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Ironclad Arbitration Clause Shields Insurer (NY)

October 25, 2019

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<p style="text-align: justify;">The First Department recently gave New York insurers reason to be confident in the arbitration clauses in their policies and the strength of arbitration determinations resulting therefrom in <em><a href="https://www.wcmlaw.com/wp-content/uploads/2019/10/Matter-of-McKenna-Long-Aldridge-LLP-v-Ironshore-Specialty-Ins.-Co.pdf">Matter of McKenna, Long &amp; Aldridge, LLP v Ironshore Specialty Ins. Co</a></em>. In this appeal the insurer, Ironshore was co-defendants with a number of entities collectively known as Eidos. The Southern District of New York held Eidos was bound by the arbitration contained in the insurance policy issued by Ironshore as an intended third-party beneficiary. Eidos’ appeal sought to reverse that finding and, alternatively, to reverse the arbitration award, arguing it was issued in manifest disregard of the law. The First Department unanimously rejected both arguments.</p>
<p style="text-align: justify;">First, the appellate court held the dispute was clearly arbitrable, ruling that the arbitration clause referring to “any controversy, claim or dispute arising in connection with [the insurance] policy [issued by Ironshore,” reflects “such a broad grant of power to the arbitrators as to evidence the parties’ clear intent to arbitrate issues of arbitrability.”</p>
<p style="text-align: justify;">Eidos also tried to argue the arbitration panel knew of a governing legal principle that was well defined, explicit, and clearly applicable and yet refused to apply it or ignored it altogether. The First Department ruled Eidos could not make this showing, because even though the panel considered the applicability of Delaware law, they distinguished the proposed governing precedent—meaning, that the arbitration panel may have made a mistake of law, but they did not manifestly disregard it.</p>
<p style="text-align: justify;">This case gives fresh, and clear support for the arbitration clause used here and reinforces the extremely high standard required to disturb an arbitration award. Indeed, even an express mistake of law in and of itself would not be enough to reverse the ruling. Insurers should feel confident in their arbitration language if it resembles the language in this case, and should feel confident that the result reached in arbitration will stand.</p>
<p style="text-align: justify;">Thanks to Nicholas Schaefer for his contribution to this post. Please email <a href="mailto:VPinto@wcmlaw.com">Vito A. Pinto</a> with any questions.</p>

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