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Century Indemnity Co. v. Certain Underwriters at Lloyd's

January 11, 2010

CENTURY INDEMNITY COMPANY, PETITIONER,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, ET AL., RESPONDENTS.



The opinion of the court was delivered by: Diamond, J.

MEMORANDUM

This is the latest in a series of reinsurance disputes between Century Indemnity Company (the reinsured) and AXA Belgium (the reinsurer). Since 1978, these companies (or their forebears and affiliates) have entered into reinsurance contracts -- or "Treaties," in reinsurance jargon. In recent years, as they have mediated, arbitrated, and litigated their contractual rights and obligations, their disagreements have grown so bitter that in the instant dispute, the Parties cannot seem to agree on the time of day. That the Parties' motions, cross-motions, and cross-cross-motions generate more heat than light has made this matter especially difficult. Briefly, Century believes it is owed money by AXA, while AXA believes the opposite. Century asks me to hold AXA in contempt for refusing to pay Century the money it is owed; AXA believes I can do nothing until the Southern District of New York decides whether AXA's defense to Century's money claim is subject to arbitration. Century asks me to enjoin AXA from proceeding in New York; AXA asks me to stay the instant litigation while it proceeds in New York. Because the question of which Party owes the other money is not before me, I will deny both sides' requests for injunctive relief and Century's contempt motion.

I. Background

Petitioner Century Indemnity Company is a Pennsylvania insurance company with its principal place of business in Philadelphia. Respondent AXA Belgium is a foreign reinsurance company with its principal place of business outside the United States. (Doc. No. 1 at 1.) In the late 1970s, Century and AXA entered into a Reinsurance Contract. Century paid a fee to AXA to indemnify Century for obligations Century undertook through its issuance of liability policies. (Id. at 3.)

In 2005, a dispute arose concerning primarily the claims documentation Century was required to submit to AXA. (Id. at 4.) In accordance with the Contract, Century submitted the dispute to an Arbitration Panel in 2006. See Doc. No. 1, Ex. 1 at Art. 20 ("[A]ny dispute arising out of this Agreement shall be submitted to the decision of a board of arbitration . . . .").

During the arbitration, Century filed a "Motion to Require [AXA] to Post Letters of Credit." (Doc. No. 22, Ex. C.) On November 14, 2006, the Panel granted Century's Motion, ordering AXA to provide Century with "clean, unconditional, irrevocable and evergreen letters of credit" from which Century could draw funds in the event of AXA's future non-payment. (Id,) AXA complied, providing Century with a letter of credit worth over $1 million. (Doc. No. 35, Ex. 4 at 3.)

On February 16, 2007, the Panel issued its Final Award, which Century describes as a "hybrid" that "does not fit neatly into any judgment enforcement mechanism." (Doc. No. 22 at 2.) The Award provides, inter alia, that: (1) AXA must indemnify Century respecting its settlement of litigation with Dresser Industries, Inc.; (2) "the letters of credit posted by [AXA] as ordered by this Panel shall be adjusted annually, on or before December 31 of each year"; (3) in submitting bills to AXA, Century must "supply to [AXA], before or with the billing and proof of loss, information consistent with the parties' course of dealing" to trigger AXA's payment obligations under the Contract; (4) AXA must "pay or deny a reinsurance billing within sixty (60) days of receipt [of this documentation] . . . ."; and (5) if AXA denies a billing, it must provide a "substantive reason" for the denial. (Doc. No. 22, Ex. A.) The Panel "retain[ed] jurisdiction for twelve (12) months to address any issues arising out of this award. . . ." (Id. at ¶ 11.) Significantly, Century concedes that the Award "does not contain a lump sum certain to be paid by AXA." (Doc. No. 22 at 2.)

On February 26, 2007, Century began submitting reinsurance billings to AXA related to the Dresser settlement and other matters. (Doc. No. 22, Ex. F at 4.) Century alleges that "[f]or almost three years AXA Belgium has essentially ignored" its obligations, paying none of these invoices. (Doc. No. 22 at 1.) Remarkably, Century did not ask the Panel to order AXA to pay the invoices or otherwise to determine the reimbursement amount AXA owed to Century. Accordingly, the Panel never addressed Century's entitlement to reimbursement with regard to the billings it submitted after the Award.

On June 11, 2009, Century filed in this Court an unopposed Petition to Confirm Arbitration Award. (Doc. No. 1.) On July 21, 2009, I granted the Petition and confirmed the Award. (Doc. No. 19.) See 9 U.S.C. § 203 (2009) ("An action or proceeding [between a United States citizen and a foreign citizen] falling under the [Convention on the Recognition and Enforcement of Foreign Arbitral Awards] shall be deemed to arise under the laws and treaties of the United States. The district courts of the United States . . . shall have original jurisdiction over such an action or proceeding, regardless of the amount in controversy.").

On November 12, 2009, Century filed a Motion to Hold AXA Belgium in Contempt of Court, For a Quantification of Amounts Currently Due Under the Judgment, and To Compel AXA Belgium to Respond to Discovery in Aid of Execution. (Doc. No. 22.) Alleging that AXA has refused to pay the billings submitted by Century after the Final Award, to respond to Century's requests for discovery in aid of execution, or to adjust annually its letter of credit, Century asks me to: (1) hold AXA in contempt of court for violating my July 21st confirming Order; (2) impose coercive sanctions against AXA; (3) quantify the amount currently due under the Award (which Century claims is $485,236.87); (4) order AXA to respond to Century's discovery requests in aid of execution within fifteen days; and (5) award Century attorneys' fees and costs. (Id.; Doc. No. 42, Ex. 5.)

On November 30, 2009, AXA filed a Cross-Motion to Stay Litigation and for Partial Satisfaction of Judgment. (Doc. No. 35, Ex. 4.) AXA does not dispute that since February 16, 2007, Century has billed AXA for $485,236.87. Rather, AXA argues that it is entitled under Article 18 of the Contract to offset against this amount the monies otherwise owed to AXA by Century and its affiliates. Article 18 provides:

Each party hereto shall have, and may exercise at any time and from time to time, the right to offset any balance or balances whether on account of premiums or on account of losses or otherwise, due from such party to the other (or, if more than one, any other) party hereto under this Agreement or under any other reinsurance agreement heretofore or hereafter entered into by and between them, and may offset the same against any balance or balances due or to become due to the former from the latter under the same or any other reinsurance agreement between them . . . .

(Doc. No. 1, Ex. 1 at Art. 18) (emphasis added).

In 1978, AXA entered into a reinsurance agreement with ACE INA Insurance.Like Century, ACE INA is a subsidiary of ACE Limited. (Doc. No. 35, Ex. 4 at 10.) AXA alleges that ACE INA owes AXA nearly $2.7 million under the 1978 agreement. (Id.) Although ACE INA apparently disputes this amount, AXA argues that it "is entitled to offset the [$2.7 million] due or to become due . . . from ACE INA . . . against any amounts due from AXA Belgium to Century under the [Award] . . . ." (Id. at 11.) Century disagrees with this interpretation of Article 18, arguing that the $2.7 million AXA contends it is owed by ACE INA is not an amount "due or to become due" because it is disputed. See Doc. No. 42, Ex. 5 at 13 ("The alleged claim against ACE INA is . . . tenuous at best and simply cannot form the basis of an offset against the . . . due and owing judgment.").

In light of this disagreement, on November 18, 2009, AXA "served an arbitration demand upon Century seeking affirmative relief that any and all amounts due from AXA Belgium to Century under the arbitration award . . . shall be offset [by] any and all amounts due or to become due to AXA Belgium under [its 1978 agreement with ACE INA]." (Doc. No. 35, Ex. 4 at 2.) Century responded that AXA's demand does not set forth an arbitrable dispute. AXA subsequently "commenced an action against Century in the United States District Court, Southern District of New York . . . seeking to compel arbitration under the Federal Arbitration Act . . . with respect to its contractual offset right under [the Parties' Contract]." (Id. at 3.) See AXA Belgium, S.A. v. Century Indemnity Co., No. 09-9703 (S.D.N.Y.).

AXA now asks me to stay the instant proceedings pending the outcome of the New York litigation. AXA also asks me to enter partial satisfaction of judgment in AXA's favor in the amount of $971,520.77, arguing that Century recently "drew down" this amount from letters of credit AXA had previously provided to Century, thus reducing the amount AXA owes under the Contract from ...


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