Hartford Steam Boiler Inspection and Ins. Co. v. Underwriters at Lloyd’s
(CT App. May 11, 2010)
An insurance company sought to vacate an arbitration award surrounding an explosion at a coal fired electrical generating facility in Arkansas caused more than $28 million in damage. The owners of the facility submitted claims to its insurance providers, the parties to the arbitration. Hartford provided a policy of boiler and machinery insurance and Lloyd’s provided "all risks" property insurance for the policyholder. Both insurers denied coverage. Hartford claimed that the cause of the loss was an explosion of gas or unconsumed fuel, which was excluded from its coverage and covered under the all risks policy. Lloyd’s contrarily contended that the loss was caused by the breakdown of a fired vessel, excluded from the coverage provided by the all risks policy because the event did not involve a combustion explosion that would otherwise render it, in whole or in part, a covered loss.
Faced with those denials, the policyholder invoked the "Loss Adjustment Endorsements" provisions contained in both policies, which enabled the insureds to recover the total losses caused by the explosion by collecting one half of the amount in dispute from each insurer. The loss adjustment endorsements also contained a provision enabling the insurers to submit any dispute as to respective liability to arbitration. As a result, the coverage dispute between Hartford and Lloyd’s was submitted to a panel of three arbitrators who issued an award apportioning approximately $14 million of the loss to Hartford’s policy and $7 million of the loss to Lloyd’s.
Thereafter, Hartford filed an application to vacate the arbitration award upon the grounds that the arbitrators failed to be sufficiently specific in its decision. In its decision, the court agreed, concluding that "[t]he findings are not sufficiently specific or comprehensive to comply with the requirement that all liability and allocation issues and all coverage issues be resolved, nor do the findings contain sufficient findings of fact and conclusions regarding the interpretation of the insurance policies that are the subject of this arbitration as necessary to support the award." However, in assessing the proper remedy, the court noted its reluctance "to vacate the award because that would mean starting over again, and the parties would lose all the work, effort, etc., that covered six years of this arbitration. In the interest of economy of the parties, the panel and judicial economy, it would appear that a remand to the arbitrators would be more practical and a better remedy than vacating the awards." Accordingly, the court remanded the matter to the arbitration panel for a rehearing to clarify the award so as to include the findings of fact and interpretations of the policies required by the governing procedures.
The arbitration panel thereafter reconvened and issued its "Clarified Decision of Arbitrators." That decision contained detailed findings of fact and conclusions regarding the interpretation of the insurance policies at issue that clarified how the panel reached its original allocation of expenses between the parties. Significantly, the decision did not alter the terms of the original award.
On appeal, Hartford challenged the propriety of the court's order remanding the matter to the arbitration panel for clarification of its award. It was Hartford’s position that the United States Supreme Court in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396 (2008), overruled the body of federal precedent permitting a remand to an arbitration panel for clarification. Although noting that Hartford failed to preserve this claim before the trial court, the appellate court questioned the correctness of Hartford’s argument. The court noted that “our research reveals no decision, federal or otherwise, indicating that Hall Street Associates, L.L.C., overruled the body of precedent permitting a remand to an arbitration panel for clarification or outlawed that procedure. Rather, the procedure remains viable…In short, if the United States Supreme Court intended to overrule that body of precedent in Hall Street Associates, L.L.C., it would have said so.”
A copy of the decision can be found here
Bryan Richmond and Michael Glascott