Appeal from the Judgment of the United States District Court for the Eastern District of Pennsylvania, D.C. No. 86-1034.
Gibbons, Chief Judge, Seitz and Greenberg, Circuit Judges.
The appellants Norad Reinsurance Company, Ltd. ("Norad") and GTE Reinsurance Company, Ltd. ("GTE") appeal from the district court's order of June 28, 1988, granting the motion of appellee, Mutual Fire, Marine & Inland Insurance Company ("Mutual"), to confirm an arbitration award, and also from the order of the district court denying their motion to alter or amend the June 28, 1988 order.
The instant dispute arises from two re-reinsurance contracts, the Companion Line Casualty Quote Share Retrocession Contract ("Companion Line Treaty") and the International Account Obligatory Surplus Treaty ("International Treaty"). In the present re-reinsurance situation the chain of insurance was as follows: (1) policyholders were insured by an insurance company; (2) the insurance company then reinsured a portion of its risks with Mutual; and, (3) Mutual then re-reinsured (or "retroceded") a portion of its risks with other companies including Norad and GTE.
Under the Companion Line Treaty, GTE and Norad assumed a portion of Mutual's obligations on casualty reinsurance business written by Mutual in respect of United States domiciled risks. This Treaty remained in effect from July 1, 1981 until June 30, 1985. Sometime towards the end of the fourth year of the Treaty, GTE and Norad became concerned that Mutual's obligations under the Treaty were not being met. Thereafter, appellants commissioned two audits of Mutual. Based on the information derived from these audits Norad and GTE sought arbitration with Mutual in order to settle their grievances.
Under the International Treaty, GTE assumed certain of Mutual's obligations on reinsurance written by Mutual in respect of non-United States domiciled reinsureds. This Treaty was in effect from April 1, 1982 though June 30, 1985. As was the case with the Companion Line Treaty, GTE sought arbitration after an audit of Mutual was conducted.
The arbitration proceedings involving both Treaties were commenced in 1986. As to both Treaties, appellants alleged that they were entitled to relief in that: (1) Mutual made misrepresentations in order to induce appellants to enter into the Treaties; and (2) Mutual retroceded risks to GTE and Norad which should not have been retroceded under the terms of the respective contracts. In their Pre-Hearing Memorandum of Law in the Companion Line Treaty arbitration the appellants specifically requested relief including the following:
1. The retrocessional agreements between Mutual Fire [Mutual] and GTE RE [GTE] and Norad should be rescinded from inception,
2. Alternatively, GTE RE and Norad should be adjudged to have no liability for certain retrocession including business which was outside the terms of the retrocessional treaties, business produced in violation of Mutual Fire's duty of utmost good faith . . . . If the panel determines that it is not possible to sort out exactly which of Mutual Fire's cessions should be covered and which should not (particularly in light of the poor accounting and difficulty of computing the value of Mutual Fire's breaches) . . . the panel should hold that GTE RE and Norad are responsible for only a set percentage, e.g., 20% of Mutual Fire's retrocessions.
In almost identical language, GTE, in its Pre-Hearing Memorandum of Law in the International Treaty arbitration, requested relief including the following:
1. The retrocessional agreements between Mutual Fire and GTE RE shall be reduced from inception.
2. Alternatively, GTE shall be adjudged to have no liability for business which was outside the terms of the retrocessional agreements and business produced in violation of Mutual Fire's duty of utmost good faith. . . . If the panel determines that it is not possible to sort out exactly which of Mutual Fire's cessions should be covered and which should not . . . the panel should hold that GTE RE and Norad [sic] are responsible for a set percentage of Mutual Fire's cessions.
Based on the hearings and submissions of the parties, including the above-mentioned Pre-Hearing Memoranda of Law, the three-person panel of arbitrators determined that GTE and Norad were not entitled to rescind the Companion Line Treaty but that their participation in the Treaty for each underwriting year, retroactively from inception, should be reduced by 10.8%. Similarly, the arbitrators determined that GTE was not entitled to rescission of the International Treaty but instead ...