Catalina Worthing Insurance, Ltd. v. NEM-RE Receivables, LLC

Background

Catalina Worthing Insurance, Ltd., formerly known as The Excess Insurance Company Limited, asked the court to stay arbitration demanded by NEM-RE Receivables, LLC. Catalina also sought a declaration that NEM RE’s claims were barred by the statute of limitations or, alternatively, that NEM RE could not compel arbitration because it was not a party to the reinsurance agreements containing the asserted arbitration provisions.

The dispute arose from reinsurance agreements that The Excess Insurance Company entered into with Federated Reinsurance Company between 1973 and 1981. Federated Re became insolvent in 1990, and its liquidation was supervised by the New York State Insurance Commissioner and the New York Supreme Court. In 2004, NEM RE entered into an assignment agreement with Federated Re’s liquidator concerning reinsurance recoverables. Catalina characterized that agreement as assigning NEM RE the rights to the recoverables but not the right to submit new reinsurance billings to Federated Re’s reinsurers.

In 2023, NEM RE demanded that Catalina pay approximately $403,748.42 allegedly owed on reinsurance billings. NEM RE later demanded arbitration on May 28, 2024. The opinion states that neither party provided the court with copies of the reinsurance agreements or the assignment agreement. The opinion also describes the loss and reconstruction of relevant records.

Arbitration stay

The court explained that arbitration is based on contract, so a party cannot be required to arbitrate a dispute unless it agreed to do so. Questions about whether an arbitration agreement exists are generally decided by a court unless the agreement clearly and unmistakably assigns those questions to the arbitrator.

The court found no evidence showing that the parties had agreed to let an arbitrator decide whether the dispute was arbitrable. It therefore decided that issue itself. Applying New York law, the court stated that the party seeking arbitration must prove by a preponderance of the evidence that a valid arbitration agreement exists.

NEM RE referred to an “Insolvency Clause” in the reinsurance agreements but did not provide those agreements or the arbitration provisions to the court or Catalina. NEM RE also did not dispute Catalina’s description of the assignment agreement as covering the recoverables only. On that record, the court concluded that NEM RE had not shown by a preponderance of the evidence that a binding arbitration agreement existed between NEM RE and Catalina. The court therefore granted Catalina’s petition to stay arbitration.

Statute-of-limitations request

The court separately considered Catalina’s argument that NEM RE’s claims were time barred. It explained that New York generally applies a six-year limitations period to breach-of-contract actions and that the period for a claim seeking payment under a contract begins when the claimant has the legal right to demand payment.

The court did not decide whether NEM RE’s claims were time barred. Catalina argued that the amounts had been billed more than 20 years earlier, before Federated Re’s liquidation. NEM RE stated that its claims arose from asbestos-related losses and had been reconstructed from limited records. The court could not determine from the existing record whether the claims had already become billings during the liquidation, whether they became enforceable when NEM RE received the assignment in 2004, or whether they arose later when the claims were reconstructed or losses occurred.

Because factual disputes and the lack of clarity in the record made discovery necessary, the court denied without prejudice Catalina’s request for a declaratory judgment that the statute of limitations barred NEM RE’s claims. The court stated that Catalina may raise that request again on summary judgment after discovery.

Disposition

The court granted Catalina’s petition to stay arbitration and denied without prejudice its request for a declaration that the statute of limitations barred NEM RE from pursuing claims under the reinsurance agreements. The court also directed that an initial pretrial conference notice would be entered separately and asked the Clerk to terminate the open motion at Docket 1.