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Symposium 2016

To Consolidate, Or Not To Consolidate

by ~ Rachel M. Davison (Email) (Web Site)

MReBa’s Fourth Annual Arbitrator Roundtable featured experienced arbitrators Mary Ellen Burns and Andrew Maneval. The lively discussion focused on the consolidation of two or more reinsurance arbitrations into a single proceeding and the potentially related concept of multi-party arbitrations.

The issue of consolidation creates tension between the desire for cost-efficient and expedient resolution of reinsurance disputes with consistent results and the long-standing expectation that each arbitration should be a separate, independent proceeding regardless of any practical considerations. When contemplating consolidation, the degree of commonality between the proceedings takes center stage. The discussion leaders noted the identity of the parties, their respective interests and the nature of the dispute as key factors. Where multiple disputes arise between the same parties under the same reinsurance contract, it can make sense to consolidate the proceedings into a single arbitration, particularly if the reinsurance agreements allow it or the parties otherwise agree. However, analyzing a consolidation question must take into account not only the commonality of facts of each case but also the legal issues that arise from the reinsurance agreements involved. Contract terms relating to the interpretation of the reinsurance agreement, the qualifications of the arbitrators and the venue for the proceeding (which can affect the procedural rules that apply) may make consolidation impractical or impossible.

Frequently, the issue of consolidation arises when a single ceding company holds a treaty with multiple reinsurers. For instance, for a single cession, some reinsurers might agree to pay, some may take no position and request further information and some may refuse to pay, albeit for different reasons. If the ceding company commences an arbitration to enforce the treaty and obtain reimbursement from those reinsurers refusing to pay and a reinsurer that requested further information commences a separate proceeding to enforce the treaty’s inspection clause, the ceding company might consider consolidation. This situation presents a number of procedural questions. Which proceeding has priority and decides the issue of consolidation? How are arbitrators appointed outside the traditional two-party dispute? How should the arbitration be organized?

The discussion leaders suggested that when an issue of consolidation arises, counsel should argue both legal and practical issues and not divorce the law from pragmatic considerations. Arguments against consolidation may be based on the arbitrator qualifications required by the agreements implicated. An arbitration panel well-qualified for one dispute might not be correct for another dispute. Also, a request for consolidation might be untimely, or at least have an impact on the schedule for resolving an earlier commenced proceeding. Practitioners should be wary of arguing collateral estoppel or relying on evidence from other arbitrations in connection with a consolidation request because the confidential nature of reinsurance arbitrations may limit the use of information in a separate proceeding.

As a practical matter, the discussion leaders noted that it is important to move for consolidation quickly, before the proceedings progress too far to make consolidation worthwhile. However, with multiple arbitrations in process, parties might not be sure which proceeding is the appropriate forum in which to seek consolidation. Even if a party were to assume the first arbitration is the proper forum, it is not always apparent which arbitration was “first.” Should the race be determined by the timing of the demand for arbitration? Should the first panel composed win the right to decide consolidation? Should the first panel presented with a request for consolidation resolve the issue? If two panels receive consolidation requests, they could act independently and let the parties seek a final determination in court of conflicting decisions (so much for the efficiencies achieved through consolidation). Alternatively, one of the panels could decide to defer to the other, whether based on the facts, the relative size of the cases, or the timing of the requests. Because of the independent nature of the proceedings, the panels should not jointly decide who gets to decide. Each panel should independently decide to allow consolidation or not.

Even if arbitrations are not consolidated, the parties can agree to coordinate certain aspects of the separate proceedings, including discovery. This could encompass the production of a single set of documents for use in more than one proceeding, or having a witness appear for deposition once but allowing the questioning to extend beyond the scope of a single proceeding. Coordination affords the parties the benefit of efficiencies that could have been accomplished through consolidation even if the issues cannot be addressed in a single proceeding. At the same time, the parties have separate panels for separate disputes, avoiding some of the problems that make consolidated proceedings undesirable. While coordination does not ensure consistent results between proceedings, parties may forego seeking consolidation in favor of coordination where the number of commonalities suggest separate proceedings would be more appropriate.

Ms. Davison is a Partner at Lewis Brisbois Bisgaard & Smith LLP. She may be reached at rachel.davison@lewisbrisbois.com.

© 2015 Lewis Brisbois Bisgaard & Smith LLP. All rights reserved.

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