Employers Ins. of Wausau v. Jackson, 93-0354

Page 147

505 N.W.2d 147

178 Wis.2d 755

In the Matter of the Arbitration Between EMPLOYERS INSURANCE OF WAUSAU, a Mutual Company, Petitioner-Respondent, v. Robin A.G. JACKSON, an Underwriter at Lloyd's, London, on his own behalf and as Representative Underwriter, Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies, Respondents-Appellants. ^d

No. 93-0354.

Court of Appeals of Wisconsin.

Submitted on Briefs June 21, 1993.

Opinion Released Aug. 10, 1993.

Opinion Filed Aug. 10, 1993.

Before CANE, P.J., and LaROCQUE and MYSE, JJ.

CANE, Presiding Judge.

Certain Underwriters at Lloyd's of London ¹ appeal the order of the circuit court confirming the naming of two arbitrators to the dispute between Lloyd's and Employers Insurance of Wausau. The circuit court held under 9 U.S.C. §§ 4 and 5, the United States Arbitration Act (USAA), and secs. 788.03 and 788.04, Stats., that it had jurisdiction to name the arbitrators. Lloyd's appeals on several grounds. Lloyd's argues that (1) the circuit court lacked statutory authority to rule on Wausau's claims, (2) the circuit court's finding that Lloyd's Chicago counsel (Lord, Bissell & Brook) had become its agent for receipt of demands for arbitration under the arbitration agreement is not supported by any evidence, (3) the circuit court's finding that "time is of the essence" in the parties' arbitration agreement is erroneous as a matter of fact and as a matter of law, and (4) the circuit court's finding that a potential arbitrator named by Lloyd's was not an "executive officer" was based on the wrong factors.

We conclude that the circuit court had statutory authority under both USAA § 5 and sec. 788.04, Stats., to rule on Wausau's claims. We further conclude that our review of the circuit court's naming of an arbitrator, arbitrators or an umpire under the Federal Arbitration Act (FAA) § 5 or sec. 788.04 is limited to whether the circuit court erroneously exercised its discretion. Here, we conclude that it did not. Lloyd's claims regarding Lord, Bissell & Brook's agency for receipt of process, and any other claims regarding the propriety of the arbitrators, should be ruled on by the two arbitrators named by the circuit court and the umpire whom they select.

Lloyd's and Wausau are parties to a series of contracts called "excess retrocessional insurance treaties." Under these treaties, Lloyd's reinsured reinsurance contracts issued by Wausau's professional reinsurance department to other insurance companies. Treaties in force for the period July 1, 1966 to June 30, 1973 are at issue in this case.

The treaties contain an arbitration clause providing: If any dispute or difference of opinion shall arise with reference to the interpretation of this Agreement or the rights with respect to any transaction involved, the dispute shall be referred to three arbitrators, who shall be executive officers of insurance companies domiciled in the U.S.A., one to be chosen by the Company, one to be chosen by the retrocessionaire, and the third by the two arbitrators so chosen within 30 days of their appointment. If either party refuses or neglects to appoint an arbitrator within 30 days after the receipt of written notice from the other party requesting it to do so, the requesting party may nominate two arbitrators, who shall choose the third.

In August of 1988, Lloyd's notified Wausau that they were denying proofs of loss submitted by Wausau regarding asbestos-related products liability payments Wausau had made to companies it had reinsured. Wausau claimed these losses were covered by its reinsurance agreements with Lloyd's. Lord, Bissell & Brook, in its capacity as claims counsel for Lloyd's, conveyed this notice of denial of claims to Wausau and engaged in claims reviews and other claims handling activities with Wausau. In a letter sent to Lord, Bissell & Brook dated May 27, 1991, but postmarked June 3, 1991, Wausau requested arbitration of the asbestos-related claims. At this time, Wausau also named William Fox, president and chief operating officer of Providence Washington Insurance Company, as its party arbitrator. Lord, Bissell & Brook acknowledged receipt of the May 27 letter on June 6, 1991 and, on June 13, 1991, they advised counsel for Wausau that:

This firm does not have any authority to accept notice on behalf of the London Blanket Excess of Loss Reinsurers. We have reviewed the retrocessional treaties and note that the designated intermediary, Pritchard & Baird, is no longer in business. In view of this problem, we have forwarded your letter to the London Broker Leslie & Godwin with a request that they circulate your notice of arbitration to the various Lloyd's syndicates and London companies....

On June 20, 1991, counsel for Wausau insisted that Lord, Bissell & Brook had express and apparent authority to accept the demand for arbitration and advised that Wausau would treat the notification to Lord, Bissell & Brook (June 6) as marking the time from which the thirty-day time period for Lloyd's naming of an arbitrator would run. Thus, Lloyd's had until July 6, 1991 to name its party arbitrator.

On July 22, 1991, Lord, Bissell & Brook advised Wausau's counsel that Lloyd's selected Robert Hall of Reliance National as its party arbitrator. Wausau opposed the selection of Hall, claiming it was not timely and Hall was not an executive with an insurance company. On July 25, 1991, Wausau designated Bradford Mitchell, chairman of the board and CEO for Harleysville Insurance Companies and Harleysville Mutual Insurance Company of Pennsylvania, as the second arbitrator.

Wausau then initiated this action in Marathon County Circuit Court. Lloyd's removed the case to the United States District Court for the Western District of Wisconsin, citing 28 U.S.C. § 1441(b). The district court granted Wausau's motion to remand the case to Marathon County and granted attorney's fees and costs to Wausau. Lloyd's again removed the case to federal court, this time citing 9 U.S.C. § 205. Again, the federal court granted Wausau's motion to remand the case and awarded it attorney fees and costs. Lloyd's then petitioned the United States Court of Appeals for the Seventh Circuit for a writ of mandamus. The seventh circuit upheld the remand of the case to Marathon County. In re Amoco Petroleum Additives Co., 964 F.2d 706 (7th Cir.1992).

Upon remand, the Marathon County Circuit Court held a hearing, issued a memorandum opinion, held another hearing and entered findings of fact and conclusions of law, in which it ruled that it had the power pursuant to §§ 4 and 5 of the FAA and secs. 788.03 and 788.04, Stats., to compel arbitration to proceed before Fox and Mitchell, because:

(1) Lloyd's failure to designate a "qualified arbitrator" under the arbitration agreement constituted a "failure, neglect or refusal to arbitrate" within the meaning of FAA § 4 and sec. 788.03;

(2) Lloyd's failure to name a qualified arbitrator within thirty days of the request for arbitration constituted a failure to avail themselves of the method for selecting an arbitrator set forth in the agreement within the meaning of FAA § 5 and sec. 788.04; and

(3) There had been a lapse, within the meaning of FAA § 5 and sec. 788.04 in that the parties have reached an impasse regarding the designation of an arbitrator for Lloyd's.

Lloyd's appealed the order and we granted a discretionary appeal.

I. THE CIRCUIT COURT HAD STATUTORY AUTHORITY TO RULE ON WAUSAU'S CLAIMS

Under the common-law, parties could revoke an arbitration agreement at any time prior to an award. See Zhaodong Jiang, Federal Arbitration Law & State Court Proceedings, 23 LOYOLA (CAL.) L.REV. 473, 474 (1990). To change this rule, legislatures began to enact statutes that made arbitration agreements binding on the parties. Id. In 1925, Congress passed the United States Arbitration Act. The USAA provides that arbitration agreements are as valid, enforceable and irrevocable as any other contract. Today, the overwhelming majority of states, including Wisconsin, have enacted arbitration statutes that follow the pattern of the federal arbitration statutes and adopt a policy in favor of the use of arbitration as a means of dispute resolution. The Wisconsin courts do not look with disfavor upon arbitration but, rather, encourage it as an alternative to litigation. Diversified Management Servs., Inc. v. Slotten, 119 Wis.2d 441, 449, 351 N.W.2d 176, 180 (Ct.App.1984).

Lloyd's contends that the Marathon County Circuit Court did not have authority to decide this arbitration matter. The court's authority to decide any matter dealing with arbitration is governed by statute. Interpretation of statutes is a question of law that we review independently of the circuit court. Tahtinen v. MSI Ins. Co., 122 Wis.2d 158, 166, 361 N.W.2d 673, 677 (1985). The applicable federal and state statutes are substantively identical. Section 788.03, Stats., is patterned after USAA § 4, and sec. 788.04 is patterned after USAA § 5. Lloyd's cites four cases, Conticommodity Servs., Inc. v. Philipp & Lion, 613 F.2d 1222, 1226 (2d Cir.1980); World Brilliance Corp. v. Bethlehem Steel Co., 342 F.2d 362, 364-65 (2d Cir.1965); Trafalgar Shipping Co. v. International Milling Co., 401 F.2d 568, 571 (2d Cir.1968); and Florasynth, Inc. v. Pickholz, 750 F.2d 171, 174 (2d Cir.1984), for the proposition that an action under USAA § 4 raises only two questions: the making of the arbitration agreement and whether the failure, neglect or refusal of one party to arbitrate is in dispute. Because we conclude that sec. 788.04 (and USAA § 5) alone gives the circuit court authority to name the arbitrators here, we do not interpret sec. 788.03 (and USAA § 4).

Section 788.04(1) Stats., and USAA § 5 deal specifically with the naming of arbitrators and an umpire. Section 788.04(1) provides:

If, in the agreement, provision is made for a method of naming or appointing an arbitrator or arbitrators...