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Note: Gaffer Insurance Co., LTD (Reinsurer) entered into an agreement with Discover Reinsurance Co. (Insurer) in which Reinsurer agreed to reinsure the polices held by Insurer. The agreement between the parties included an arbitration clause. The clause stated that unless the parties agreed otherwise, "any dispute" was to be submitted for arbitration. Insurer required Reinsurer to provide collateral, which was partially satisfied through LCs, which totaled (US) $4,083,100 in favor of Insured/Beneficiary.

Reinsurer terminated its relationship with Insurer, thereby causing the amount of exposure to cap. Reinsurer alleged that its exposure was capped at (US) $ 1.25 million and that (US) $2,833,100 should have been released. Reinsurer made repeated, unsuccessful requests for reduction. Subsequently, Reinsurer sued Insurer, claiming bad faith, breach of a covenant of good faith and fair dealing, breach of fiduciary duty, and negligence.

Insurer moved to compel arbitration. The United States District Court for the Middle District of Pennsylvania, Caputo, J., granted the motion to compel arbitration.

Reinsurer argued the parties had agreed otherwise, citing another clause (Service of Suit) in the agreement which stated, "It is agreed that in the event of [Reinsurer's] failure to pay any amount claimed to be due hereunder, [Reinsurer] at [Insurer's] request, will submit to the jurisdiction of a court of competent jurisdiction within the United States." The court reasoned that both clauses could be read together without being mutually exclusive, because the Service of Suit clause represented a waiver of right, not a specific right.

[JEB/alh]

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