Confidentiality is supposed to be a hallmark of reinsurance arbitration. One of the reasons most reinsurance contracts contain arbitration clauses is because reinsurance arbitration has traditionally been considered a private and confidential process to resolve reinsurance disputes before a panel of industry experts.
Formal confidentiality agreements are an outgrowth of this tradition. Lately, however, there have been some questions raised about how parties are confronting confidentiality and confidentiality agreements.
Origins of Confidentiality Agreements
Traditional reinsurance agreements did not typically include a confidentiality clause. Industry practice was to treat reinsurance arbitrations as confidential proceedings and most parties went along with that informal understanding. But not everyone viewed reinsurance agreements as universally confidential. Sometimes, information about the dispute in arbitration was disseminated outside of the arbitration process, to the consternation of one of the parties.
As reinsurance arbitrations became more frequent in the 1970s and 1980s, parties began entering into formal confidentiality agreements to document exactly how the arbitration would be conducted under an umbrella of formal confidentiality. Yet, not all reinsurance arbitrations proceeded with confidentiality agreements. Some parties refused to enter into confidentiality agreements. Some arbitration panels would order confidentiality, and others would not.
ARIAS•US eventually developed a model confidentiality agreement used by most parties and practitioners, and most arbitration organizational meeting agendas include confidentiality as a matter to be resolved early on in the dispute resolution process. Most arbitrations in the last 10 years have included the parties' execution of a formal confidentiality agreement.
Confidentiality Provisions in Reinsurance Contracts
Today, many current reinsurance agreements contain contractual provisions for confidentiality similar to many corporate transactional agreements. This is particularly true of life and health reinsurance agreements where an underlying insured's personal information may be exchanged in the reinsurance transaction. For example:
Confidentiality. From and after the Closing, the Reinsurer and its Affiliates, on the one hand, and the Company and its Affiliates, on the other hand, shall, and shall cause their respective Representatives to, maintain in confidence any written, oral or other information relating to or obtained from the other party or its Affiliates, except that the foregoing requirements of this Section 10.1 shall not apply to the extent that
(i) any such information is or becomes generally available to the public other than,
(A) in the case of the Reinsurer's confidential information, as a result of disclosure by the Company or its Affiliates or any of their respective Representatives, and
(B) in the case of the Company's confidential information, as a result of disclosure by the Reinsurer or its Affiliates or any of their respective Representatives,
(ii) any such information is required by applicable Law, Governmental Order or a Governmental Authority to be disclosed after prior notice has been given to the other party, if reasonably practicable (including any report, statement, testimony or other submission to such Governmental Authority),
(iii) any such information is reasonably necessary to be disclosed in connection with any Action or in any dispute with respect to this Agreement (including in response to any summons, subpoena or other legal process or formal or informal investigative demand issued to the disclosing party in the course of any litigation, investigation or administrative proceeding),
(iv) any such information was or becomes available to such party on a non-confidential basis and from a source (other than a party to this Agreement or any Affiliate or Representative of such party) that is not bound by a confidentiality agreement with respect to such information or
(v) any such information that after the Closing becomes known or available pursuant to or as a result of the carrying out of the provisions of an Ancillary Agreement (which information shall be governed by the confidentiality provisions set forth in such Ancillary Agreement).
Each of the parties hereto shall instruct its Affiliates and Representatives having access to such information of such obligation of confidentiality. Notwithstanding anything in this Agreement to the contrary, the parties acknowledge and agree that each party may share any information relating to or obtained from the other party with any insurance regulatory authority or the Internal Revenue Service or any other Taxing Authority as each party deems necessary or advisable in its good faith judgment.
Confidentiality Agreements and Subsequent Reinsurance Arbitration Proceedings
Confidentiality agreements in reinsurance arbitrations are ubiquitous but often cause concern when a subsequent arbitration arises over the same or similar contracts with the same or similar parties. A question that has arisen with some frequency, but which has not been fully addressed by the courts, is whether the confidentiality agreement entered into in the first arbitration proceeding precludes the parties or the arbitration panel in the second arbitration proceeding from obtaining or even discussing evidence from the first arbitration proceeding, which is or may be directly relevant to the issues in the second arbitration proceeding.
This question arises in various contexts under various scenarios. For example, if Party A in the second arbitration proceeding knows about relevant evidence in the possession of Party B because of the first arbitration proceeding, can Party A demand that this evidence be produced by Party B in the second arbitration proceeding if Party B fails to produce that evidence?
Another example is whether an arbitrator who was appointed in both arbitrations must close her or his eyes to the testimony she or he heard from a witness in the first arbitration proceeding when that same witness appears in the second arbitration proceeding? There are many other scenarios where evidence in the first arbitration proceeding may be relevant in the second arbitration proceeding, and one party is trying to cloak that evidence under the first arbitration proceeding's confidentiality agreement.
These questions are not easy to answer, and very often litigation tactics play a part in whether a confidentiality agreement is being used as a sword or a shield. Practical reality, fairness, and the real purpose of confidentiality agreements must be considered when these issues arise.
In reinsurance disputes, the confidentiality agreement exists to protect arbitration information (information created specifically for that arbitration) from disclosure to third parties. While the model confidentiality agreement devised by ARIAS•US is broadly defined to cover virtually everything exchanged in the arbitration, the reality is that the parties' files, contracts, and other business records are subject to production in subsequent disputes. In other words, if a discovery document exists in the file, it ought to be produced when requested and not shielded by blind adherence to the confidentiality agreement in a particular dispute.
Courts Weigh in on Confidentiality Agreements
The Seventh Circuit Court of Appeals had the opportunity to address the role a confidentiality agreement played in the context of two arbitration proceedings in Trustmark Ins. Co. v. John Hancock Life Ins. Co., 631 F.3d 869 (7th Cir. 2011). Although the case was decided years ago, it is one of the few appellate cases to consider this issue.
The case addressed two related arbitration proceedings between the same parties where the first proceeding was subject to a confidentiality agreement. Specifically, the court addressed whether a party in the second arbitration proceeding violated the confidentiality agreement in the first proceeding when the party acknowledged evidence from the first arbitration proceeding. The court held that a party in a subsequent arbitration proceeding cannot purposefully use a confidentiality agreement as a shield to preclude the examination of evidence from an earlier arbitration proceeding.
In Trustmark, the district court enjoined further arbitration proceedings, holding that the arbitration panel was not qualified to act on the confidentiality agreement because the confidentiality agreement did not have an arbitration clause (there was an arbitration clause in the reinsurance agreement). The Seventh Circuit reversed, characterizing the district court's holding as a "prematurely announced understanding." In reversing, the Seventh Circuit stated that the arbitration panel was qualified to rule on the confidentiality agreement because confidentiality presented an ancillary question to the reinsurance dispute. Additionally, the court held that an arbitrator's presence on both proceedings did not impact the arbitrator's ability to abide by the confidentiality agreement.
In a nonreinsurance context, the Fifth Circuit has also addressed a confidentiality provision in the face of counsel's determination to use evidence and findings from a prior arbitration on behalf of different clients on the same issue. In ITT Educational Servs., Inc. v. Arce, 533 F.3d 342 (5th Cir. 2008), students arbitrated against a school and won. The same lawyer represented another student in a separate proceeding before a different arbitrator and wanted to use the same evidence and findings of the first arbitration proceeding. The school sought a declaration and injunction enforcing the confidentiality provision in the arbitration clause to preclude revealing the first arbitrator's findings. The district court issued a permanent injunction, and the plaintiff appealed.
The arbitration clause in the relevant contract provided that "[all] aspects of the arbitration proceeding, and any ruling, decision, or award by the arbitrator, will be strictly confidential. The parties will have the right to seek relief in the appropriate court to prevent any actual or threatened breach of this provision." In affirming, the Fifth Circuit held that the confidentiality provision was part of the arbitration clause and, under US Supreme Court precedent, the arbitration provision was separable and enforceable from the remainder of the contract.
Whether the confidentiality agreement in a prior arbitration proceeding shields information or documents from disclosure in a subsequent proceeding is a determination to be made by the arbitration panel in the second arbitration proceeding. The confidentiality agreement should not be read to preclude the second arbitration panel from addressing the issue.
Another area where confidentiality has come under pressure is postarbitration proceedings to confirm or vacate an arbitration award. There are many legitimate reasons to go to court under the Federal Arbitration Act to confirm an arbitration award. And, even though vacating an award is very difficult, there are also legitimate reasons to seek to vacate an award.
Years ago, when parties went to court postarbitration, they would seek to seal the arbitration information (like the award and the details of the arbitration described in the court papers). Courts regularly granted sealing orders based on the parties' confidentiality agreement. But that practice ended some time ago. Today, most courts in most jurisdictions will not seal arbitration information in postarbitration proceedings except for limited and specific proprietary sensitive business information.
What has developed from the change in judicial behavior is a litigation tactic used by some parties and counsel to seek confirmation of an arbitration award that will be or has been paid just to get that award in the public domain for use in future arbitrations. Now, each case is different, and there are legitimate reasons to seek confirmation even if the counterparty has paid the award. But, given the tradition of confidentiality, the use of postaward court proceedings to publicly reveal what used to be private and confidential arbitration awards is troubling.
The tradition of keeping reinsurance disputes private and confidential by agreement or by contract is under attack by some parties and counsel seeking to upend confidentiality for tactical reasons. Arbitration panels have the power to address these tactics within the arbitration proceeding. Courts, however, in postarbitration proceedings have more than confidentiality to consider when the parties go to a public forum to confirm or vacate an arbitration award.
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