Colonial Penn Insurance Co. v. Omaha Indemnity Co.

Colonial Penn Insurance Company (Colonial) (plaintiff) entered a reinsurance agreement with Royal American Managers, Inc. (Royal). Pursuant to the agreement, Omaha Indemnity Company (Omaha) (defendant) was required to indemnify Colonial for 90 percent of insurance claims. The agreement also included an arbitration provision. Omaha stopped paying claims, arguing that Royal did not have authority to contract on its behalf. Colonial filed a lawsuit in district court against Omaha and Royal for unpaid claims. The district court granted Omaha’s motion to compel arbitration. An arbitration was held before a panel of three arbitrators, which issued an award in favor of Colonial. The award required Omaha to pay amounts due under the agreement and to release claims to the reserves held by Colonial. Colonial’s counsel contacted the panel, expressing confusion over the award because Colonial did not hold any reserves to comply with the award. Two of the arbitrators issued a revised award, removing the reserves provision and ordering Omaha to instead pay additional money representing its share of the reserves. The third arbitrator dissented. Colonial filed a motion in district court to uphold the award. Omaha moved to uphold the first award. The district court granted Colonial’s motion because it was impossible to satisfy the first award if no reserves existed. Omaha appealed.