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Second Circuit Compels Arbitration of Sandy Reinsurance Dispute in New York, Not London

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In Infrassure, Ltd. v. First Mut. Transp. Assur. Co., No. 16-306, 2016 U.S. App. LEXIS 20529 (2d Cir. Nov.16, 2016), the Second Circuit held that the New York’s Metropolitan Transportation Authority’s captive, First Mutual Transportation Assurance Co. (“First Mutual”), cannot compel the Swiss reinsurer Infrassure, Ltd. (“Infrassure”) to arbitrate in London. The case involves a $20 million dispute arising from Hurricane Sandy.

The Facultative Certificate at issue contained an endorsement with a heading reading: “London Arbitration and Governing Law (UK and Bermuda Insurers Only),” which provided for arbitration in London. That endorsement was contrary to a clause in the main Certificate providing for arbitration in New York. First Mutual initiated arbitration in London. Infrassure sought a declaration that the endorsement did not apply, so the arbitration should be in New York. First Mutual argued that the heading to the endorsement was subject to a separate “Titles Clause,” which provides that titles in the contract are for mere convenience, and not meant to limit or affect the provisions to which they relate.

The key issue was whether the words “UK and Bermuda Insurers Only,” even though part of a title, would be given effect. Infrassure argued that these were not merely a title, but contained substantive instructions. The Second Circuit held that the disputed language “is not part of the title itself, though it shares the same line and bolded format.” It wrote that “the purpose of a Titles clause is not to strip away an express indication as to the context in which a particular provision is operative, but to ensure that the text of a provision is not discounted or altered by the words of its heading.” Thus, because the endorsement was expressly limited to UK and Bermuda insurers, and neither Infrassure nor First Mutual was a UK or Bermuda insurer, the Court applied the provision in the main Certificate, calling for arbitration in New York.

The decision was written by Judge Dennis Jacobs who, as a litigation partner at Simpson Thatcher decades ago, had much experience in reinsurance disputes. This experience was apparent in the decision. For example, he noted that that one of the paragraphs in the Certificate reads in its entirety as follows:

  1. Program Policy Limits

Various as per the attached schedule.

Judge Jacobs noted that paragraphs like this would be rendered meaningless unless operative effect was given to the words on the title.