Trustmark Insurance Co. v. John Hancock Life Insurance Company (U.S.A.), 631 F.3d 869 (7th Cir. 2011)*
Reinsurer, Trustmark Insurance Company, filed diversity action against insurer, John Hancock Life Insurance Company, asking court to issue preliminary injunction to prevent further arbitration of alleged fraud by insurer in not disclosing documents relevant to prior arbitration as long as prior arbitrator remained member of new panel, and to prevent arbitration of a confidentiality agreement which prevented parties from disclosing evidence, proceedings, and the award granted. The United States District Court for the Northern District of Illinois issued a preliminary injunction reasoning that the prior arbitrator was not disinterested. The judge also ruled that the second panel is not entitled to consider the decision made by the first panel. The injunction stopped the arbitration. Hancock appealed.
- Whether reinsurer established irreparable injury to justify receiving equitable relief, specifically the preliminary injunction, granted by the district court
- Reinsurer would not have been irreparably injured by allowing the prior arbitrator to serve on the subsequent panel;
- the contract requiring arbitrators to be disinterested meant lacking financial or other personal stake in the outcome; and
- the arbitrators could construe the confidentiality agreement which prevented parties from disclosing evidence, proceeds, and the award in prior reinsurance arbitration.
Two insurance companies agreed in 1997 that Trustmark would reinsure some risks underwritten by John Hancock. The insurers disagree about the meaning of “London Market Retrocessional Excess of Loss business”, which Trustmark need not reinsure. The parties submitted their dispute to arbitration under the contracts' broad arbitration clauses. In March 2004 a tripartite panel (one arbitrator selected by each side, and these two selecting a third, called the umpire) made its award.
Trustmark was dissatisfied and refused to pay the bills that Hancock sent on the view that the confirmed award governed all of the parties' dealings. This led Hancock to commence a new arbitration in October 2004. Trustmark responded by arguing (among other things) that Hancock had secured the March 2004 award by failing to disclose four documents during arbitral discovery, an omission that Trustmark labeled “fraud.” Hancock named as its arbitrator Mark S. Gurevitz, who had participated in the first arbitration as well. Trustmark picked a person who had not participated in the earlier proceeding. The two party-chosen arbitrators selected a neutral arbitrator. One of the first issues the three-person panel had to decide was what weight to give the 2004 decision. Hancock contended that it was largely dispositive; Trustmark contended that it should be ignored and the proceedings restarted from scratch. Consideration of this point was complicated by a confidentiality agreement that the parties had reached during the first proceeding. This agreement-which did not include its own arbitration clause-prevented Trustmark and Hancock from disclosing the evidence, proceedings, and award. The parties debated whether this agreement covered all disclosures, even to lawyers and successor arbitrators, or only disclosures to the outside world (such as the firms' business rivals and the press). Gurevitz and the neutral umpire concluded that the arbitrators themselves (and the parties' lawyers) are entitled to know and consider the evidence presented, and the results reached, in the first arbitration.
Before the panel commenced its hearing on the merits, Trustmark launched this suit under the diversity jurisdiction. Then in 2009 Trustmark asked the court to enjoin further arbitration as long as Gurevitz remains a member of the new panel. The contracts require all three arbitrators to be “disinterested”. Trustmark contended that Gurevitz is not, because he knows what happened in the first arbitration. It also insisted that the new arbitral panel is not entitled to form or act on any view about the meaning of the confidentiality agreement, because that agreement does not include an arbitration clause. Only a judge, Trustmark insisted, can determine what the confidentiality agreement requires.
The district court agreed with Trustmark and issued an injunction. The judge wrote that Gurevitz is not “disinterested” because he knows what happened during the first arbitration and could be called as a fact witness about those proceedings. The judge also ruled that the second panel is not entitled to consider the decision made by the first panel. The injunction stopped the arbitration in its tracks. Hancock has appealed.
Equitable relief depends on irreparable injury and there are two principal problems with the district court's determination that there was irreparable injury. First, Trustmark did agree to arbitrate the question whether the contracts provide reinsurance for certain risks. However, the district court inhibited rather than enforced that contractual term. Second, the proposition that going forward with an arbitration "unalterably deprives the party of its right to select the forum" is false. The only potential injury from waiting until the arbitrators have made their award is delay and out of pocket costs of paying arbitrators and legal counsel which is not irreparable injury.
Furthermore, all three arbitrators are disinterested since Gurevitz and the other two arbitrators lack financial or other personal stake in the outcome. The knowledge Gurevitz had acquired about the dispute does not require disqualification, is as disinterested as the district judge himself, and is entitled to participate in the arbitration.
The district judge also erred in concluding that the arbitrators are powerless to construe the confidentiality agreement. Although the agreement lacks its own arbitration clause the parties did agree to arbitrate their disputes about reinsurance. Also, the confidentiality agreement, a standard form in insurance arbitration, signed while the arbitration was under way, is closely related to the substance of the first arbitration and presumptively within the scope of the reinsurance contracts' comprehensive arbitration clauses, which cover all disputes arising out of the original dispute.
This court held that when the arbitration resumes, the panel is entitled to follow its own view about the meaning of the confidentiality agreement and does not have to adhere to the district judge's erroneous understanding.
*Case summary written by Natalia Walters, Moritz College of Law Class of 2011