Court Affirms Ruling Putting End to Arbitration on Issue and Claim Preclusion Grounds

This case arises from a protracted dispute between Applied Underwriters Captive Risk Assurance Co. and Milan Express Co. over amounts Milan allegedly owed Applied Underwriters under a reinsurance participation agreement. The agreement had an arbitration clause requiring arbitration under American Arbitration Association (AAA) rules. The parties had also executed a separate request to bind coverages and services, which had its own arbitration clause requiring arbitration under JAMS rules and in conformity with the Arbitration Act of the State of Nebraska.

A dispute resulted in Applied Underwriters initiating arbitration before the AAA based on the arbitration clause in the reinsurance participation agreement. That arbitration ended with a final award that the clause was unenforceable due to a Nebraska statute prohibiting arbitration clauses in insurance contracts. Applied Underwriters subsequently initiated a new arbitration, asserting the same claims, only this time before JAMS, based on the binder clause. Meanwhile, Applied Underwriters also commenced this litigation in Nebraska state court, in response to which Milan moved to stop the JAMS arbitration. Citing the AAA award deeming the arbitration clause in the reinsurance participation agreement unenforceable, the lower court granted Milan's motion to end the arbitration on issue and claim preclusion grounds. Applied Underwriters appealed, relying on certain differences between the two arbitration clauses.

On appeal, the court rejected Applied Underwriters' contention that the binder clause was enforceable despite the AAA award invalidating the arbitration clause in the reinsurance participation agreement, finding no meaningful distinction between the two clauses as it pertained to their enforceability. Because a panel of AAA arbitrators had already determined the arbitration clause in the reinsurance participation agreement to be invalid and unenforceable under Nebraska law, the appellate court agreed with Milan that the issue of the binder clause's enforceability was barred from further consideration based on issue and claim preclusion principles. The court therefore affirmed the lower court's order stopping the JAMS arbitration.

Applied Underwriters Captive Risk Assurance Co. v. Milan Express Co., No. A-18-570 (Neb. Ct. App. Mar. 17, 2020).