As was evident from Parts V.A and V.B (here and here), Stolt-Nielsen has dramatically changed the legal landscape on consolidated arbitration. In this Part V.C. we explore the practical and strategic implications of that change.
B. Reinsurers Will Likely Regain the Tactical Advantage They Had Pre-Bazzle
For the last several years since Bazzle, cedents and reinsurers have treated consolidation of arbitration proceedings largely as a given. Courts would usually delegate the consolidation question to the arbitrators, and, in turn, arbitrators would usually order consolidation. After a while, consolidation became something that the parties frequently agreed upon, because in most cases there was little or no point in opposing it. (See Part III, here.)
The advent of large, consolidated proceedings redounded mostly to the cedents’ benefit. In the consumer-class-arbitration context, the theme is usually the many against the one — the consumers versus the company. But in reinsurance arbitration the tables are turned, and the theme is usually the one against the many – the cedent versus the reinsurers participating in one or more treaties.
Consolidated arbitration allowed a cedent to, among other things, aggregate its claims against several reinsurers participating in a multi-year treaty program. Without consolidated arbitration the dollar amounts associated with each claim might be too small to warrant a serious collection effort. But the ability to aggregate ensured that even relatively small balances could be pursued.
Collections were fairly straightforward, and reinsurers who might otherwise have multiple chances before multiple panels to assert certain defenses were forced to make their arguments before a single arbitration panel. The ability of cedents to compel consolidated arbitration probably contributed to reinsurers settling certain claims that they might otherwise have disputed.
Now that courts may be the gatekeepers when a party demands consolidated arbitration, and now that the Supreme Court has imposed some fairly strict standards for establishing consent to class or consolidated arbitration, reinsurers probably have regained the tactical advantage. And the strategy adapted may well be of the “divide and conquer” variety – reinsurers may in appropriate cases force the cedent to commence multiple proceedings and, among other things, obtain multiple bites at the apple on their defenses before multiple panels. Continue Reading »