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First Circuit Confirms Power of Arbitration Panels to Determine Preclusive Effect of Prior Awards

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In Employers Ins. Co. of Wausau v. OneBeacon American Ins. Co., 744 F.3d 25 (1stCir. Feb. 26, 2014), the First Circuit Court of Appeals upheld the decision of a district court that arbitration was the proper forum for determination of the preclusive effect of a prior arbitration award. This decision followed from an arbitration between OneBeacon and Swiss Re where Swiss Re prevailed and the District Court of Massachusetts confirmed the award. Subsequently, OneBeacon demanded arbitration with different reinsurers, including Wausau, in respect of the same claims and under the same reinsurance agreement that was at issue in the prior arbitration. Wausau then petitioned the District Court of Massachusetts for a declaratory judgment that the prior arbitration award had preclusive effect on the arbitration pending between OneBeacon and Wausau. The district court denied the petition, holding that “the preclusive effect of a prior arbitration is a matter for the arbitrator to decide.” Nat’l Cas. Co. v. One Beacon Am. Ins. Co., C.A. No. 12-11874-DJC 2013 WL 3335022 at *8 (D. Mass. July 1, 2013).

The First Circuit relied upon the arbitration agreement, which it concluded was broadly worded to cover all disputes, including disputes over the preclusive effect of prior arbitration. The court relied as well on the “broad agreement among the circuit courts that the ‘effect of an arbitration award on future awards is properly resolved through arbitration.’” The court rejected Wausau’s assertion that by confirming the arbitration award the federal court rendered a judgment whose preclusive effect only a federal court could determine. The court reasoned that because a confirmation award does not typically involve a review of the merits of the case, such an award is of limited scope and is distinct from the arbitration award. As such, a determination of the preclusive effect of the arbitration award by a subsequent arbitrator does not infringe on the prerogatives of the federal court to protect its own judgments.