PB Life and Annuity Co. Ltd. v. Universal Life Insurance Company

Background

PB Life and Annuity Co. Ltd. ("PBLA") and Universal Life Insurance Company ("ULICO") entered into a Coinsurance Reinsurance Agreement in 2017. Under that agreement, PBLA agreed to reinsure some of ULICO’s insurance liabilities. The agreement required the parties to create reinsurance and comfort trust accounts holding collateral for ULICO’s benefit.

The Reinsurance Agreement contained a broad arbitration clause requiring arbitration of "all disputes or differences" between PBLA and ULICO arising under or relating to that agreement when the parties could not reach an amicable understanding. It also stated that the agreement could be amended or modified only by a later written agreement that identified itself as an amendment to the Reinsurance Agreement.

A separate Reinsurance Trust Agreement became effective in February 2018. That agreement involved PBLA, ULICO, and The Bank of New York Mellon as trustee. It contained a New York law provision and a forum-selection clause requiring proceedings relating to the trust agreement to be brought in courts located in New York City or elsewhere as the trustee might select. It did not contain an arbitration clause.

The Dispute and Motions

ULICO sent PBLA a notice of breach alleging that assets in the trust account did not comply with the Reinsurance Agreement and Puerto Rico insurance-law requirements. ULICO claimed that more than 65% of the assets were loan obligations of PBLA’s affiliated entities, exceeding a 10% limit in the cited insurance rule. PBLA denied the alleged breach.

ULICO demanded arbitration. PBLA responded that the dispute concerned the trust agreement and therefore had to be litigated in a New York court under that agreement’s forum-selection clause. PBLA then filed this action seeking a declaration that the dispute was not arbitrable. ULICO moved to compel arbitration under the Federal Arbitration Act and the New York Convention. PBLA opposed that motion and sought a permanent injunction stopping the arbitration.

Court’s Analysis

The court first held that the Reinsurance Agreement and its arbitration clause remained valid and binding. The Trust Agreement did not identify itself as an amendment to the Reinsurance Agreement, as the Reinsurance Agreement required. The court also concluded that the Trust Agreement depended on the continuing existence of the Reinsurance Agreement and was intended to operate alongside it, not replace it completely.

The court did not decide whether this particular dispute ultimately falls within the arbitration clause. Instead, it held that the parties had clearly assigned that question to the arbitrator. The arbitration clause was broad, and it incorporated the American Arbitration Association’s Commercial Arbitration Rules. In the court’s view, that incorporation clearly and unmistakably delegated questions about the scope of the arbitration agreement to the arbitrator.

Disposition

The court granted ULICO’s motion to compel arbitration and denied PBLA’s motion for a permanent injunction. The court stayed the action under 9 U.S.C. § 3 while arbitration proceeded and directed the clerk to close the two motion entries. The opinion did not decide the underlying alleged breach or whether the dispute is ultimately within the arbitration clause; it held that the arbitrator must decide that scope question.