Insurers often think of arbitration proceedings as less formal than courtroom litigation. In its recent decision in Certain Underwriters at Lloyd's v. Argonaut Ins. Co.,1 the 7th U.S. Circuit Court of Appeals has made clear that, at least with respect to contractual arbitrator appointment deadlines, a party who presumes that arbitration proceedings will allow it freedom from strict enforcement of contractual terms may be in for a rude awakening.
The Argonaut case involved a reinsurance dispute over an asbestos claim. Argonaut had settled with one of its insureds and sought reimbursement from a Lloyd's syndicate under several reinsurance treaties. When the syndicate asked for more information rather than offering payment, Argonaut responded with an arbitration demand.
The timing of the arbitration demand and subsequent correspondence became critical. The treaties required the parties to name arbitrators within 30 days of being demanded to do so. Argonaut's August 4, 2004 arbitration demand asked the Lloyd's syndicate to name an arbitrator within 30 days. Perhaps seeking the tactical advantage of not having to name its arbitrator first, Argonaut's demand was silent as to its own arbitrator. Consequently, two days after getting Argonaut's demand, the syndicate sent notice asking Argonaut to name its arbitrator within 30 days of that letter.
On Friday, September 3, 2004, exactly 30 days after Argonaut sent its initial demand, the Lloyd's syndicate named its arbitrator. Argonaut's 30-day period for naming its arbitrator was to expire two days later on September 5, 2004, which turned out to be a Sunday. When that day passed without any arbitrator appointment from Argonaut, the syndicate responded on the following Monday (the Labor Day holiday in the United States, but not in the United Kingdom) by informing Argonaut that it was in default. Consistent with treaty terms, the syndicate then purported to name Argonaut's party-arbitrator for it.
When Argonaut finally got back into the office after the long weekend, it first responded (incorrectly) that it had appointed someone the prior week. After realizing this was not true, Argonaut instead argued that because the 30-day deadline had expired on a non-business day, it was entitled to have until the next business day, Tuesday, September 7, 2004, to name an arbitrator.
The syndicate took Argonaut to federal court to enforce its right to appoint Argonaut's arbitrator. The district court agreed. On appeal, the Seventh Circuit affirmed. Concluding that federal common law governed the issue, the Court of Appeals ruled that the 30-day deadline should be strictly enforced with "no exceptions." The appellate court reasoned that Argonaut was simply bound "to comply with the deadline for which [it] bargained."
On one level, the Argonaut case is just another lesson on the importance of adherence to deadlines. No lawyer or client ever wants to be on the side of arguing that he or she should be excused from failing to meet a deadline. Where there is a debate on when a deadline expires, it almost never makes sense to take a chance on blowing the time limit. But another important, and perhaps less obvious, lesson is that the mere existence of an arbitration clause should not cause an insurer to assume that a lack of formality will accompany resolution of your dispute. Argonaut appears to have learned that second lesson the hard way.
Footnotes
1. No. 06-3395, 2007 WL 2433139 (7th Cir. Aug. 29, 2007).
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