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Federal Court Compels Reinsurance Arbitration

Saturday, January, 17, 2015

In the latest chapter of an ongoing dispute between Randazzo Enterprises and its reinsurance partner, Applied Underwriters Captive Risk Assurance Company, Inc., a federal court has determined that the arbitration clause contained in the agreement between the two companies is enforceable.


The court has had several issues to wrestle with.  First it had to determine whether the arbitration clause, which was governed by Nebraska law, was valid.  Once that had been determined, it had to decide whether the clause covered the specific nature of the billing dispute between Randazzo and Applied.


In the end, the court decided that Nebraska law did not apply, as in the circumstances it was superseded by the Federal Arbitration Act.


Randazzo then claimed that the arbitration clause was unconscionable, which is the go-to claim when trying to invalidate an arbitration clause.  Although the contract appeared to satisfy the basic definition of unconscionability, the court went on to apply the standard of a ‘substantively unconscionable’ clause and found that one clause (which prevented only Randazzo from seeking injunctive relief in the courts while allowing Applied to do so) was in fact substantively unconscionable.


However, under California law, the court is allowed to sever such clauses while maintaining the rest of the clause and contract, allowing the binding arbitration clause to stand and thus ordering that the dispute be settled in arbitration.  There is no word on whether Randazzo will seek further appeals, or if it will now concentrate its efforts on the upcoming and apparently unavoidable arbitration proceedings.