Businesswoman WhisperingConfidentiality agreements in reinsurance arbitrations are ubiquitous, but often cause concern when a subsequent arbitration arises over the same or similar contracts with the same or similar parties.  A question that has arisen with some frequency, but which has not been fully addressed in court, is whether the confidentiality agreement in the first arbitration precludes the parties or the panel in the second arbitration from obtaining or even discussing evidence from the first arbitration, which is or may be directly relevant to the issues in the second arbitration.

 This question may arise in various contexts under various scenarios.  For example, if party A in the second arbitration knows about relevant evidence in the possession of Party B because of the first arbitration, can Party A demand that this evidence be produced by Party B in the second arbitration if Party B fails to produce that evidence?  Another example is whether an arbitrator who was appointed in both arbitrations must close her or his eyes to the testimony she or he heard from a witness in the first arbitration when that same witness appears in the second arbitration?  I am sure we can all come up with other scenarios where evidence in the first arbitration may be relevant in the second arbitration and one party is trying to cloak that evidence under the first arbitration’s confidentiality agreement.

None of these questions are easy and very often litigation tactics play a part in whether a confidentiality agreement is being used as a sword or a shield.  Practical reality, fairness and the real purpose of confidentiality agreements need to be considered when these issues arise.  In reinsurance disputes, the confidentiality agreement exists to protect arbitration information (information created specifically for that arbitration) from disclosure to third parties.  While the model confidentiality agreement devised by ARIAS•U.S. is broadly defined to cover virtually everything exchanged in the arbitration, the reality is that the parties’ files, contracts and other business records are subject to production in subsequent disputes.  In other words, if a discovery document exists in the file it ought to be produced when requested and not shielded by blind adherence to the confidentiality agreement in a particular dispute.

The Seventh Circuit had the opportunity to address the role a confidentiality agreement played in the context of two arbitration proceedings in Trustmark Ins. Co. v. John Hancock Life Ins. Co., 631 F.3d 869 (7th Cir. 2011).  Although the case was decided six years ago, it is one of the few appellate cases to consider this issue.  The case addressed two related arbitration proceedings between the same parties where the first proceeding was subject to a confidentiality agreement.  Specifically, the court addressed whether a party in the second arbitration proceeding violated the confidentiality agreement in the first proceeding when the party acknowledged evidence from the first arbitration proceeding.  The court held that a party in a subsequent arbitration proceeding cannot purposefully use a confidentiality agreement as a shield to preclude the examination of evidence from an earlier arbitration proceeding.

In Trustmark, the district court enjoined further arbitration proceedings, holding that the arbitration panel was not qualified to act on the confidentiality agreement because the confidentiality agreement did not have an arbitration clause (there was an arbitration clause in the reinsurance agreement). The Seventh Circuit reversed, characterizing the district court’s as a “prematurely announced understanding.” In reversing, the Seventh Circuit stated that the arbitration panel was qualified to rule on the confidentiality agreement because confidentiality presented an ancillary question to the reinsurance dispute.  Additionally, the court held that an arbitrator’s presence on both proceedings did not impact the arbitrator’s ability to abide by the confidentiality agreement.

Whether the confidentiality agreement in a prior proceeding shields information or documents from disclosure in a subsequent proceeding is a determination to be made by the arbitration panel in the second proceeding.  The confidentiality agreement should not be read to preclude the second arbitration panel from addressing the issue.