Confidentiality in Arbitration re: Reinsurance Industry
Much has been said over the years about the benefits of arbitration as a private, confidential mechanism for resolving business disputes. For decades the courts, especially the federal courts, have touted the confidential nature of private commercial arbitration. Courts regularly defer to arbitration and there is a clear federal policy favoring arbitration. So why when parties to an arbitration seek access to the court system to confirm or vacate an arbitration award, the importance of confidentiality seems to be given short shrift?
At the ARIAS∙U.S. Fall Conference that recently concluded in New York, a panel of insurance and reinsurance industry experts discussed whether there is anything left to confidentiality in insurance and reinsurance arbitrations. Part of that discussion concerned the difficulty now encountered by parties to an arbitration in seeking judicial intervention to confirm or vacate an arbitration award and at the same time maintaining confidentiality.
Confidentiality of private commercial arbitration has always been one of arbitration’s hallmarks. The ability to resolve a complex business dispute between contracting parties in private, out of public view, before an industry-savvy arbitrator, is part of the reason why so many companies put arbitration clauses into their contracts. Many arbitration provisions even contain references to confidentiality.
In the reinsurance industry, arbitration has been a long-standing dispute resolution tradition. For years parties have entered into formal confidentiality agreements, stipulations or orders as part of arbitration proceedings. The idea is that the dispute is to be resolved in private before a panel of industry experts based on the specific facts and circumstances between the parties to obtain a fair resolution under the terms of the contract and under industry custom and practice. Confidentiality of the information created for the arbitration is so important that many parties have gone to court to seek to disqualify arbitrators who may have received confidential information in a prior arbitration.
The confidentiality agreements entered into in reinsurance arbitrations require the parties (and the arbitrators) to keep all information confidential and that if one of the parties seeks court intervention that party is obligated, subject to court approval, to make sure “that all submissions of Arbitration Information to a court shall be sealed.” And while the parties recognize that some disclosure may be required to auditors, regulators, reinsurers and others, the agreements require that these third-parties be bound by the parties’ agreed-upon confidentiality.
With this very strong tradition of confidentiality, and with the many decades-long development of federal arbitration law supporting and encouraging arbitration, the movement by a number of courts to ignore confidentiality when parties seek the court’s intervention to confirm or vacate an award is troublesome. As the august panel at the ARIAS∙U.S. Fall Conference pointed out, to on the one hand bend over backward to enforce and encourage arbitration and tout its confidential nature as a mechanism for private dispute resolution and then on the other hand refuse to seal information filed in support of an application to confirm or vacate an arbitration award appears inconsistent.
Much can be written on this topic. The issue of whether documents filed in the public courts should be sealed and blocked from public view is an entirely different subject that goes to the very essence of democracy and our open court system. What some courts are finding is that when the strong presumption of openness of the court system and the public’s right to know is put up against a private commercial dispute and its tradition of confidentiality, the larger and more important access to the courts tradition will trump the private parties’ need for confidentiality.
While that logic makes sense, there is still a fundamental inconsistency between the courts defending and championing arbitration and doing everything the courts can do to enforce agreements to arbitrate and arbitration awards and then refusing to seal confidential documents on a proceeding to confirm or vacate that very same arbitration award. There are no easy solutions to this problem, but serious consideration of this inconsistency is something that parties and the courts need to be cognizant of when parties seek the court’s assistance in enforcing an arbitration award.