, U.S. Energy Corp. v. Nukem, Inc., 400 F.3d 822, 830 (10thCir.2005) (“[T]he standard of review of arbitral awards is among the narrowest known to the law.”) (internal quotation marks omitted); AIG Baker Sterling Heights v. American Multi-Cinema, 508 F.3d 995, 1001 (11th Cir.2007) (same); Maine Central Railroad Co. v. Brotherhood of Maintenance of Way Employees, 873 F.2d 425, 428 (1st Cir.1989) (same).

Section 9 of the FAA mandates that the award must be confirmed unless it is required to be vacated, modified or corrected under §§ 10 or 11. Scottsdale contends that the award must be modified pursuant to § 11(a), which permits an application to modify or correct an arbitration award “[w]here there was an evident material miscalculation of figures or an evident material mistake in the description of any person, thing, or property referred to in the award.”[2] Scottsdale’s argument is that the arbitration panel committed a computational error that is plain on the face of the award because

in identifying $888, 198.12 as the amount of [John Deere’s] respective share of reinsurance, the panel miscalculated the manner in which the respective layers of reinsurance applied to the loss. Rather than calculate [John Deere’s] respective share of reinsurance based on its respective share of the limit and retention applicable to the “adjusted settlement amount, ” the panel appears to have simply reduced the original amount billed in proportion to the reduction in the overall settlement amount. As a result, the amount the Award directs [John Deere] to pay - $888, 198.12 - is $284, 816.20 less than [John Deere’s] actual “respective share of reinsurance” based on the adjusted settlement amount.

Under § 11(a), the issue to be resolved by the Court is not whether the arbitration panel reached what the Court believes is the correct decision based on the underlying facts, but solely whether the panel’s alleged mathematical miscalculation is plainly evident from the face of the award. See e.g., Apex Plumbing Supply v. U.S. Supply Co., 142 F.3d 188, 194 (4th Cir.1998) (Court held that an arbitration award could not be modified under § 11(a) because the alleged mathematical miscalculation was not “evident” because it did not appear on the face of the award.) Notwithstanding Scottsdale’s contention that the award provides the necessary input for the Court to conclude that the panel miscalculated the amount due ...


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