PUBLISHED OPINION
Case No.: 95‑2930
For Complete
Title
of Case, see
attached opinion
Submitted on
Briefs May 06, 1996
JUDGES: Cane, P.J., LaRocque Myse, JJ.
Concurred:
Dissented:
Appellant
ATTORNEYS On behalf of respondents-appellants, the cause
was submitted on the brief of Robert E. Shumaker and Kristin M.
Huotari of DeWitt Ross & Stevens S.C. of Madison, and Robert
A. Knuti and Jane H. Veldman of Lord, Bissell & Brook of
Chicago.
Respondent
ATTORNEYS On behalf of petitioner-respondent, the cause
was submitted on the brief of Timothy J. Muldowney and Jeffrey J.
Kassel of LaFollette & Sinykin of Madison, and Mark C.
Kareken of Zelle & Larson LLP of Minneapolis.
COURT OF APPEALS DECISION DATED AND RELEASED JUNE 4, 1996 |
NOTICE |
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62(1), Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 95-2930
STATE
OF WISCONSIN IN
COURT OF APPEALS
IN THE MATTER OF ARBITRATION BETWEEN:
EMPLOYERS INSURANCE OF WAUSAU,
A MUTUAL COMPANY,
Petitioner-Respondent,
v.
CERTAIN UNDERWRITERS AT LLOYD'S
LONDON, AND CERTAIN LONDON
MARKET INSURANCE COMPANIES,
Respondents-Appellants.
APPEAL from a judgment
and an order of the circuit court for Marathon County: RAYMOND F. THUMS, Judge. Affirmed.
Before Cane, P.J.,
LaRocque and Myse, JJ.
LaROCQUE, J. Certain underwriters at Lloyd's London and
certain London Market insurance companies (Lloyd's) appeal a judgment and an
order of the circuit court confirming an arbitration panel's decision awarding
Employers Insurance of Wausau (Employers) $7,783,324 under its reinsurance
contracts with Lloyd's. Lloyd's argues:
(1) the panel exceeded its power by awarding Employers a recovery on contracts
which the parties did not submit to arbitration, (2) the panel improperly
extended the time the parties had to submit their case and (3) the award must
be modified or vacated because it exceeded Lloyd's policy limits.
We conclude: (1) the
panel's determination of the scope of the issues submitted derived its essence
from the parties' agreement, (2) the arbitration contract empowered the panel
to extend the time for the parties to submit their case and (3) the panel
had the authority to award an amount greater than the policy limits. Therefore, the judgment and order are
affirmed.
BACKGROUND
Beginning in 1966,
Employers and Lloyd's agreed to a series of contracts called "excess
retrocessional insurance treaties."[1] Under these treaties, Lloyd's reinsured
Employers' reinsurance contracts with other insurance companies. Each of the insurance companies Employers
reinsured is called an "original assured."
The treaties each lasted
one year, and the parties renewed the treaties on a yearly basis. Employers and Lloyd's structured the
contracts in multiple layers of excess of loss coverage through separate
contracts with different syndicates of Lloyd's and other insurance companies in
the London and United States insurance markets. The separate retrocessional contracts contained common
arbitration clauses and common provisions defining "disaster and/or
casualty."
Under the treaties,
Employers paid the first $200,000 caused by one "disaster and/or
casualty." The first-layer retrocessional
reinsurer was liable for 95% of the next $800,000, and the second-layer
retrocessional reinsurer was liable for 95% of the next $1,000,000. Later, Employers added a third-layer treaty
in which the third-layer retrocessional reinsurer paid 95% of the first
$500,000 in excess of $2,000,000. A
layer of excess coverage is reached only after the lower levels of coverage are
exhausted.
In the 1980s, Employers
faced claims on its reinsurance contracts with the original assureds resulting
from asbestos-related product liability claims. Employers began to submit requests for reimbursement for its
payments under its first-layer retrocessional reinsurance treaties. Employers calculated its reimbursement
request by aggregating all asbestos-related losses sustained by each original
assured during a policy period. Lloyd's
rejected Employers' request for reimbursement on the grounds that the policies
did not allow Employers to aggregate the losses in this manner. Lloyd's argued that each claim from each
individual injured by asbestos was a separate "disaster and/or
casualty." No individual loss
exceeded the first-layer contracts' retention of $200,000 per occurrence, so
Lloyd's denied Employers reimbursement under the first-layer contracts.
In a letter dated May
27, 1991, Employers demanded arbitration regarding the denial of
reimbursement. Employers' demand
referenced seven first-layer policies by policy number in the caption of the
letter. The parties completed selection
of the arbitration panel on May 22, 1995.[2] The arbitration clause requires each party
to "submit its case to the arbitrators" within thirty days of the
selection of the panel. At the end of
the thirty-day period, Employers submitted a statement of its case, but
requested further discovery.
Lloyd's objected to the
arbitrators deciding any dispute under any policies other than the seven
referenced by policy number in the arbitration demand letter, and objected to
any discovery or submission being made to the arbitrators after the thirty-day
period. The panel overruled these
objections and determined that the scope of the arbitration included claims
against the signatories to all treaties between July 1, 1966, and June 30,
1973, and stated that it may request further submissions from the parties. The parties entered into a total of sixteen
treaties between July 1, 1966, and June 30, 1973. Other facts are set forth in the discussion of the separate
issues raised on appeal.
After reviewing the
parties' submissions, the panel decided that Employers could aggregate the
asbestos claims for each original assured as one disaster, awarded Employers
$7,783,324 and released Lloyd's from further liability under the
contracts. Employers moved the circuit
court to confirm the arbitration award and Lloyd's countermoved to vacate or
modify the award. The circuit court
confirmed the award in its entirety.
Lloyd's does not challenge the decision that the claims could be
aggregated, but challenges the scope of arbitration, the panel's decision to
allow submissions more than thirty days after the selection of the panel, and
the amount of the award.
SCOPE
OF ARBITRATION
Lloyd's does not dispute
that the arbitration clause in the treaties encompasses the aggregation dispute. However, an arbitration provision
"constitutes merely a promise to arbitrate." John Morrell & Co. v. Local Union
304A, 913 F.2d 544, 561 (8th Cir. 1990). How the parties framed the issue to be arbitrated, the conduct of
the parties, and the original contract to arbitrate, determine the scope of the
arbitrator's authority. Id.
Lloyd's argues that the
parties submitted a request for arbitration regarding only the seven
reinsurance treaties and that the panel exceeded its authority by imposing liability
on policies not
specifically referenced by policy number
in
Employers'
arbitration request. If the panel
exceeded its power, we must modify or vacate the award. See §§ 788.10(1)(d) and 788.11, Stats.[3] Employers responds that the issue presented
to the panel was whether Employers could aggregate all the claims related to
asbestos for each original assured, and that the resolution of this issue
determined the amount it could collect from of its reinsurance contracts for
all years and all layers from July 1966 to June 1973. The panel agreed with Employers.
An issue falls within
the scope of the issues presented to the arbitrator if a common intent to
submit that particular issue appears with reasonable certainty. See Milwaukee Prof.
Firefighters Local 215 v. City of Milwaukee, 78 Wis.2d 1, 16, 253
N.W.2d 481, 489 (1977). In our case,
unlike Milwaukee Prof. Firefighters, the parties raised the issue
of the scope of the submission to the panel, and it ruled on that issue.[4] Federal circuit courts have consistently
reviewed an arbitrator's interpretation of the scope of the issues submitted
under the same standard as they review an arbitrator's interpretation of a
contract. Pack Concrete, Inc. v.
Cunningham, 866 F.2d 283, 285 (9th Cir. 1989). Appellate courts uphold an arbitrator's
contract interpretation if the arbitrator's interpretation drew its essence
from the contract so it was not a manifest disregard of the parties' agreement. United Steelworkers v. Enterprise Wheel
& Car Corp., 363 U.S. 593, 599 (1960). This standard fosters recourse to arbitration for dispute
resolution and forecloses the possibility that our courts will become flooded
with disputes involving the exact scope of arbitration proceedings. See Department of Public Safety
v. Public Safety Employees Ass'n, 732 P.2d 1090, 1097 (Alaska 1987).
We conclude that the
panel's decision to include all policies affected by the aggregation issue
derived its essence from the request for arbitration and did not show a
manifest disregard for the agreement between the parties. In Employers' May 27, 1991, request for
arbitration, it noted that "one panel must determine any basis for the
consolidated, common denial and assess the conduct surrounding that denial, as
well as the damages flowing from it."
Employers also noted "[t]his request involves all existing and
future asbestos claims affected by [Lloyd's] denial."
The parties' conduct
leading up to the request for arbitration strengthens the inference that the
request related to every treaty affected by the aggregation issue. Employers requested Lloyd's to explain
whether its denial of coverage "was intended as a blanket denial of all
presently existing and future asbestos-related claims." Lloyd's responded "[i]n response to
your inquiry the denial of the London Reinsurers is intended to apply to all of
[Employers] reimbursement requests for its bodily injury asbestos-related
losses involving the July 1, 1966 to June 30, 1973 treaties." Further, no language in any of the
correspondence explicitly states that the arbitration request pertains only to
the seven policies Employers listed in its caption.
Lloyd's notes the
caption of the letter lists seven specific insurance policies by number. Lloyd's also presents other evidence
indicating the parties intended the submission for arbitration to only refer to
seven policies. We note that Employers'
statement of its case showed it had only submitted reimbursement claims under
the seven first-layer policies contained in the caption of the demand for
arbitration, and four second-layer policies.
At best, these facts make the parties' intent ambiguous. Our standard of review requires us to defer
to the panel's choice in such a case. See
Enterprise, 363 U.S. at 599.
Lloyd's argues that the
panel lacked the power to consolidate the arbitration for all of the
policies. Lloyd's cites federal
decisions that hold that neither a district court nor an arbitrator has the
power to consolidate claims under separate arbitration contracts absent an
agreement to do so, even if consolidation would more efficiently resolve all
the claims. See United
Kingdom v. Boeing Co., 998 F.2d 68, 69 (2d Cir. 1993). Lloyd's analogizes our case to North
River Ins. Co. v. Philadelphia Reins. Corp., 856 F. Supp. 850 (S.D.N.Y.
1994), rev'd on other grounds, 63 F.3d 160 (2d Cir. 1995), in which the
district court, relying on Boeing, rejected the argument that
various reinsurers were deemed to consent to a consolidated arbitration by
virtue of signing the same reinsurance treaty with an arbitration clause
similar to the one in our case.
In North River,
the court ordered consolidation without an alleged agreement of the parties to
do so. In our case, the panel concluded
that the parties' conduct and the way they framed the issue to be arbitrated
evinced an agreement to consolidate the arbitration. See John Morrell, 913 F.2d at 561. Boeing allows consolidation of
separate arbitration claims if the parties agree to do so. Id. at 69. Because the panel found an implicit
agreement, we reject Lloyd's argument.
EXTENSION
OF TIME FOR SUBMISSIONS
Next, Lloyd's argues
that the panel exceeded its power by allowing Employers to present evidence
after thirty days of the arbitrators' appointment. The arbitration clause in the treaties require each party to
"submit its case" to the arbitrators within thirty days from the
arbitrators' appointment. On May 22,
1995, the parties completed selection of the panel. On June 21, 1995, Employers submitted a statement of the case and
some exhibits. The statement of the
case provided a factual history of the dispute, legal argument, and a request
for further discovery. Lloyd's objected
to any further discovery or submissions.
The panel decided to allow further discovery, but only to the extent the
panel requested. Employers thereafter
presented statements from expert witnesses, affidavits and exhibits. The trial court held that this was merely a
procedural matter within the arbitrators' discretionary powers to conduct the
proceedings.
The phrase "submit
its case" is ambiguous. A
contractual phrase is ambiguous if it can reasonably be understood in more than
one sense or can convey more than one meaning.
DOT v. Transportation Comm'n, 111 Wis.2d 80, 87, 330
N.W.2d 159, 162 (1983). One could
reasonably interpret the phrase to mean that the parties must present all facts
and all argument within thirty days of the selection of the panel. However, one could also reasonably interpret
the phrase to mean that the parties must only introduce their argument within
thirty days. The latter interpretation
gives the panel discretion to continue fact-finding and discovery if it needs
to do so to reach a proper resolution of the case.[5]
The arbitration clause
states that the panel is "relieved of all judicial formalities and may
abstain from following the strict rules of law." Given the broad power the clause gives to the panel in
controlling procedure, we will defer to its interpretation of an ambiguous
phrase regulating procedure. In
re Arbitration between West Salem & Fortney, 108 Wis.2d 167,
177-78, 321 N.W.2d 225, 232 (1982).
Because
the language in the agreement is vague and indefinite as to exactly what
procedures should be used to arrive at that determination, it is within the
province of the arbitration panel, as the interpreter of the contract language,
to devise such procedures as it considers necessary to reach a decision, as
long as those procedures are compatible with the contract language and do not
violate the law.
Id. We conclude that the arbitration agreement
authorized the panel to extend the period for fact finding and discovery beyond
thirty days after its selection.
AMOUNT
OF AWARD
The policy limit for all
policies involved is $5,203,507. The
panel awarded Employers $7,783,324 plus costs, postaward interest and a letter
of credit for the syndicates and insurance companies that did not pay their
share of the award within forty-five days.
In its decision, the
panel did not specify its basis for exceeding the policy limits. The panel's lack of legal analysis is not a
basis to vacate or modify an award. See
McKenzie v. Warmka, 81 Wis.2d 591, 601, 260 N.W.2d 752, 757
(1978). We provide only a limited
review of arbitrators' awards because parties who contract for arbitration are
entitled to an arbitration award without having to relitigate the issues in
court. City of Madison v. Madison
Prof. Police Officers Ass'n, 144 Wis.2d 576, 585-86, 425 N.W.2d 8, 11
(1988). We may not substitute our
judgment for that of the panel whether the award is correct or incorrect as a
matter of fact or law. Milwaukee
Teachers' Ed. Ass'n v. Milwaukee Bd. of Sch. Dirs., 147 Wis.2d 791,
795, 433 N.W.2d 669, 671 (Ct. App. 1988).
However, we will vacate or modify the arbitrators' award if
"perverse misconstruction or positive misconduct [is] plainly established,
or if there is a manifest disregard of the law, or if the award itself is
illegal or violates strong public policy." Madison Police Ass'n, 144 Wis.2d at 586, 425 N.W.2d
at 11 (quoting Milwaukee Bd. of Sch. Dirs. v. Milwaukee Teachers' Ed.
Ass'n, 93 Wis.2d 415, 422, 287 N.W.2d 131, 135 (1980)). These narrow grounds for overturning an
arbitrator's award are codified in §§ 788.10(1) and 788.11(1), Stats.
See note 3. The scope of
our review of the arbitrator's decision is the same as the circuit court's and
we give no deference to the circuit court's decision. City of Madison v. Local 311, Int'l Ass'n of Firefighters,
133 Wis.2d 186, 190, 394 N.W.2d 766, 768 (Ct. App. 1986).
Lloyd's argues that the
award over the policy limits cannot represent preaward interest and is a
manifest disregard of the law.[6] It refers to Wisconsin law that requires
claims to be liquidated or "determinable" for prejudgment interest to
accrue and sets the prejudgment interest rate at 5% when there is no agreement
or statute to the contrary. Benke
v. Mukwonago-Vernon Mut. Ins. Co., 110 Wis.2d 356, 366-69, 329 N.W.2d
243, 249-50 (Ct. App. 1982). Lloyd's
argues that, applying a 5% interest rate, the interest would have had to start
accruing around 1985 for the interest to equal the excess amount. Lloyd's concludes that the claims could not
have been liquidated or determinable in 1985 because Employers first submitted
reinsurance billings in 1986.
We reject Employers'
first response that Lloyd's challenge to the amount of the award is moot. Employers suggests that the difference
between the award and the policy limits constitutes interest and costs
expressly awarded which the parties to the appeal in fact did not have to
pay. Employers claims that the parties
to the appeal did not have to pay postaward costs or interest either because
payment was made within forty-five days or, alternatively, late payments were
forgiven.[7] However, the interest the appellants avoided
by making a timely payment related to postaward interest on the $7.8 million,
not to preaward interest.
Employers next responds
that Wisconsin does not permit vacatur of an arbitration award on manifest
disregard of the law basis because that common law ground is not encompassed by
§ 788.10, Stats. Employers bases its argument on DeBaker
v. Shah, 194 Wis.2d 104, 112, 533 N.W.2d 464, 466 (1995), stating that
"[a]n arbitration award will only be set aside where one of the
grounds for vacatur under sec. 788.10(1), Stats.,
[is] present." (Emphasis
added.) Although the trial court
accepted this argument, we reject it. Lukowski
v. Dankert, 184 Wis.2d 142, 150, 515 N.W.2d 883, 886 (1994), held that
we are "guided by the general statutory standards listed in secs. 788.10
and 788.11, Stats., and by the
standards developed at common law."
(Footnote and citations omitted.)
Further, our supreme court noted that § 788.10 echoes the common
law standards, implying that if an arbitrator manifestly disregarded the law,
the arbitrator exceeded the scope of his powers, requiring vacatur under
§ 788.10(1)(d), Stats. Madison Police Ass'n, 144
Wis.2d at 586, 425 N.W.2d at 11. We
conclude that DeBaker did not intend to overrule Lukowski,
and the cases cited therein, absent a more direct signal.
Nonetheless, we reject
Lloyd's argument that the award must be vacated or modified because it
represents a manifest disregard of Wisconsin's prejudgment interest laws. The appellant insurance companies are
variously domiciled in the United States, England, France, Switzerland,
Portugal, Italy, Brazil, Scotland, Turkey, Japan and Germany. Employers Ins. v. Jackson, 190
Wis.2d 597, 602 n.1, 527 N.W.2d 681, 682 n.1 (1995). The arbitration clause does not require the panel to apply
Wisconsin law. Lloyd's cites Milwaukee
Teachers' Ass'n, where we affirmed the order vacating an arbitration
award because the award did not abide by the principles of Wisconsin law. In Milwaukee Teachers' Ass'n,
the collective bargaining agreement provided that the arbitrator "shall be
bound by the principles of law relating to the interpretation of contracts
followed by Wisconsin courts." Id.
at 796, 433 N.W.2d at 671. No similar
clause is found in the agreement here.[8]
Wisconsin uses a
"groupings of contacts" test to determine choice of law.[9] Heath v. Zellmer, 35 Wis.2d
578, 596, 151 N.W.2d 664, 672 (1967).
Under that doctrine, the choice of law is based on the
"Predictability of results[;] Maintenance of interstate and international
order[;] Simplification of the judicial task[;] Advancement of the forum's
governmental interest[; and] Application of the better rule of law." Id. Assumably, the asbestos claims originated throughout the United
States and the parties to this case are domiciled throughout the world. Our supreme court has questioned our
restrictive prejudgment interest rules, and commentators have criticized these
rules in general, so Wisconsin's prejudgment interest rules are not necessarily
the "better rule of law." See,
e.g., Nelson v. Travelers Ins. Co., 102 Wis.2d 159, 169, 306
N.W.2d 71, 76 (1981); see, e.g., Anthony E. Rothschild, Comment, Prejudgment
Interest: Survey & Suggestion,
77 Nw. U. L. Rev. 192, 197
(1982). The panel could have applied
the grouping of contacts doctrine to use the substantive law of a number of
other jurisdictions without manifestly disregarding the law.
In fact, in its
presentation to the panel, Lloyd's argued that the panel should apply English
law and recognized that the panel might apply "the law of any state of the
United States ...." We do not mean
to imply that the panel applied English law; rather, these comments illustrate
that Lloyd's also recognized it would be reasonable for the panel to apply the
law of a jurisdiction other than Wisconsin.
Other jurisdictions do
not limit prejudgment interest in the same manner Wisconsin does.[10] Lloyd's fails to overcome the presumption of
validity of the arbitrator's award because it did not demonstrate by clear and
convincing evidence that the award was invalid. See Milwaukee Sch. Dirs., 93 Wis.2d at 422,
287 N.W.2d at 135. We will not overturn
the amount of the award of prejudgment interest.
CONCLUSION
The panel's
determination that the parties intended to resolve the aggregation issue
relating to all treaties from July 1966 to June 1973 derived its essence from
the submission of the parties and did not show a manifest disregard of the
law. Further, we conclude that the
parties authorized the panel to allow Employers to present facts more than
thirty days after the selection of the panel.
Finally, the arbitration clause granted the panel the authority to award
an amount in excess of the policy limits.
By the Court.—Judgment
and order affirmed.
[1] Generally, a "retrocession" occurs when a reinsurer assumes the reinsurance obligations already assumed by another reinsurer. The concept of reinsurance developed because insurers did not want to turn away potentially large clients, but wanted to avoid the dangers of unexpectedly large, unforeseen liabilities. "Reinsurance" allows an insurer to accept potentially large-risk coverage, but reduce its exposure by reinsuring some part of it. In turn, a reinsurer can reduce its potential risk by reinsuring the reinsurance it has accepted. Employers Ins. v. Jackson, 190 Wis.2d 597, 603 n.2, 527 N.W.2d 681, 682-83 n.2 (1995).
[2] Article XVII of the treaties provides:
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 Retrocessionare, 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.
Each party shall submit its case to the arbitrators within 30 days of
the appointment of the arbitrators. The
arbitrators shall consider this Agreement an honorable engagement rather than
merely a legal obligation; they are relieved of all judicial formalities and
may abstain from following the strict rules of law. The decision of a majority of the arbitrators shall be final and
binding on both parties. The expense of
the arbitrators and of the arbitration shall be equally divided between each
party. Any such arbitration shall take
place in Wausau, Wisconsin, unless some other location is mutually agreed
upon. (Emphasis added.)
Lloyd's failed to name an arbitrator within 30 days of Employers' written request for arbitration. Lloyd's argued that Employers' initial request for arbitration did not give it notice because the request was sent to its law firm in Chicago, not to its London broker. In Employers Ins. v. Jackson, 190 Wis.2d 597, 527 N.W.2d 681 (1995), our supreme court rejected Lloyd's argument and allowed Employers to choose two of the arbitrators.
[3] Section 788.10(1), Stats., provides:
(1) In
either of the following cases the court in and for the county wherein the award
was made must make an order vacating the award upon the application of any
party to the arbitration:
(a) Where
the award was procured by corruption, fraud or undue means;
(b) Where
there was evident partiality or corruption on the part of the arbitrators, or
either of them;
(c) Where
the arbitrators were guilty of misconduct in refusing to postpone the hearing,
upon sufficient cause shown, or in refusing to hear evidence pertinent and
material to the controversy; or of any other misbehavior by which the rights of
any party have been prejudiced;
(d) Where
the arbitrators exceeded their powers, or so imperfectly executed them that a
mutual, final and definite award upon the subject matter submitted was not
made.
Section 788.11(1), Stats.,
provides:
In
either of the following cases the court in and for the county wherein the award
was made must make an order modifying or correcting the award upon the
application of any party to the party:
(a) Where
there was an evident material miscalculation of figures or an evident material
mistake in the description of any person, thing or property referred to in the
award;
(b) Where
the arbitrators have awarded upon a matter not submitted to them unless it is a
matter not affecting the merits of the decision upon the matters submitted;
(c) Where the award is imperfect in matter of firm not affecting the merits of the controversy.
[4] Review of the scope of the issue submitted to an arbitrator is not to be confused with review of whether the contractual arbitration clause encompasses a dispute, i.e., the arbitrability of the dispute. See Joint School Dist. No. 10 v. Jefferson Ed. Ass'n, 78 Wis.2d 94, 106-10, 253 N.W.2d 536, 542-44 (1977).
[5] Lloyd's argues that "submit"
unambiguously means placing an issue before a court for final determination,
citing MacDermot v. Grant, 184 P. 396-97 (Cal. 1919); State
v. Kitchin, 282 S.W.2d 1, 3 (Mo. 1955), citing 83 C.J.S. Submission
557; and Moore v. Moore, 240 S.E.2d 535, 538 (Va. 1978). These cases define "submit" in
contexts distinguishable from our case and do not persuade us that
"submit" as it appears in the treaties unambiguously requires the
parties to complete placing their case before the panel. For instance, 83 C.J.S Submissions of Controversy 559 (1953), describes
"submission of a controversy" as
a
procedure whereby the parties, without instituting an action, submit to any
court that would otherwise have jurisdiction ... any matter of real controversy
between them for final determination ... on any agreed statement of facts .... (Emphasis added; footnote omitted.)
This definition of "submit" assumes the parties have agreed upon the facts and thus the court would not need to hear any evidence or keep discovery open. In our case, by contrast, one of the panel's functions was to find facts.
[6] Lloyd's also contends that the panel would have manifestly disregarded the law if it had awarded punitive damages. See Autumn Grove Joint Venture v. Rachlin, 138 Wis.2d 273, 280, 405 N.W.2d 759, 762-63 (Ct. App. 1987) (Wisconsin does not allow punitive damages in breach of contract actions.). We do not address this issue because we conclude that the excess of the award over the policy limits could represent prejudgment interest. However, we note that Wisconsin law on punitive damages does not control because the arbitration agreement does not contain a choice of law clause. We also note that the widely used American Arbitration Association rules have been interpreted by a number of courts to allow arbitrators discretion to award punitive damages. Kenneth R. Davis, A Proposed Framework for Reviewing Punitive Damages Awards of Commercial Arbitrators, 58 Alb. L. Rev. 55, 64-65 (1994). Finally, some jurisdictions permit punitive damages in arbitration awards unless the arbitration agreement contains an express prohibition. Id. at 64.
[8] The arbitration clause in this case does
provide the panel is "relieved of all judicial formalities and may abstain
from following the strict rules of law."
Even if Wisconsin law were applied, an argument could be made that the
common law limit of 5% interest and its application only to liquidated or determinable
damages fall within the panel's right to "abstain from following the
strict rules of law." There is an
ongoing debate whether this Wisconsin common law is equitable or should be
changed. See, e.g. Nelson
v. Travelers Ins. Co., 102 Wis.2d 159, 169, 306 N.W.2d 71, 76
(1981): "We are no longer firmly
convinced that only the unliquidated or unliquidable character of damages
should determine whether interest is payable on the amount due."
Under American law, clauses relieving arbitrators of any obligation to follow strict rules of law are permitted provided the hearing is fair. See Jonathan Bank & Patricia Winters, Reinsurance Arbitration: A U.S. Perspective, in Law & Prac. of Int'l Reinsurance Collections & Insolvency 553, 576-77 (David M. Spector & John Milligan-Whyte eds. 1988). Under English law, which Lloyd's argued applied at the final hearing before the panel, a clause relieving an arbitrator from following the "strict rules of law" entitles the arbitrator to interpret the meaning of the reinsurance contract with regard more generally to commercial considerations than would be permissible in a court of law. Home v. Mentor, 1 Lloyd's Rep. 473 (1989).
[9] An argument could also be made that the arbitration clause gives the panel flexibility to use a choice of law test other than the one used at the venue of arbitration (Wisconsin). Further, the clause does not necessarily bind the panel to exclusively use the law of a single jurisdiction.
[10] Many jurisdictions' statutory prejudgment interest rates are greater than 5%. See Robert J. Sergesketter, Interesting Inequities: Bringing Symmetry & Certainty to Prejudgment Interest Law in Texas, 32 Hous. L. Rev. 231, 250-51 (Summer 1995). Further, jurisdictions are split regarding whether damages must be determinable before prejudgment interest can accrue. See Anthony E. Rothschild, Comment, Prejudgment Interest: Survey and Suggestion, 77 Nw. U. L. Rev. 192, 199 (1982).