United States District Court, D. Connecticut
RULING AND ORDER
A. Bolden United States District Judge
before the Court is (1) General Re Life Corporation's
(“General Re” or “Gen Re”) Petition
to Confirm the Final Arbitration Award and Vacate the
Arbitrators' Purported Clarification of the Final Award
(the “Petition”), ECF No. 1, (2) Lincoln National
Life Insurance Company's (“Lincoln”)
Cross-Petition to Confirm Arbitration Award as Clarified (the
“Cross-Petition”), ECF No. 21; ECF No. 22, and
(3) Lincoln's Motion to Enter Judgment (the
“Motion”), ECF No. 45; ECF No. 46.
reasons that follow, the Petition is DENIED, the
Cross-Petition is GRANTED, and the Motion is GRANTED.
Re entered into an Automatic Self-Administered YRT
Reinsurance Agreement (the “Agreement” or the
“Treaty”) with Lincoln effective January 1, 2002.
See Treaty, ECF No. 7-1. Under the Agreement,
General Re reinsured a portion of various individual life
insurance products issued by Lincoln and also had a
unilateral right to increase the reinsurance premiums so long
as the new rates were based solely on a change in anticipated
mortality. Treaty, Ex. C-1, ¶ 7. In the event that
General Re exercised its right to raise rates, however, the
Agreement allowed Lincoln to “recapture” its life
insurance policies, i.e., to terminate the
reinsurance going forward rather than pay the increased
premiums. Id. The Agreement did not provide a
specific methodology for implementing this right of
recapture. Exhibit F of the Agreement did provide, under
“Remittance Reporting, ” that Lincoln “will
take credit, without interest, for any unearned premiums
arising due to reductions, cancellations or death
claims.” Treaty, Ex. F.
March 2014, General Re exercised its right to increase the
reinsurance rates effective April 1, 2014. See
6/4/2014 Letter, ECF No. 7-2 (noting that General Re had sent
a letter on March 28, 2014 regarding a rate increase). In
response, on June 4, 2014, Lincoln demanded arbitration.
dispute was submitted to a panel of three arbitrators. A
hearing before the arbitrators began on June 15, 2015.
See 6/15/2015 Hearing Trans., ECF No. 7-8. During
the hearing, the parties devoted very little time to
discussing the terms of recapture. See generally Full Hearing
Trans., ECF No. 22-3. On July 1, 2015, a majority of the
arbitrators issued the Final Arbitration Award (the
“Final Award”). On November 19, 2015, a different
majority issued the Clarification of Final Arbitration Award
The Final Award
Barbara Niehus and Arbitrator Denis Loring signed the Final
Award. Arbitrator Thomas Zurek dissented. See Final
Award, ECF No. 7-13. Niehus and Loring concluded that there
had been a change in anticipated mortality, and that General
Re was therefore entitled to a rate increase. Id.
¶ 2. If Lincoln elected to recapture in the event of a
rate increase, the Final Award provided that this recapture
would be effective retroactive to April 1, 2014. Id.
Final Award further provided the following:
The Panel finds that, since Lincoln demanded arbitration in
June 2014, the parties have continued to administer the
reinsured business under the original Treaty terms. The Panel
further finds that General Re has incurred expenses and
capital costs associated with the reinsured business during
that time. Therefore, if Lincoln recaptures the reinsured
business, the Panel orders that the following shall occur:
i. All premium and claim transactions paid by one party to
the other following the effective date of the recapture
(i.e., from April 1, 2014) shall be unwound.
ii. Lincoln shall reimburse General Re for the expenses and
cost of capital that General Re incurred in providing
reinsurance to Lincoln since that date. The Panel finds that
the single life expense assumption of 5% of premium used in
General Re's original Treaty pricing . . . shall be
applied to all premiums that would have been paid by Lincoln
based on the original Treaty premium rates.
iii. The Parties shall promptly work together to agree upon
the amount of premium and claims to be unwound, and the
expenses associated with the administration of the reinsured
business. Any disagreement over the calculations shall
promptly be submitted to the Panel for resolution pursuant to
¶ 9, below. The party with the net balance owing shall
remit its payment to the other party within 90 days of this
Id. ¶ 6.b.
Final Award then ordered that “[a]ll other requests for
relief from the parties are denied, ” id.
¶ 8, and that “[t]he Panel shall retain
jurisdiction over this matter to the extent necessary to
resolve any dispute over the calculation and payment of the
amounts awarded herein, ” id. ¶ 9. This
retention of jurisdiction would “extend until either
(i) the date on which Lincoln pays General Re the amounts
ordered in ¶ 5 [the “Payment of Premium”
section] of this Award, or (ii) the date on which Lincoln
recaptures the business reinsured under the Treaty and all
associated balances due are paid, as provided in ¶ 6 of
this Award.” Id.
6.b.i. of the Final Award adopted the language regarding
recapture that General Re had proposed to the arbitrators.
See Gen Re Proposed Final Arbitration Award ¶
6.b.i., ECF No. 7-10; see also Gen Re Pre-Hearing
Br. at 34, ECF No. 7-4; Gen Re Opening Statement PPT at 46,
ECF No. 7-6; Gen Re Closing Statement PPT at 142, ECF No.
7-7. Because Lincoln's position was that General Re's
rate increase was improper, Lincoln's submissions to the
arbitrators contained very little discussion of proposed
terms for recapture.See Lincoln Pre-Hearing Br. at 21,
ECF No. 7-5 (discussing recapture only to the extent of
arguing that “no provision in the Treaty . . . requires
notice within 30 days” if Lincoln exercises right to
recapture “and no provision in the Treaty . . . imposes
the conditions on recapture that Gen Re requests the Panel
declare”). Lincoln's proposed award did not,
therefore, contain any language regarding how recapture
should proceed. See generally Lincoln Proposed Final
Award, ECF No. 7-11.
the arbitrators' issuance of the Final Award, Lincoln and
General Re communicated by e-mail regarding how to calculate
the recapture payments under the Final Award, should Lincoln
invoke its right to recapture. See generally
Recapture E-mails, 10/26/2015 Letter Ex. B, ECF No. 7-16. The
parties differed in their interpretation of the methodology
for calculating the recapture payments. Id. at 1-7.
General Re believed that paragraph 6.b.i. of the Final Award
required “reversing all cash transactions” from
the April 1, 2014 effective date of recapture. Id.
at 6. Lincoln believed a “recapture effective
4/1/14” meant that Lincoln would “pay back all
claims with dates of 4/1/14 and later”; “Gen Re
would return premiums paid prior to 4/1/14, but unearned as
of 4/1/14” to Lincoln; and “Gen Re would return
all premiums paid for other coverage 4/1/14 and later.”
Id. at 7. Lincoln also argued that General Re's
calculations improperly “use[d] all claim payments made
4/1/14 and later regardless of date of death, ” while
Lincoln “only use[d] claims where the [date of death]
was after the recapture effective date, ” believing
that General Re remained “responsible for all claims
prior to this date.” Id. at 4. General
Re's methodology and calculations indicated that General
Re owed Lincoln $5, 484, 106. Id. at 6. Lincoln's position
was that General Re actually owed Lincoln approximately $18.5
See Lincoln Spreadsheet, 10/26/2015 Letter Ex. A,
ECF No. 7-16.
September 28, 2015, Lincoln formally notified General Re by
email that Lincoln was invoking its right to recapture.
Recapture E-mails at 5. The parties continued to communicate
by e-mail regarding their differing interpretations of the
amount of recapture payments that were required under the
Final Award. Id. at 1-5.
letter dated October 13, 2015, General Re notified Lincoln
that it would be remitting to Lincoln $5, 484, 106, claiming
that this amount represented the net recapture balance, based
on all premium and claim payments that had been made between
the parties from April 1, 2014. See 10/13/2015
Letter, ECF No. 7-16. Lincoln accepted without reservation
the promised wire transfer on October 15, 2015. See
Gen Re Br. at 8, ECF No. 7.
October 26, 2015, Lincoln submitted a letter to the
arbitrators asking them to resolve a dispute between the
parties as to how to read paragraph 6.b.i. of the Final
Award. See 10/26/2015 Letter, ECF No. 7-15.
Lincoln's letter reiterated the position that it had
taken in its communications with General Re that General
Re's proposed calculation should be adjusted by:
“returning to Lincoln the unearned portion of premiums
paid prior to April 1, 2014”; “paying to Lincoln
claims with a date of death prior to April 1, 2014”;
and “removing from the calculation those premiums paid
or on subsequent to April 1, 2014 but relating to prior
coverage periods.” Id. at 3.
support of its argument, Lincoln referred to Exhibit F of the
Treaty, which provided that Lincoln “will take credit,
without interest, for any unearned premiums arising due to
reductions, cancellations, or death claims.”
Id. at 5. Lincoln also argued that the Final Award
had retained the arbitrators' jurisdiction to resolve
disagreements over the calculation of the recapture payments
and that the current dispute was one regarding whether the
Final Award “compels the recapture calculation that Gen
Re asserts is required.” Id. at 7.
November 4, 2015, General Re submitted its objection to the
arbitrators. 11/4/2015 Letter, ECF No. 7-17. General Re
argued that Lincoln's request was beyond the authority of
the arbitrators because it sought reconsideration of and a
fundamental change to the recapture methodology unambiguously
ordered in the Final Award. Id. at 6-10.
November 19, 2015, Niehus and Zurek signed the Clarification,
from which Loring dissented. Clarification, ECF No. 7-19.
Zurek had not been a signatory of the Final Award, while
Loring had been. Clarification Dissent, ECF No. 7-20.
Clarification stated that the Final Award contained
“ambiguities requiring clarification, ”
Clarification at 1, ECF No. 7-19. The Clarification concluded
that both Lincoln and General Re were reading paragraph
6.b.i. of the Final Award in a manner inconsistent with the
language of the Treaty, and that paragraph 6.b.i. “is
not intended to and does not change the terms of the
Treaty.” Id. at 2.
Clarification provided, in relevant part, that “[w]hen
read in the context of recapture under the Treaty, paragraph
6.b.i only deals with prospective unwinding of premiums and
claims transactions beginning April 1, 2014, ” and
“when read in context of the Treaty, Paragraph 6bi
entitles Gen Re to retain the unearned premium it held as of
the date of recapture.” Clarification. at 2, ECF No.
7-10. The Clarification further provided that:
When read in context of the Treaty, Paragraph 6bi requires
Gen Re to be liable for claims for which it retains premium.
Therefore, Gen Re must pay reinsurance benefits to Lincoln
pursuant to the Treaty for Lincoln insureds who died during a
period covered by premium paid by Lincoln to Gen Re
regardless of whether the death claims were paid by Lincoln
before, on, or after April 1, 2014.
Id. at 3. The Clarification also pointed to two
relevant provisions of the Treaty. Id. at 2-3.
the Clarification noted that Exhibit F of the Treaty
provided, in relevant part, that Lincoln “will take
credit, without interest, for any unearned premiums arising
due to reductions, cancellations or death claims.”
Clarification at 2; see also Treaty, Ex. F. The
Clarification noted that Exhibit F did not provide for credit
of unearned premiums to Lincoln in the event of recapture,
thus, when read in context of the Treaty, paragraph 6.b.i
entitled Gen Re to retain the unearned premiums it held as of
the day of recapture. Clarification at 2.
the Clarification pointed to Section 4.1 of the Treaty, which
provided, in relevant part that:
[General Re's] liability to [Lincoln] for the reinsurance
due shall be based on the net amount of risk at the time of
the Insured Individual death. [General Re's] liability to
[Lincoln] for the net amount at risk on a Policy that is
reinsured shall be determined based on a ratio of [General
Re's] liability to the total net amount at risk under the
policy at the time the reinsurance is placed. [General Re]
shall share in any decrease in the net amount at risk in
proportion to its share of the reinsurance on the Policy.
at 3. The Clarification concluded that, when read in context
of the treaty, paragraph 6.b.i required Gen Re to be liable
for any ...