Treasure chest on white.

Awards of attorney fees are few and far between in reinsurance arbitrations, but they happen.  When they happen, the losing side sometimes seeks to vacate the award based on the arbitrators exceeding their powers in awarding attorney fees.  In a recent case, the court had to decide whether to confirm or vacate an award with attorney fees.

In Catalina Holdings (Bermuda) Ltd. v. Muriel, No. 18-cv-05642, 2020 U.S. Dist. LEXIS 59812 (N.D. Ill. Apr. 6, 2020), the cedent, now in liquidation and represented by the receiver, and the reinsurer, now represented by a successor company, sought to vacate and confirm, respectively, an arbitration award that included attorney fees.  In a rather lengthy opinion chocked full of analysis, an Illinois federal court denied the liquidator’s petition to vacate or modify and granted the reinsurer’s petition to confirm the award.

The case is interesting because it addresses confirmation and vacatur under both the Federal Arbitration Act‘s (“FAA”) Chapter 1 and Chapter 2.  The court ultimately concluded that there was no relevant difference between Chapter 1 and Chapter 2 of the FAA (the latter implementing the Convention on the Recognition and Enforcement of Foreign Arbitral Awards ) as the same standards applied for purposes of this case.

The liquidator sought to vacate the award under FAA section 10(a)  or modify under 11(b). arguing that the arbitrators exceeded their powers in awarding attorney fees on a non-contractual basis   The reinsurer sought to confirm the award.   In ruling against the liquidator, the court noted the various authorities holding that courts will enforce an arbitration award so long as it draws its essence from the contract, even if the court believes the arbitrator misconstrued the contract (citations omitted).  The court quoted cases holding that courts will not overturn an award because an arbitrator committed serious error, or the decision is incorrect “or even whacky.”

The court held that the award met these deferential standards.  The court found that in the interim final award, the parties’ submissions in response and the final award reflected the arbitrators’ engagement with the relevant portions of the reinsurance contracts.  The court also construed the provision allowing the panel to award costs, but not exemplary damages as consistent with the arbitrators’ award of attorney fees.  Additionally, as noted by the court, the issue of attorney fees was presented to the panel by both parties.  The court rejected the argument that an award of attorney fees was punitive.

In some interesting commentary, the court addressed the honorable engagement language in the arbitration provision.  The court cited the honorable engagement language as one of the contractual features supporting the interpretation of the word “costs” to include attorney fees.

Finally, the court rejected the reinsurer’s request for sanctions, finding them not warranted in this case.  Accordingly, the award was confirmed and converted into a judgment.