Century Indemnity Company v. Certain Underwriters at Lloyd's, London

This matter comes on before this Court on an appeal by

appellant Century Indemnity Company ("Century”) from two

orders of the District Court, one entered May 18, 2006,

granting a motion of appellee Certain Underwriters at

Lloyd's, London ("Lloyd's”) to compel arbitration of a

disputed claim based on a set of reinsurance-of-reinsurance

agreements, and one entered May 30, 2008, denying

Century's motion to vacate an arbitration panel's subsequent

award in favor of Lloyd's. Inasmuch as we conclude both

that there was a valid agreement to arbitrate between Century

and Lloyd's and that the dispute in this case falls within the

scope of that agreement, we hold that the District Court

properly compelled the parties to submit their dispute to

arbitration. Moreover, because we reject Century's argument

that the arbitration panel deprived it of a fair hearing when the

panel excluded certain evidence that Century proposed to

introduce, we also hold that the District Court properly denied

Century's motion to vacate the arbitration panel's award.



II. BACKGROUND



A. Insurance, Reinsurance, and Retrocession

5

Insurance, the shifting of risk through contract, may

involve multiple layers of shifts. To start the process,

insurance companies issue policies under which the insurer

assumes certain risks in exchange for premiums that the

policyholders pay. The insurance companies then may pass

on all or part of the risk through reinsurance agreements, in

which another insurance company provides insurance of all or

part of the first insurer's risk by accepting such risk in

exchange for a percentage of the original premium. 1

Reinsurance agreements covering classes or lines of business,

rather than a particular policy, are called reinsurance treaties.

Subsequently, reinsurers may seek to spread their exposure to

risk through further reinsurance. The reinsurance of

reinsurance is called a retrocession, and the reinsurers of

reinsurers—that is, reinsurers who assume retrocession risk

through retrocession al a greem en ts— are called

retrocessionaires.2



This case involves a dispute between Century, the

original reinsurer, and Lloyd's, the retrocessionaire, arising

from three retrocessional agreements under which Lloyd's

agreed to reinsure certain reinsurance treaties that Century's

predecessor had formed with Argonaut Insurance Company

("Argonaut”), another insurer that was the original insurer of

the insured in the policies underlying the litigation.



B. The Dispute



The material facts are not in dispute. Century's

predecessor, the Insurance Company of North America



1



See Black's Law Dictionary, Garner ed. at 1399 (9th ed., abr.,

2009) (hereafter "Black's Law Dictionary”); Travelers Cas. &

Sur. Co. v. Gerling Global Reins. Corp., 419 F.3d 181, 183 n.2,

184 n.3 (2d Cir. 2005) (discussing reinsurance).



2



See Black's Law Dictionary at 1432. The original reinsurer,

reinsured by the retrocessionaire pursuant to the retrocessional

agreement, is called the "retrocedent.”



6



("INA”), reinsured Argonaut according to the terms of three

excess-of-loss treaties (the "reinsurance treaties”). Argonaut

had issued insurance policies to its insureds, Western

Asbestos Company and Western MacArthur Company

(together "Western”), to cover losses from Western's

distribution of asbestos products. INA, Century's

predecessor, then entered into three retrocessional agreements

with Lloyd's (the "retrocessional agreements”), pursuant to

which Lloyd's agreed to pay 90% of the losses in return for

90% of the premiums that accrued to Century's predecessor

under the corresponding reinsurance treaties. 3



In the late 1970s, Western began receiving injury

claims from persons allegedly exposed to asbestos who

sought to hold Western responsible for injuries traceable to

their exposure. Western looked to Argonaut for coverage on

the insurance policies that Argonaut had issued and that

Western believed protected it against those claims, but

Argonaut resisted Western's efforts, a position that led to

declaratory judgment litigation between Western and

Argonaut over the scope of the policies' coverage.



Argonaut then sought reimbursement for its litigation

expenses from Century under its reinsurance treaties with

Century. Century concluded that the reinsurance treaties

entitled Argonaut to recover those expenses and, accordingly,

in 2001 made payments to Argonaut pursuant to the

reinsurance treaties.



After paying Argonaut, Century turned to Lloyd's, its

retrocessionaire, for Lloyd's's 90% share of Century's payout

to Argonaut pursuant to the retrocessional agreements

between Century and Lloyd's. Lloyd's refused to pay the

approximately $2.2 million that Century sought, contending

that it did not owe the reimbursement because Century should



3



Inasmuch as the distinction between Century's predecessor,

INA, and Century is immaterial here, we will refer to both as

Century for the rest of this opinion.

7

not have paid Argonaut for the declaratory judgment litigation

expenses.



This lawsuit followed. Century sued Lloyd's in the

Court of Common Pleas in Philadelphia County to recover the

amount that Century alleged that Lloyd's owed it under the

retrocessional agreements.4 Lloyd's answered the complaint

filed in state court, asserting that the retrocessional

agreements incorporated the reinsurance treaties' arbitration

clauses and that therefore the dispute should be arbitrated, and

then Lloyd's removed the case to the District Court pursuant

to 9 U.S.C. § 205.5 In the District Court, Century moved to



4



Century initially filed suit against Lloyd's in federal court on

May 31, 2005, but voluntarily withdrew the suit to refile it in

state court. Century Indem. Co. v. Certain Underwriters at

Lloyd's, No. 05-CV-6004, 2006 U.S. Dist. LEXIS 34177, at *3-

4 (E.D. Pa. May 18, 2006). It is ironical that the case ultimately

returned to the court system in which it originated.



5



Chapter 2 of the Federal Arbitration Act, 9 U.S.C. §§ 201-208,

implements the Convention on the Recognition and

Enforcement of Foreign Arbitral Awards. Section 205 provides

in relevant part:



Where the subject matter of an action or proceeding

pending in a State court relates to an arbitration

agreement or award falling under the Convention, the

defendant or the defendants may, at any time before the

trial thereof, remove such action or proceeding to the

district court of the United States for the district and

division embracing the place where the action or

proceeding is pending.



As germane here, an arbitration agreement or arbitral award falls

under the Convention if it arises out of a legal relationship that

is (1) commercial and (2) between parties at least one of whom

is not a United States citizen. 9 U.S.C. § 202; see Standard Bent

Glass Corp. v. Glassrobots Oy, 333 F.3d 440, 448-49 (3d Cir.



8



remand the case to the state court and Lloyd's moved to

compel arbitration.



Of course, it was not immediately obvious that Lloyd's

was entitled to arbitrate because the retrocessional agreements

did not include arbitration provisions. Lloyd's nevertheless

claimed that Century could be compelled to arbitrate their

dispute because the retrocessional agreements incorporated by

reference the arbitration clauses contained in the reinsurance

treaties. The arbitration clauses in the reinsurance treaties

state: "[i]f any dispute shall arise between the Company

[Argonaut] and INA [Century] with reference to the

interpretation of this Agreement or their rights with respect to

any transaction involved, the dispute shall be referred to

[arbitration].” App. at 59-60, 101, 127 (bracketed material

added). The retrocessional agreements between Century and

Lloyd's contain language referring to and incorporating "all”

of the reinsurance treaties.



Lloyd's contended that the incorporation-by-reference

provision in the retrocessional agreements incorporating "all”

of the reinsurance treaties effectively incorporated their

arbitration clauses, and thus the District Court could compel

Century to arbitrate their dispute. On May 18, 2006, the

District Court denied Century's motion to remand and granted

Lloyd's's motion to compel arbitration, ruling that, as Lloyd's

contended, the retrocessional agreements—though themselves

lacking arbitration clauses—incorporated by reference the

arbitration clauses contained in Century's reinsurance treaties

with Argonaut. Century Indem. Co. v. Certain Underwriters

at Lloyd's, No. 05-CV-6004, 2006 U.S. Dist. LEXIS 34177

(E.D. Pa. May 18, 2006).

2003). Here, the retrocessional agreements' arbitration clauses

fall within the Convention because the retrocessional

agreements formed a commercial relationship between Century

and Lloyd's and Lloyd's is not a U.S. citizen.



9



The parties then pursued the arbitration proceedings. 6

Each party chose an arbitrator, and those two arbitrators chose

a third arbitrator or umpire. Once formed, the three-member

arbitration panel permitted discovery and briefing, and heard

arguments in July 2007. The panel, however, after reviewing

the evidence, receiving briefing, and hearing argument on the

issue, excluded certain evidence that Century proffered

relating to industry custom and the parties' past course of

dealings. The panel predicated this determination on its belief

that the evidence was irrelevant because it regarded the

agreements as unambiguous and it believed that it could

discern their meaning without looking beyond their terms. On

December 12, 2007, over the dissent of the panel member that

Century had chosen, a two-person panel majority issued a

written opinion finding in Lloyd's's favor.



Century moved in the District Court to vacate the

arbitrators' award, arguing that it had not agreed to submit its

dispute with Lloyd's to arbitration and that, even if it did, the

majority award was subject to vacatur on both procedural and

substantive grounds under 9 U.S.C. § 10. On May 30, 2008,

after hearing oral argument, the District Court denied the

motion, a result that it reached by applying its prior ruling

compelling arbitration, which it refused to revisit, and by

concluding that the arbitrators' decision did not evince a

manifest disregard of the law. Century then appealed to this

Court from the District Court's orders compelling arbitration

and denying its motion to vacate the arbitrators' award.



III. JURISDICTION AND STANDARD OF REVIEW



The District Court had subject-matter jurisdiction

under 9 U.S.C. § 203 to determine whether the removed

action related to a commercial arbitration agreement within



6



Century could not appeal immediately from the order

compelling arbitration. See 9 U.S.C. § 16(b)(3); Blair v. Scott

Specialty Gases, 283 F.3d 595, 599 (3d Cir. 2002).



10



the purview of the Convention on the Recognition and

Enforcement of Foreign Arbitral Awards. We exercise

jurisdiction pursuant to 28 U.S.C. § 1291 and 9 U.S.C. §

16(a)(3) over this appeal from the District Court's final

decision respecting an arbitration subject to the Federal

Arbitration Act.



Our review of a district court's order compelling

arbitration, an order presenting legal questions concerning an

arbitration agreement's existence and scope, is plenary.

USW, AFL-CIO-CLC v. Rohm & Haas Co., 522 F.3d 324,

330, 330 n.7 (3d Cir. 2008); Harris v. Green Tree Fin. Corp.,

183 F.3d 173, 176 (3d Cir. 1999); Pritzker v. Merrill Lynch,

Pierce, Fenner & Smith Inc., 7 F.3d 1110, 1113 (3d Cir.

1993); John F. Harkins Co. v. Waldinger Corp., 796 F.2d 657,

658-60 (3d Cir. 1986). When reviewing a district court's

order confirming an arbitration award, we review the district

court's findings of fact for clear error and its legal conclusions

de novo. China Minmetals Materials Imp. & Exp. Co., Ltd. v.

Chi Mei Corp., 334 F.3d 274, 278-79 (3d Cir. 2003) (citing

First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947-

48, 115 S.Ct. 1920, 1925-26 (1995)).



IV. DISCUSSION



Century raises two fundamental questions on this

appeal. The first question is whether the parties had entered

into a valid arbitration agreement such that the District Court

properly compelled Century to arbitrate its dispute arising

from the retrocessional agreements between Century and

Lloyd's over Lloyd's's alleged obligation to reimburse

Century for a portion of Century's payments to Argonaut for

declaratory judgment expenses under the reinsurance treaties

between Century and Argonaut. The second question,

assuming that the District Court properly compelled

arbitration, is whether the Court should have confirmed the

arbitration panel's decision in favor of Lloyd's, even though

the panel excluded the evidence that Century proffered to



11



show past dealings and industry custom. We address each in

turn.



A. Whether the District Court Properly Compelled

A rb itration B ase d on the R e tr oc essional

Agreements' Incorporation of the Reinsurance

Treaties



In addressing the first fundamental issue, whether the

District Court properly compelled arbitration, we first outline

the applicable principles of arbitration law, then explain

certain standards that we apply, and finally turn to the

agreements at issue in this case.



1. The Federal Arbitration Act



The Federal Arbitration Act, 9 U.S.C. §§ 1 et seq.

("FAA”), creates a body of federal substantive law

establishing and governing the duty to honor agreements to

arbitrate disputes. Green Tree Fin., 183 F.3d at 178-79 (citing

Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460

U.S. 1, 25 n.32, 103 S.Ct. 927, 942 n.32 (1983)). Congress

designed the FAA to overrule the judiciary's longstanding

reluctance to enforce agreements to arbitrate and its refusal to

put such agreements on the same footing as other contracts,

Volt Information Sciences, Inc. v. Bd. of Trustees of Leland

Stanford Junior Univ., 489 U.S. 468, 474, 109 S.Ct. 1248,

1253 (1989); Buckeye Check Cashing, Inc. v. Cardegna, 546

U.S. 440, 443, 126 S.Ct. 1204, 1207 (2006), and in the FAA

expressed a strong federal policy in favor of resolving

disputes through arbitration. E.g., Moses H. Cone, 460 U.S.

at 24, 103 S.Ct. at 941; Kirleis v. Dickie, McCamey &

Chilcote, P.C., 560 F.3d 156, 160 (3d Cir. 2009).7 In



7



To the extent that the courts' reluctance to enforce arbitration

agreements was based on their parochial desire to safeguard

their monopoly position with respect to the authority to resolve

disputes, they may take solace from the circumstance that the

adoption of the FAA and comparable state laws has given rise

to its own body of litigation.



12



particular, the FAA provides that as a matter of federal law

"[a] written provision” in a maritime or commercial contract

showing an agreement to settle disputes by arbitration "shall

be valid, irrevocable, and enforceable, save upon such

grounds as exist in law or in equity for the revocation of any

contract.” 9 U.S.C. § 2. The FA A 's second chapter, 9

U.S.C. §§ 201-208, implements the United Nations

Convention on the Recognition and Enforcement of Foreign

Arbitral Awards, opened for signature June 10, 1958, 21

U.S.T. 2517, 330 U.N.T.S. 38, reprinted in 9 U.S.C. § 201

(historical and statutory notes) ("New York Convention”).

See Scherk v. Alberto-Culver Co., 417 U.S. 506, 520 n.15, 94

S.Ct. 2449, 2457 n.15 (1974); Standard Bent Glass Corp. v.

Glassrobots Oy, 333 F.3d 440, 448-49 (3d Cir. 2003); China

Minmetals, 334 F.3d at 279. Pursuant to this chapter,

arbitration agreements fall within the New York Convention

if they arise from commercial, legal relationships, such as

commercial contracts, except when those relationships are

entirely between United States citizens and otherwise are

domestic in nature.8 9 U.S.C. § 202. Actions under the New



8



9 U.S.C. § 202 states:



An arbitration agreement or arbitral award arising out of

a legal relationship, whether contractual or not, which is

considered as commercial, including a transaction,

contract, or agreement described in [9 U.S.C. § 2], falls

under the Convention. An agreement or award arising

out of such a relationship which is entirely between

citizens of the United States shall be deemed not to fall

under the Convention unless that relationship involves

property located abroad, envisages performance or

enforcement abroad, or has some other reasonable

relation with one or more foreign states.



See also Standard Bent Glass, 333 F.3d at 448-49, 449 n.13

(citing the New York Convention, Art. II, § 2) (An arbitration



13



York Convention are deemed to arise under the laws and

treaties of the United States. 9 U.S.C. § 203. The FAA

empowers district courts to compel arbitration in accordance

with agreements, 9 U.S.C. § 206, and to enforce awards, 9

U.S.C. § 207, falling within the New York Convention. The

domestic FAA applies to actions brought under the New York

Convention to the extent that the two are not in conflict. 9

U.S.C. § 208; China Minmetals, 334 F.3d at 280. The strong

federal policy favoring arbitration applies with special force

in the field of international commerce. Mitsubishi Motors

Corp. v. Soler Chrysler-Plymouth, 473 U.S. 614, 631, 105

S.Ct. 3346, 3356 (1985).



2. Compelling Arbitration



The strong federal policy favoring arbitration,

however, does not lead automatically to the submission of a

dispute to arbitration upon the demand of a party to the

dispute. Before compelling a party to arbitrate pursuant to the

FAA, a court must determine that (1) there is an agreement to

arbitrate and (2) the dispute at issue falls within the scope of

that agreement. Kirleis, 560 F.3d at 160 (citing Trippe Mfg.

Co. v. Niles Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005));

China Minmetals, 334 F.3d at 281. This determination

applies equally in domestic and international arbitration

contexts. China Minmetals, 334 F.3d at 282 (citing Gen. Elec.

Co. v. Deutz AG, 270 F.3d 144, 152-56 (3d Cir. 2001)).

agreement falls within the New York Convention when the

agreement (1) is an agreement in writing to arbitrate the subject

of a dispute, (2) provides for arbitration in the territory of a

signatory to the Convention, (3) arises out of a legal

relationship, contractual or not, that is considered commercial,

and (4) is a legal relationship between parties at least one of

which is not an American citizen, or at least is a legal

relationship bearing some reasonable relation with one or more

foreign states).



14



For a court to compel arbitration, it initially must find

that there is a valid agreement to arbitrate because the basis

for contractual arbitration is consent, not coercion.

Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52,

57, 115 S.Ct. 1210, 1216 (1995). Furthermore, the parties

might agree to the resolution of some but less than all of their

disputes arising out of a particular contract or relationship

through arbitration, see Volt Info. Scis., 489 U.S. at 479, 109

S.Ct. at 1256, and thus even if a court finds that the parties

have agreed to arbitrate some disputes it must find, to order

arbitration, that the parties have agreed to arbitrate the dispute

in issue. Because an arbitrator's authority derives solely from

the parties' agreement to submit their disputes to arbitration,

AT&T Technologies, Inc. v. Comm'ns Workers, 475 U.S.

643, 648-49, 106 S.Ct. 1415, 1418 (1986), a party cannot be

compelled to submit a dispute to arbitration unless it has

agreed to do so. U.S. Small Bus. Admin. v. Chimicles, 447

F.3d 207, 209 (3d Cir. 2006); China Minmetals, 334 F.3d at

289-90.9



To determine whether the parties have agreed to

arbitrate, we apply "ordinary state-law principles that govern

the formation of contracts.” First Options, 514 U.S. at 944,

115 S.Ct. at 1924; Perry v. Thomas, 482 U.S. 483, 492 n.9,

107 S.Ct. 2520, 2527 n.9 (1987); see Deutz AG, 270 F.3d at

154-55 (explaining that principles of First Options apply in

international as well as domestic arbitration context). These

principles must govern contracts generally; a state-law

principle that takes its meaning from the fact that an

agreement to arbitrate is at issue does not comport with

section 2 of the FAA and therefore is preempted. Doctor's

Assocs., Inc. v. Casarotto, 517 U.S. 681, 686-88, 116 S.Ct.

1652, 1655-56 (1996) (citing Perry, 482 U.S. at 492 n.9, 107

S.Ct. at 2527 n.9); Gay v. CreditInform, 511 F.3d 369, 394

(3d Cir. 2007).



9



We are not concerned here with the unusual situation in which

an act of legislation compels the parties to arbitrate a dispute.

See, e.g., 29 U.S.C. § 1401(a)(1).



15



Inasmuch as "federal law applies to the interpretation

of arbitration agreements,” once a court has found that there is

a valid agreement to arbitrate, regardless of whether the action

is in a federal or a state court the determination of whether "a

particular dispute is within the class of those disputes

governed by the arbitration clause . . . is a matter of federal

law.” China Minmetals, 334 F.3d at 290 (internal citations

and quotation marks omitted). See Gay, 511 F.3d at 388;

Green Tree Fin. Corp., 183 F.3d at 178-79. In determining

whether the particular dispute falls within a valid arbitration

agreement's scope, "there is a presumption of arbitrability[:]

an order to arbitrate the particular grievance should not be

denied unless it may be said with positive assurance that the

arbitration clause is not susceptible of an interpretation that

covers the asserted dispute.” AT&T Techs., 475 U.S. at 650,

106 S.Ct. at 1419 (internal quotation marks and citations

omitted). See Rohm & Haas, 522 F.3d at 331 (citing AT&T

Techs.).



3. Whether the Retrocessional Agreements'

I n co r p o r a tio n -b y -R e fe r e n ce L a n g u a g e

Effected a Valid Agreement to Arbitrate

Between Century and Lloyd's



With these general principles in mind, we turn to the

first of the two determinations necessary to decide whether

the District Court properly compelled arbitration: is there a

valid agreement between Century and Lloyd's to arbitrate

their disputes? See Kirleis, 560 F.3d at 160. As we have

indicated, Lloyd's does not rely on the retrocessional

agreements alone as a basis for contending that there was an

agreement to arbitrate for it could not do so inasmuch as those

agreements do not include arbitration clauses. Instead,

Lloyd's asserts that Century is bound to arbitrate under an

incorporation-by-reference theory, a common device in

layered contracts likely to be in use in construction projects in

which there are contractors, subcontractors, and sureties and,

as here, when insurance companies spread risk among

themselves. According to Lloyd's, even though it was not a



16



signatory to the original reinsurance treaties, it still may seek

to compel Century to arbitrate based on the reinsurance

treaties' arbitration clauses because the retrocessional

agreements incorporated all of the provisions of the

reinsurance treaties, including their arbitration clauses,

thereby creating a valid agreement between Century and

Lloyd's to arbitrate disputes arising from the retrocessional

agreements.



a. Two Threshold Issues Regarding the

Standards That Apply When Determining

Whether There Is a Valid Agreement to

Arbitrate



Before we consider Lloyd's's incorporation-by-

reference contention, we consider two threshold questions

concerning the legal standard that applies when determining

whether there is a valid agreement to submit a dispute to

arbitration. The first issue is whether the presumption in

favor of arbitration applies to both or only the second of the

two questions: (1) is there an agreement to arbitrate and (2)

does the particular dispute fall within the existing agreement's

scope? The second issue is whether the "express” and

"unequivocal” standard to which courts have referred in

arbitration cases requires more of arbitration agreements than

it does of other contracts.



(1) Whether the Presumption in Favor of

Arbitration Applies to the Initial

Question Whether the Parties Agreed to

Arbitrate



The strong federal policy in favor of arbitration

manifests itself in a presumption favoring arbitration. But the

parties dispute whether this presumption applies to both or

only the latter of the questions (1) whether there is a valid



17



arbitration agreement between the parties and (2) whether a

particular merits-based dispute must be arbitrated because it is

within the scope of the valid arbitration agreement. See

Kirleis, 560 F.3d at 160. Though Century acknowledges that

there is a policy favoring arbitration that results in a

presumption that a particular merits-based dispute is

arbitrable, it argues that the presumption does not apply to the

threshold determination of whether the parties agreed to

arbitrate in the first place. Lloyd's, on the other hand, argues

that the presumption applies to both questions. See Trippe,

401 F.3d at 532 ("When determining both the existence and

the scope of an arbitration agreement, there is a presumption

in favor of arbitrability.”) (emphasis added). Though we do

not agree with the District Court's approach on this point in

which it relied on Trippe to conclude that the presumption

applies to both questions, we acknowledge that it was not

unreasonable for it to take that approach.



In Trippe, we addressed the question whether an audio-

equipment company could compel a manufacturer to arbitrate

their dispute pursuant to an arbitration clause in a distribution

agreement between the audio-equipment company and a third

party, even though the manufacturer was not a signatory to

that agreement. Id. at 530-32. The audio-equipment

company claimed that it could compel arbitration based on a

separate asset-purchase agreement between the manufacturer

and the third party under which the manufacturer assumed

certain of the third party's assets and liabilities. Id. Applying

New York contract-law principles, we held that the

manufacturer was bound to arbitrate claims arising out of

obligations it had assumed expressly through the asset-

purchase agreement, but not those claims based on obligations

that the manufacturer had not assumed expressly, because

under New York law an assignee that has assumed an

assignor's liabilities contained in an underlying agreement is

bound by an arbitration clause in that agreement. Id. at 532-

33.



18



Before reaching this conclusion, however, we stated in

Trippe that "[w]hen determining both the existence and the

scope of an arbitration agreement, there is a presumption in

favor of arbitrability.” Id. at 532. We then quoted from

AT&T Technologies, 475 U.S. at 650, 106 S.Ct. at 1419: "An

order to arbitrate the particular grievance should not be denied

unless it may be said with positive assurance that the

arbitration clause is not susceptible of an interpretation that

covers the asserted dispute.” Trippe, 401 F.3d at 532 (internal

quotation marks omitted).



But, as Century argues, the quotation in Trippe from

AT&T Technologies obscures the context of the quotation.

There the Supreme Court stated:



where the contract contains an arbitration

clause, there is a presumption of arbitrability in

the sense that an order to arbitrate the particular

grievance should not be denied unless it may be

said with positive assurance that the arbitration

clause is not susceptible of an interpretation that

covers the asserted dispute. Doubts should be

resolved in favor of coverage.



AT&T Techs., 475 U.S. at 650, 106 S.Ct. at 1419 (internal

citations and quotations omitted). Critically, the presumption

of arbitrability that the Supreme Court recognized applies

"where the contract contains an arbitration clause”—that is,

where it has been determined that there is a valid agreement

to arbitrate. Cf. Volt Info. Scis., 489 U.S. at 475, 109 S.Ct. at

1253 (the federal policy in favor of arbitration requires that

"ambiguities as to the scope of the arbitration clause itself

[be] resolved in favor of arbitration”).



But the question whether this presumption applies to

the threshold inquiry which requires a determination whether

there is an agreement to arbitrate in the first place is another

matter. The FAA does not require parties to arbitrate a

dispute when they have not agreed to do so. Id. at 478, 109

S.Ct. at 1255. The "liberal federal policy favoring arbitration

agreements . . . is at bottom a policy guaranteeing the



19



enforcem ent of private contractual arrangements.”

Mitsubishi, 473 U.S. at 625, 105 S.Ct. at 3353 (internal

citations and quotations omitted). Because "arbitration is a

matter of contract[,] a party cannot be required to submit to

arbitration any dispute which he has not agreed so to submit.”

AT&T Techs., 475 U.S. at 648, 106 S.Ct. at 1418 (internal

citations and quotations omitted). See China Minmetals, 334

F.3d at 281.



Therefore, some of the language in Trippe may be

misleading to the extent it suggests that there is a presumption

in favor of arbitration in the absence of an agreement to

arbitrate. As we have stated both before Trippe and since, a

party cannot be compelled to arbitrate unless that party has

entered into a written agreement to arbitrate that covers the

dispute. Kirleis, 560 F.3d at 160; Chimicles, 447 F.3d at 209;

China Minmetals, 334 F.3d at 289-90. We determine whether

a party has done so by applying "ordinary state-law principles

that govern the formation of contracts,” not by applying a

presumption in favor of arbitration. First Options, 514 U.S. at

944, 115 S.Ct. at 1924. See Kirleis, 560 F.3d at 160.



Several other courts of appeals have made it clear that

in their view the presumption in favor of arbitration applies to

the question whether a particular dispute falls within an

existing agreement's scope, but not to the threshold question

as to the existence of an agreement between the parties to

arbitrate. See Sherer v. Green Tree Servicing LLC, 548 F.3d

379, 381 (5th Cir. 2008) ("We apply the federal policy

favoring arbitration when addressing ambiguities regarding

whether a question falls within an arbitration agreement's

scope, but we do not apply this policy when determining

whether a valid agreement exists.”); Dumais v. Am. Golf

Corp., 299 F.3d 1216, 1220 (10th Cir. 2002) ("The

presumption in favor of arbitration is properly applied in

interpreting the scope of an arbitration agreement; however,

this presumption disappears when the parties dispute the

existence of a valid arbitration agreement.”) (citing First

Options, 514 U.S. at 944-45, 115 S.Ct. at 1924); McCarthy v.



20



Azure, 22 F.3d 351, 355 (1st Cir. 1994) (Once agreement

between parties has been proven, "the federal policy favoring

arbitration requires that any doubts concerning the scope of an

arbitrable issue be resolved in favor of arbitration,” but this

policy "does not extend to situations in which the identity of

the parties who have agreed to arbitrate is unclear.”) (internal

quotation marks omitted) (citing Moses H. Cone, 460 U.S. at

24-25, 103 S.Ct. at 941-42, and PaineWebber, Inc. v.

Hartmann, 921 F.2d 507, 511 (3d Cir. 1990)); Grundstad v.

Ritt, 106 F.3d 201, 205 n.5 (7th Cir. 1997) ("[T]he federal

policy favoring arbitration applies to issues concerning the

scope of an arbitration agreement entered into consensually

by contracting parties; it does not serve to extend the reach of

an arbitration provision to parties who never agreed to

arbitrate in the first place.”) (citing McCarthy, 22 F.3d at

355).



We are satisfied that to decide whether a party may be

compelled to arbitrate a dispute with another party, we must

determine (1) whether there is a valid agreement to arbitrate

between the parties and, if so, (2) whether the merits-based

dispute in question falls within the scope of that valid

agreement. Kirleis, 560 F.3d at 160. The presumption in

favor of arbitration applies to the second question but

probably does not apply to the first question. Id.; Chimicles,

447 F.3d at 209; see China Minmetals, 334 F.3d 280-81.

Though we have addressed the question of the applicability

vel non of the presumption in determining if there is a valid

agreement to arbitrate, we have done so because the District

Court addressed the point and the law as we have set it forth

on the point in various cases is unclear. We, however, need

not reach a definitive conclusion on the breadth of the

presumption in favor of arbitration, because even without

applying the presumption in this case we conclude that the

parties entered into a valid agreement to arbitrate.



(2) The "Express” and "Unequivocal”

Standard



21



A second issue that we address is the standard applied

to determine whether there is an agreement to arbitrate.

Century asserts that we have required arbitration agreements

to be "express” and "unequivocal” before compelling

arbitration, this standard "has prevailed for decades,”

Appellant's opening br. at 21, and the purported agreement

here is unenforceable because it fails to meet that standard.

See Kaplan v. First Options, 19 F.3d 1503, 1512 (3d Cir.

1994) (stating the rule that an arbitration agreement "must be

'express' and 'unequivocal'”) (quoting Par-Knit Mills, Inc. v.

Stockbridge Fabrics Co., 636 F.2d 51, 54 (3d Cir. 1980)),

aff'd on other grounds, 514 U.S. 938, 115 S.Ct. 1920

(1995). 01



In Par-Knit Mills, we considered whether a distributor

could compel a manufacturer to arbitrate their dispute over a

series of oral sales contracts pursuant to a related, written

sales contract's arbitration clause signed by one of the

manufacturer's production managers. The manufacturer

denied ever agreeing to arbitrate, claiming, instead, that its

production manager had signed the contracts intending to

confirm the goods' delivery dates but not to obligate the

corporation to the written contracts' various terms, including

the arbitration clause. Par-Knit Mills, 636 F.2d at 53. The

manufacturer supported this claim with an affidavit. Id. We

held that the district court erred in compelling arbitration

because the manufacturer's unequivocal denial that it had

agreed to arbitrate, accompanied by a supporting affidavit,

created a genuine issue of fact requiring a jury determination

of whether there in fact had been a "meeting of the minds”

resulting in the formation of an agreement to arbitrate. Id. at

54-55.

10



See also Kirleis, 560 F.3d at 159, 161; China Minmetals, 334

F.3d at 282; Standard Bent Glass, 333 F.3d at 446; Sandvik AB

v. Advent Int'l Corp., 220 F.3d 99, 106 (3d Cir. 2000).



22



We explained that the genuine issue of fact as to the

parties' intent prevented the court from finding, as a matter of

law, that the parties had formed an agreement to arbitrate, and

therefore also prevented the court from compelling arbitration

on that basis:



Before a party to a lawsuit can be ordered to

arbitrate and thus be deprived of a day in court,

there should be an express, unequivocal

agreement to that effect. If there is doubt as to

whether such an agreement exists, the matter,

upon a proper and timely demand, should be

submitted to a jury. Only when there is no

genuine issue of fact concerning the formation

of the agreement should the court decide as a

matter of law that the parties did or did not enter

into such an agreement. The district court,

when considering a motion to compel

arbitration which is opposed on the ground that

no agreement to arbitrate had been made

between the parties, should give to the opposing

party the benefit of all reasonable doubts and

inferences that may arise.



Par-Knit Mills, 636 F.2d at 54 (citations and footnotes

omitted). In Par-Knit Mills, there was a genuine issue of fact

as to whether the production manager was authorized to

execute agreements to arbitrate on behalf of the corporation,

and so the court, upon the manufacturer's proper and timely

demand, was required to submit the question of the

agreement's existence to a jury. Id. at 54-55. As we noted,

this is the familiar summary judgment standard, see Fed. R.

Civ. P. 56(c), and it applies in cases such as Par-Knit Mills

because the district court's order compelling arbitration is "in

effect a summary disposition of the issue of whether or not

there had been a meeting of the minds on the agreement to

arbitrate.” Par-Knit Mills, 636 F.2d at 54 n.9; see 9 U.S.C. §

4 (district court should not order arbitration unless it is



23



"satisfied that the making of arbitration agreement . . . is not

in issue”).11



Following Par-Knit Mills, we have referred to the

requirement that an agreement be "express” and



11



9 U.S.C. § 4 provides in part that, upon a party's valid petition

to compel arbitration,



[t]he court shall hear the parties, and upon being satisfied

that the making of the agreement for arbitration or the

failure to comply therewith is not in issue, the court shall

make an order directing the parties to proceed to

arbitration in accordance with the terms of the

agreement. The hearing and proceedings, under such

agreement, shall be within the district in which the

petition for an order directing such arbitration is filed. If

the making of the arbitration agreement or the failure,

neglect, or refusal to perform the same be in issue, the

court shall proceed summarily to the trial thereof. If no

jury trial be demanded by the party alleged to be in

default, or if the matter in dispute is within admiralty

jurisdiction, the court shall hear and determine such

issue. Where such an issue is raised, the party alleged to

be in default may, except in cases of admiralty, on or

before the return day of the notice of application, demand

a jury trial of such issue, and upon such demand the court

shall make an order referring the issue or issues to a jury

in the manner provided by the Federal Rules of Civil

Procedure, or may specially call a jury for that purpose.

If the jury find that no agreement in writing for

arbitration was made or that there is no default in

proceeding thereunder, the proceeding shall be

dismissed. If the jury find that an agreement for

arbitration was made in writing and that there is a default

in proceeding thereunder, the court shall make an order

summarily directing the parties to proceed with the

arbitration in accordance with the terms thereof.



24



"unequivocal” before a court may compel a party to arbitrate

in the context of emphasizing that a genuine issue of fact

regarding the arbitration agreement's existence—such as

where the contract language is ambiguous or where one party

claims that it never received the terms of an agreement, that

the agreement was forged, or that the agreement was signed

by a person lacking a uthority to exec ute the

contract—prevents a district court from summarily

compelling arbitration.12 E.g., Kirleis, 560 F.3d at 159 (citing

Par-Knit Mills); Standard Bent Glass, 333 F.3d at 446

("Arbitration clauses must be clear and unequivocal. Genuine

issues of fact will preclude an order to arbitrate.”); cf.

Emerson Radio Corp. v. Orion Sales, Inc., 253 F.3d 159, 163-

64 (3d Cir. 2001) (discussing determination of a contract's

ambiguity).



Our cases, however, seem inconsistent in this respect:

we sometimes have regarded Par-Knit Mills' "express” and

"unequivocal” language as stating a substantive standard

required of arbitration agreements to be enforceable,

seemingly without regard to the procedural posture of the

case. In particular, in First Options, 19 F.3d at 1512, we

stated that no party can be compelled to arbitrate unless that

party has entered into an agreement to do so, and we relied on



12



In Kirleis, 560 F.3d at 159-64, there was a genuine issue of

material fact with respect to the agreement to arbitrate because

a party's unopposed affidavit stated that the party never had

received the document containing the arbitration provision and

never had consented to it. See also China Minmetals, 334 F.3d

at 281 (noting that party's claim that underlying contract was

forged would create a genuine factual issue); Deutz AG, 270

F.3d at 153 (upholding district court's submission to jury issue

whether parties had formed arbitration agreement, where

contract was ambiguous as to parent corporation's obligation to

arbitrate); Sandvik AB v. Advent Int'l Corp., 220 F.3d 99, 101-

02, 106-10 (3d Cir. 2000) (affirming district court's denial of

motion to compel arbitration pending resolution of factual issue

of whether signatory was authorized to bind corporation).



25



Par-Knit Mills in stating that "[t]hat agreement must be

'express' and 'unequivocal.'” First Options, 19 F.3d at 1512

(quoting Par-Knit Mills). Notably, this statement can be read

to treat the "express” and "unequivocal” standard as a

substantive requirement that a purported arbitration agreement

must meet before a party may be compelled to submit a

dispute to arbitration regardless of whether there is a disputed

issue of fact as to the agreement's existence. Some of our

cases have relied on this view of Par-Knit Mills' "express”

and "unequivocal” language as a substantive requirement to

explain how parties may be bound by arbitration agreements,

even if they are not signatories to those particular agreements:



[t]he identification of the parties bound by the

agreement to arbitrate need not be confined to

the limited inquiry of identifying the signatories

to the arbitration agreement. Rather, the

dispositive finding is an 'express' and

'unequivocal' agreement between parties to

arbitrate their disputes.



In re Prudential Ins. Co., 133 F.3d 225, 229 (3d Cir. 1998)

(internal quotation marks partially omitted) (quoting First

Options, 19 F.3d at 1512). See also First Liberty Inv. Group

v. Nicholsberg, 145 F.3d 647, 650 (3d Cir. 1998) (quoting the

above from In re Prudential, 133 F.3d at 229); cf. Allstate

Settlement Corp. v. Rapid Settlements Ltd., 559 F.3d 164,

170 (3d Cir. 2009) (citing Trippe, 401 F.3d at 532)

(discussing theories under which arbitration agreement may

bind nonsignatory).



We therefore have used the "express” and

"unequivocal” language in two different ways when

considering whether there is an agreement to arbitrate. On the

one hand, we have stated the "express” and "unequivocal”

requirement to explain that genuine issues of fact as to

whether there is an agreement to arbitrate preclude



26



compelling a party to submit to arbitration;13 on the other, we

have used this language to state a substantive standard that

applies to the determination of an arbitration agreement's

enforceability as a general matter.



Turning to the facts at hand, application of the

"express” and "unequivocal standard” cannot be in issue in

this case because there is "no genuine issue of fact concerning

the formation of the agreement”—Century and Lloyd's

instead dispute the legal effect of the uncontested contractual

language—and thus if the "express” and "unequivocal”

requirement can be in issue here it only can be if that standard

is a substantive requisite for an enforceable arbitration

agreement. See Appellant's opening br. at 15; Appellee's br.

at 16.



In view of the absence of a dispute of facts, this case

involves contract construction and therefore requires a legal

determination. We reiterate that there is not a disputed issue

of fact here as Century does not make an assertion such as

that the retrocessional agreements were forged, the signatory

lacked authority to bind Century, or the actual words of the

contracts are ambiguous.14 Thus, it is not surprising that



13



This is not to say that after the trier of the facts resolves the

dispute a court, depending on what the trier of the facts

determines, cannot order that the parties submit to arbitration.



14



It is important to recognize that we are not suggesting an

absence of a dispute of fact as to the parties' substantive rights

and obligations under their agreements with respect to the

questions the arbitrators addressed. In fact, there was such a

dispute and Century offered evidence to show that the

retrocessional agreements were ambiguous as to the parties'

intent with respect to Lloyd's's liability for the declaratory

judgment expenses underlying this litigation. Indeed, we

consider that dispute when addressing the second fundamental

question on this appeal, i.e., whether the District Court should



27



Century does not seek a jury trial to determine the parties'

intent with respect to the obligation to arbitrate and does not

ask us to remand for that purpose. Inasmuch as this case

involves contract construction, i.e., determining the legal

effect of the retrocessional agreements' incorporation-by-

reference language, we reiterate that the "express” and

"unequivocal” standard we recognized in Par-Knit Mills is

inapposite here to the extent that the standard requires that

there not be a genuine issue of material fact as to an

arbitration agreement's existence before a district court may

determine whether the agreement exists as a matter of law and

then, if it does, to compel arbitration based on the agreement.



Century nevertheless presses the "express” and

"unequivocal” language as a substantive standard.

Accordingly, Century relies on the rule that we stated in First

Options, 19 F.3d at 1512. E.g., Appellant's opening br. at 21

("The written agreement to arbitrate must be 'express' and

'unequivocal.'”) (quoting First Options, 19 F.3d at 1512).

But there are two problems with this position. First, the

Supreme Court implicitly may have rejected the "express”

and "unequivocal” standard as a substantive rule. Upon

reviewing our opinion in First Options, after granting

certiorari as to two issues presented in our Court, the Supreme

Court affirmed but did so without approving a substantive

"express” and "unequivocal” standard. Instead, the Supreme

Court set forth the following guidelines with regard to

determining whether there is an arbitration agreement

between the parties:



When deciding whether the parties agreed to

a rb itra te a ce rtain m a tte r (in c lu d in g

arbitrability), courts generally (though with a

qualification we discuss below) should apply

ordinary state-law principles that govern the

formation of contracts. The relevant state law

here, for example, would require the court to see



have confirmed the award even though the arbitrators rejected

certain evidence that Century offered.



28



whether the parties objectively revealed an

intent to submit the arbitrability issue to

arbitration.



First Options, 514 U.S. at 944, 115 S.Ct. at 1924 (internal

citations omitted); cf. First Options, 19 F.3d at 1512 (quoting

Par-Knit Mills for the rule that to be valid an arbitration

agreement "must be 'express' and 'unequivocal'”). The

"qualification” that the Supreme Court mentioned relates to

the question of who has the primary power to decide the

question of arbitrability, an issue not presented in the dispute

between Century and Lloyd's. First Options, 514 U.S. at 944-

45, 115 S.Ct. at 1925-26; see id. at 942, 115 S.Ct at 1923

(distinguishing between disagreements over (1) a dispute's

merits, (2) the arbitrability of the dispute, and (3) who should

have the primary power to decide the arbitrability of the

dispute).



But a study of the two opinions suggests that the

Supreme Court, far from adopting the substantive requirement

that arbitration provisions must be "express” and

"unequivocal” to be valid, in fact rejected it. See First

Options, 514 U.S. at 944, 115 S.Ct. at 1924; Blair, 283 F.3d at

603 (citing First Options, 514 U.S. at 944, 115 S.Ct at 1924)

("A federal court must generally look to the relevant state law

on the formation of contracts to determine whether there is a

valid agreement to arbitrate under the FAA.”); Kirleis, 560

F.3d at 160 (citing First Options, 514 U.S. at 944, 115 S.Ct. at

1924, and Blair, 283 F.3d at 603).



And there is a second problem with Century's position.

Even if the Supreme Court in First Options did not reject the

"express” and "unequivocal” standard outright to the extent

that it is substantive—i.e., the burden of persuasion applied to

whether arbitration agreements exist generally, rather than the

summary judgment standard applied in the arbitration

context—the applicable statutory language and other Supreme

Court precedent preclude us from requiring arbitration

agreements to be "express” and "unequivocal” in order to be

enforced. Section 2 of the FAA declares that written



29



arbitration agreements "shall be valid, irrevocable, and

enforceable, save upon such grounds as exist at law or in

equity for the revocation of any contract.” 9 U.S.C. § 2

(emphasis added). It is therefore not surprising that the

Supreme Court has explained that threshold limitations placed

specifically and solely on arbitration provisions are

antithetical to the goals and policies of the FAA. Doctor's

Assocs., 517 U.S. at 687-88, 116 S.Ct. at 1656; see Gay, 511

F.3d at 394. It thus follows that requiring arbitration clauses

to meet more exacting standards than those imposed by the

applicable state-law principles on contracts generally would

offend Congress's purpose in enacting the FAA: to put

arbitration provisions "upon the same footing as other

contracts.” Doctor's Assocs., 517 U.S. at 687, 116 S.Ct. at

1656 (citing Scherk, 417 U.S. at 511, 94 S.Ct. at 2453

(internal quotation marks omitted) (stating that FAA's

purpose is to "revers[e] centuries of judicial hostility to

arbitration agreements”)); Perry, 482 U.S. at 492 n.9, 107

S.Ct. 2527 n.9; cf. Progressive Cas. Ins. Co. v. C.A.

Reaseguradora Nacional de Venezuela, 991 F.2d 42, 46 (2d

Cir. 1993) (holding that FAA preempted state law requiring

that there be an "express, unequivocal agreement” to arbitrate

before parties would be compelled to arbitrate dispute—a

higher standard than that which applied to contracts

generally—because "[a] court may not, in assessing the rights

of litigants to enforce an arbitration agreement, construe that

agreement in a manner different from that in which it

otherwise construes nonarbitration agreements under state

law”).



A substantive "express” and "unequivocal” standard

impermissibly would require more of arbitration agreements

than of contracts generally to be enforced whenever the

standard differed from the applicable state-law principles of

contract law. See Progressive Cas., 991 F.2d at 46. Of

course, application of the standard in practice always or

almost always would differ from ordinary state-law contract

principles, as courts enforce contracts that are something less

than "express” and "unequivocal.” Indeed, sometimes courts



30



enforce contracts that rather than being "express” and

"unequivocal” simply are implied in law.15

In sum, when determining whether there is a valid agreement

to arbitrate between the parties, the first part of the two-step

inquiry, we apply ordinary state-law principles of contract

law. First Options, 514 U.S. at 944, 115 S.Ct. at 1924.

Because the FAA requires us to place arbitration agreements

on an equal footing with other contracts when determining

whether the parties have agreed to arbitrate, we cannot subject

a purported arbitration agreement otherwise within the scope

of the FAA and satisfying its requirements to a standard more

demanding than that which we would apply to other

agreements under the applicable state law. To be sure,

genuine issues of fact preclude summary judgment when

determining whether there is an agreement to arbitrate, just as

they do when determining the existence of any other contract.

See Fed. R. Civ. P. 56(c). But the FAA and Supreme Court

precedent forbid us from placing more stringent requirements

on arbitration agreements otherwise satisfying the criteria of

the FAA than on other contracts, such as a substantive

requirement that an arbitration agreement be "express” and

"unequivocal” to be enforceable, rather than the standard that

applies to contracts generally.16



15



Of course, in one respect Congress itself requires that

arbitration agreements be subject to more exacting standards

than most contracts as 9 U.S.C. § 2 requires that arbitration

agreements be in writing to be enforced, and thus the FAA

includes a requirement akin to a statute of frauds which states

enact to require that some but far less than all contracts be in

writing to be enforceable.



16



It is not too much to state that enforcement of a substantive

requirement that an agreement to provide for arbitration must be

"express” and "unequivocal” would be a partial reincarnation of

the courts' pre-FAA hostility to arbitration.

31

b. Whether Century and Lloyd's Agreed to

Arbitrate Disputes Arising from the

Retrocessional Agreements



H av in g a d d re s s ed these tw o prelim inary

issues—whether the presumption in favor of arbitration

applies to the initial question whether the parties agreed to

arbitrate (it probably does not), and whether in answering this

question we apply the substantive requirement based on our

caselaw that an agreement to arbitrate be "express” and

"unequivocal” to be valid and enforceable (we cannot)—we

return to the initial question: whether Century and Lloyd's

agreed to arbitrate certain disputes, for if they did not do so

this case should not have been arbitrated. As we have stated,

to determine whether the parties agreed to submit any

disputes to arbitration, we apply "ordinary state-law principles

that govern the formation of contracts.” First Options, 514

U.S. at 944, 115 S.Ct. at 1924; see also Perry, 482 U.S. at 492

n.9, 107 S.Ct. at 2527 n.9; Kirleis, 560 F.3d at 160.



(1) Choice of Law: Pennsylvania Law

Applies



The question whether the parties agreed to arbitrate

certain disputes raises a choice-of-law issue. Though neither

party explicitly states that Pennsylvania law applies to the

question whether there is a valid arbitration agreement, they

seem to agree that Pennsylvania law does apply, because,

apart from federal cases, each predominantly cites

Pennsylvania state court cases on the issues in this case.

Moreover, the retrocessional agreements' service-of-suit

clause contains a choice-of-law provision stating that "all

matters arising [from disputes brought pursuant to the service-

of-suit clause] shall be determined in accordance with the law

and practice of [the] Court” where the action is brought. App.

at 32. This provision suggests that to the extent that federal



32



law does not control this action, we should resolve this

dispute over payments under the retrocessional agreements in

accordance with the substantive law of Pennsylvania, the state

in which Century filed suit. Moreover, under that law the law

of the state in which an insurance contract is made governs

the contract. Crawford v. Manhattan Life Ins. Co., 221 A.2d

877, 880 (Pa. Super. Ct. 1966). The retrocessional

agreements were signed in duplicate in Pennsylvania and in

England. So even if the provision dictated only that

Pennsylvania's choice-of-law rules applied, under those rules

Pennsylvania substantive law still would govern.17



(2) Principles of Pennsylvania Contract Law



We thus apply Pennsylvania contract-law principles to

determine whether the parties formed an agreement to

arbitrate. First Options, 514 U.S. at 944, 115 S.Ct. at 1924;

Perry, 482 U.S. at 492 n.9, 107 S.Ct. at 2527 n.9; Kirleis, 560

F.3d at 160 (internal citations omitted); see Murphy v.

Duquesne Univ. of the Holy Ghost, 777 A.2d 418, 429-30

(Pa. 2001) (discussing fundamental principles of contract

interpretation under Pennsylvania law); Quiles v. Fin. Exch.

Co., 879 A.2d 281, 285 (Pa. Super. Ct. 2005) (equating

principles for interpreting agreements to arbitrate with general

principles of contract interpretation). In general, to determine

whether a contract was formed under Pennsylvania law, a

court must look to: (1) whether both parties manifested an

intention to be bound by the agreement; (2) whether the terms

of the agreement are sufficiently definite to be enforced; and

(3) whether there was consideration. Blair, 283 F.3d at 603;

Shovel Transfer & Storage, Inc. v. Pa. Liquor Control Bd.,

739 A.2d 133, 136 (Pa. 1999); Quiles, 879 A.2d at 285. The

Pennsylvania Superior Court has explained that "[i]n

determining whether the parties agreed to arbitrate, courts



17



Even though the retrocessional agreements were signed in

duplicate in Pennsylvania and in England, neither party asserts

that English law applies here.



33



should apply rules of contractual construction, adopting an

interpretation that gives paramount importance to the intent of

the parties and ascribes the most reasonable, probable, and

natural conduct to the parties.” Id. at 287-88.



(3) Binding N onsign atories Through

Incorporation by Reference



We reiterate that even though the retrocessional

agreements do not include an arbitration provision, Lloyd's

asserts that they incorporated the arbitration provision from

the reinsurance treaties between Argonaut and Century and

therefore Century and Lloyd's agreed to arbitrate their

disputes. Pennsylvania courts have recognized the

incorporation-by-reference theory generally. "As a matter of

contract law, incorporation by reference is generally effective

to accomplish its intended purpose where . . . the provision to

which reference is made has a reasonably clear and

ascertainable meaning.” Bernotas v. Super Fresh Food Mkts.,

Inc., 816 A.2d 225, 231 (Pa. Super. Ct. 2002) (internal

quotation marks omitted), rev'd on other grounds, 863 A.2d

478 (Pa. 2004). See Roman Mosaic & Tile Co. v. Thomas P.

Carney, Inc., 729 A.2d 73, 77-78 (Pa. Super. Ct. 1999)

(subcontractor bound by terms of general contract

incorporated by reference into subcontract). As is significant

here, Pennsylvania courts have recognized incorporation-by-

reference provisions in an arbitration context. Integrated

Project Servs. v. HMS Interiors, Inc., 931 A.2d 724, 734-36

(Pa. Super. Ct. 2007) (discussing Bernotas and distinguishing

between enforceable incorporation or "pass-through” clauses,

such as those incorporating general contract's arbitration

clause into subcontract, from unenforceable pass-through

clauses purporting to hold indemnitor liable for indemnitee's

negligence); Cumberland-Perry Area Vocational-Technical

Sch. Auth. v. Bogar & Bink, 396 A.2d 433, 435 n.1 (Pa.

Super. Ct. 1978) (subcontractor bound by general contract's

arbitration provision incorporated into subcontract to which

subcontractor was a party).



34



We note that the Pennsylvania Supreme Court in

Bernotas held that a contract's general incorporation clause

will not incorporate another contract's indemnification

provisions absent express and specific contract language to

that effect because of the longstanding policy to construe

indemnification provisions narrowly. Bernotas, 863 A.2d at

484 (concluding that, because courts traditionally construe

indemnification provisions narrowly, subcontract's standard

incorporation clause was insufficient to incorporate general

contract's indemnification clause against subcontractor to

hold subcontractor liable for general contractor's negligence).



But we see no reason to apply that reasoning to the very

different question of whether an agreement's incorporation-

by-reference provision applies so as to incorporate an

arbitration clause, because such a clause is quite different

from an indemnification clause.



In sum, under Pennsylvania law, arbitration provisions,

like other contractual provisions, may be incorporated by

reference through general incorporation provisions. We note

that, like the Pennsylvania courts, we have recognized

incorporation by reference as one theory for binding

nonsignatories to arbitration agreements. Allstate Settlement,

559 F.3d at 170 (citing Trippe, 401 F.3d at 532).18 At bottom,



18



In Allstate Settlement, we explained that "we have recognized

five theories for binding nonsignatories to arbitration

agreements: (1) incorporation by reference, (2) assumption, (3)

agency, (4) veil-piercing/alter ego, and (5) estoppel.” Allstate

Settlement, 559 F.3d at 170 (citing Trippe, 401 F.3d at 532)

(internal quotations omitted); see also, e.g., Mundi v. Union Sec.

Life Ins. Co., 555 F.3d 1042, 1045 (9th Cir. 2009); Bridas

S.A.P.I.C. v. Gov't of Turkmenistan, 345 F.3d 347, 356 (5th

Cir. 2003); MAG Portfolio Consult, GmbH v. Merlin Biomed

Group LLC, 268 F.3d 58, 61 (2d Cir. 2001); Int'l Paper Co. v.

Schwabedissen Maschinen & Anlagen GMBH, 206 F.3d 411,

416-17 (4th Cir. 2000).



35



the question remains one of the effect of the parties' action in

incorporating the reinsurance agreements, including their

arbitration clause, as embodied in the agreements themselves,

to be determined by reference solely to the contents of the

agreements.



c. Construing the Retrocessional Agreements

Under Pennsylvania Law



There can be no question that the terms of the written,

signed retrocessional agreements are quite definite. See Blair,

283 F.3d at 603. There is no dispute that the reinsurance

treaties and the retrocessional agreements are valid contracts

and that they are mutually supported by consideration. Id.

("When both parties have agreed to be bound by arbitration,

adequate consideration exists and the arbitration agreement

should be enforced.”). Our task, therefore, is to construe the

contracts to determine the effect of the parties' inclusion of

the incorporation-by-reference provision solely by examining

the agreements' contents. The question is limited to contract

construction: does the retrocessional agreem ents'

incorporation language result in an agreement between the

parties to arbitrate their disputes? See Appellant's opening br.

at 15; Appellee's br. at 16. L l o yd ' s e m p h a s i z e s t h e

retrocessional agreements' expansive incorporation clause

and argues that we should construe the retrocessional

agreements to have incorporated "all” of the reinsurance

treaties' provisions, including the arbitration clause, because

that is precisely what the incorporation clause says. On the

other hand, Century emphasizes the phrasing of the

reinsurance treaties' arbitration clause and argues that we

should not construe the retrocessional agreements to have

incorporated the arbitration agreement because the

incorporated arbitration clause specifies that it applies only to

Century and Argonaut, see Progressive Casualty, 991 F.2d at

45-48, and the purpose of the incorporation was to clarify the

parties' obligations under the reinsurance agreements, not to



36



agree to a procedure for the resolution of disputes. See

AgGrow Oils, L.L.C. v. Nat'l Union Fire Ins. Co., 242 F.3d

777, 780-82 (8th Cir. 2001). We address each position in

turn.



d. Three Surety Cases in Which General

In c o r p o r a t io n P r o v is io n s E ffe c tiv e ly

Incorporate Arbitration Agreements



Lloyd's argues that because the retrocessional

agreements provide that "all” terms and provisions of the

reinsurance treaties apply to the retrocessional agreements,

the parties must have provided for all of the treaties' terms,

including the arbitration clause, to apply to the retrocessional

agreements. In support of this contention Lloyd's relies for

the most part on a set of surety cases in the federal courts to

argue that a contract's general incorporation clause effectively

can incorporate the underlying contract's provisions,

including its arbitration clause. United States Fidelity &

Guaranty Co. v. West Point Constr. Co., 837 F.2d 1507 (11th

Cir. 1988) (per curiam); Exchange Mut. Ins. Co. v. Haskell

Co., 742 F.2d 274 (6th Cir. 1984) (per curiam); Commercial

Union Ins. Co. v. Gilbane Bldg. Co., 992 F.2d 386 (1st Cir.

1993). Lloyd's contends that we should follow these cases to

hold that a party to a contract containing an arbitration clause,

such as the reinsurance treaties in this case, may be compelled

pursuant to that contract's arbitration clause to arbitrate a

dispute with a third party arising under a second contract,

such as the retrocessional agreements in this case, where the

second contract incorporated the first contract's terms through

a general incorporation-by-reference clause.



In West Point Construction the general contractor

sought to compel a subcontractor's surety to arbitrate a

dispute pursuant to a performance bond that incorporated by

reference a subcontract between the general contractor and a

subcontractor. There were three relevant agreements. The

first agreement was the general contract between a county as

the owner and the general contractor to build a county justice



37



center. This general contract contained an arbitration clause.

The second agreement was the subcontract between the

general contractor and the subcontractor. This subcontract

contained its own arbitration clause as well as a separate

provision modifying that clause by referring to the general

contract's arbitration clause. The third agreement was the

performance bond that the surety issued to the general

contractor on behalf of the subcontractor. This performance

bond incorporated the subcontract by reference and made the

subcontractor's performance under the subcontract a

condition of the bond.



After the subcontractor defaulted, the general

contractor sought to recover against the surety and moved to

compel arbitration. The surety argued that the performance

bond's incorporation-by-reference clause did not incorporate

the arbitration clause from either the subcontract or the

general contract. The Court of Appeals for the Eleventh

Circuit disagreed, holding that because the subcontract was

referred to in and made part of the bond, disputes arising

under the bond—including disputes concerning the adequacy

of the subcontractor's performance under the subcontract, a

condition of the performance bond—were subject to

arbitration pursuant to the arbitration provisions of the

subcontract. West Point Constr., 837 F.2d at 1508. The court

found that, in these circumstances, "the incorporation of the

subcontract into the bond expresses an intention of the parties,

including [the surety], to arbitrate disputes.” Id.



Similarly, in Haskell, a case involving the construction

of a shopping center, the Court of Appeals for the Sixth

Circuit considered whether to enjoin arbitration between a

surety and the prime contractor. One of the relevant

agreements was the general contract between the general

contractor and the owner-developer to build the shopping

center. The general contract contained an arbitration clause

stating:



38



All claims, disputes and other matters in

question arising out of, or relating to this

contract or the breach thereof . . . which cannot

be settled by negotiation between the Contractor

and the Owner, shall be decided in accordance

with the Construction Industry Arbitration

Rules of the American Arbitration Association.



Haskell, 742 F.2d at 275.



The second agreement was the subcontract between the

general contractor and the subcontractor, pursuant to which

the subcontractor was to install the parking lot. This

subcontract incorporated by reference the general contract's

obligations and responsibilities:



Subcontractor hereby assumes the same

obligations and responsibilities with respect to

his performance under this Subcontract, that

Contractor assumes towards Owner with respect

to his performance on the General Contract. If

the General Contract, which is hereby

incorporated by reference, fails or conflicts with

any provision of this Subcontract, or any

modification hereof, this Subcontract shall

govern.



Id.



The third agreement was the performance bond that an

insurance company as surety to the subcontractor issued in

favor of the general contractor. The performance bond

referred to the general contract, was conditioned on the

subcontractor's performance under the subcontract,

indemnified the general contractor for losses sustained due to

the subcontractor's failure to perform, and incorporated the

subcontract:



39



KNOW ALL MEN BY THESE PRESENTS,

That [the subcontractor], as principal and [the

insurance company] as Surety, are . . . bound

unto [the general contractor], in the sum of . . .

($108,000) Dollars . . ., jointly and severally,

firmly by these presents.

WHEREAS, [the general contractor] has been

awarded [the General Contract] by [the owner-

developer] for [the shopping center], and;

WHEREAS, the principal has entered into a

w ritten Subcontract w ith [the general

contractor] to perform . . . certain portions of the

work in connection with said [General

Contract], consisting of . . . as stated in

Subcontract No. 4234-06 . . . which Subcontract

is hereby referred to and made a part hereof.



Id. at 276.



When a dispute arose over the subcontractor's

performance, the general contractor made a claim under the

performance bond against the surety and sought to arbitrate

the claim. The surety resisted and sought an injunction

precluding the arbitration. The district court, however,

compelled arbitration, and the Court of Appeals for the Sixth

Circuit affirmed the district court on appeal. The court of

appeals held that even though the performance bond did not

contain an arbitration clause, a court nevertheless could

compel the surety to arbitrate by reason of the arbitration

clause contained in the general contract because the

performance bond specifically incorporated by reference the

terms of the subcontract, and the subcontract in turn

incorporated the general contract's obligations, including the

general contract's duty to arbitrate. Id. at 276-77. The court

of appeals explained that "a party does not have to be a



40



signatory to the contract [containing the arbitration clause]

when the contract is specifically incorporated by reference in

the surety bond.” Id. at 276.



Finally, in Gilbane Building the Court of Appeals for

the First Circuit also compelled arbitration based on an

incorporated arbitration clause. In that case, a surety sought

to compel arbitration of a dispute over one of several separate

but related construction projects. The particular dispute that

the surety sought to arbitrate involved three agreements

structured in a column similar to those in West Point

Construction and Haskell: a prime contract, a subcontract, and

a performance bond.



The prime contract between the general contractor and

the project's owner contained an arbitration clause stating that

"[a]ll claims, disputes and other matters in question arising

out of, or relating to this Agreement or the breach thereof, . . .

shall be decided by arbitration . . . unless the parties mutually

agree otherwise.” Gilbane Bldg., 992 F.2d at 388. The

subcontract between the general contractor and a structural-

steel subcontractor incorporated the terms of the prime

contract:



[The general contractor] shall be bound to [the

subcontractor] by the terms of this agreement, to

the extent that the provisions of the contract

documents between the owner and [the general

contractor] apply to the work of [the

subcontractor] as defined in this agreement[.]

[The general contractor] shall assume toward

[the subcontractor] all the obligations and

responsibilities that the owner, by those

documents, assumes toward [the general

contractor]. [The general contractor] shall have

the benefit of all rights, remedies, and redress

against [the subcontractor] which the owner, by

those documents, has against [the general

contractor].



41



Id. The subcontract defined "the contract documents” as the

prime contract, the conditions of that contract, and several

other related conditions. Id. at 388 n.2. The performance

bond incorporated the subcontract by reference: "Whereas,

[the subcontractor] has by written agreement . . . entered into

a Subcontract with [the general contractor] . . . which

Subcontract is by reference made a part hereof.” Id. at 388.



After the subcontractor ceased operations and

defaulted on its subcontracts, litigation ensued in which the

surety sought to compel arbitration of claims pursuant to the

arbitration clause contained in the prime contract. Though the

surety was not a signatory to the prime contract, it relied on

the incorporation-by-reference theory to justify its action in

seeking arbitration. Citing Haskell, the court of appeals

agreed with the surety and upheld the district court's order

compelling arbitration. Id. at 388-89. Because the

subcontract in corp ora ted the prim e contract's

obligations—with the general contractor assuming towards

the subcontractor all obligations that the owner had assumed

towards the general contractor under the prime contract, and

the subcontractor likewise assuming towards the general

contractor all obligations that the general contractor had

a s s u m e d to w a r d s t h e o w n e r u n d e r t h e p r im e

contract—including the obligation to arbitrate disputes arising

from the contract, the court of appeals held that the

subcontract obligated the general contractor to arbitrate

disputes with the subcontractor arising from the subcontract.

Id. And because the performance bond had referred explicitly

to the terms of the subcontract, the contractor was bound to

arbitrate its claim against the surety under the performance

bond as well. Id.



e. Declining to Incorporate Restrictively

Worded Arbitration Clauses That Refer to

the Immediate Parties



The foregoing opinions of three courts of appeals are

in harmony with the principle that a general incorporation



42



clause effectively can incorporate an arbitration agreement.

Nevertheless, Century argues that these cases are of limited

use in this case because in its view when an arbitration

agreement between one set of parties is incorporated by

reference into another agreement involving parties not bound

by the original agreement, a determination whether the parties

to the second agreement are bound to arbitrate depends on the

original arbitration agreement's narrowness or breadth.

Focusing on whether an arbitration clause's language is

"narrow” or "broad,” Century asserts that "the widely

accepted rule is that arbitration clauses that reference the

specific parties to which they apply—even if incorporated by

reference—are narrow clauses that do not support arbitration

of disputes beyond those between the specific parties

identified in the clause.” Appellant's opening br. at 29. In

support, Century cites to Import Export Steel Corp. v.

Mississippi Valley Barge Line Co., 351 F.2d 503, 506 (2d

Cir. 1965), and Progressive Casualty, 991 F.2d at 45.

Import Export Steel involved maritime law, steel, and

the high seas but nonetheless resembles this reinsurance and

retrocession case because its result turned on an interrelated

set of contracts. There, a steel company signed a subcharter

agreement with a ship's disponent owner to transport steel

coils from Germany to Louisiana.19 This subcharter

agreement, later amended, between the charterer-steel

company and the disponent owner contained an arbitration

clause that applied to "any dispute . . . between the Owners



19



A "disponent owner” is the party who originally charters the

ship. A "charter agreement” is a contract by which a ship's

owner leases all or a principal part of the ship, often to a

merchant, for conveying goods on a predetermined voyage

("voyage charter”) or for a predetermined period of time ("time

charter”). See Black's Law Dictionary at 267. In Import Export

Steel, there was a prior charter agreement between the ship's

actual owner and the disponent owner. 351 F.2d at 504-05.



43



and the Charterers.” Imp. Exp. Steel, 351 F.2d at 504-05.

Later, a third party and the disponent owner executed an

agreement under which the third party assumed the disponent

owner's obligations and privileges under the subcharter

agreement, and, in exchange, the disponent owner agreed to

issue certain bills of lading.20 These bills of lading were

issued and designated the charterer-steel company as the

holder of each bill, the disponent owner as the shipper, and

the charterer-steel company's affiliate as the notify party, i.e.,

the party to receive notice of delivery. The bills of lading also

incorporated by reference the subcharter agreement. Id.



The ship foundered before delivery, and both the

charterer-steel company and its affiliate sought to invoke the

subcharter agreement's arbitration clause against the third

party to compel arbitration of liability for the lost cargo. Id.

The Court of Appeals for the Second Circuit ruled that the

charterer-steel company could enforce the arbitration clause

against the third party because the third party had assumed the

disponent owner's obligations and privileges under the

subcharter agreement, to which the charterer-steel company

was a party, and also because the charterer-steel company

held the bills of lading that had incorporated by reference the

arbitration clause. Id. at 506 (explaining that holder of bill of



20



The Court of Appeals for the Fifth Circuit has explained:



A bill of lading is, in the first instance and most simply,

an acknowledgment by a carrier that it has received

goods for shipment. Secondly, the bill is a contract of

carriage. Thirdly, if the bill is negotiated . . . it controls

possession of the goods and is one of the indispensable

documents in financing the movement of commodities

and merchandise throughout the world.



Cargill Ferrous Int'l v. Sea Phoenix MV, 325 F.3d 695, 702 (5th

Cir. 2003) (internal citation omitted).



44



lading specifically referring to charter agreement and

incorporating charter agreement's arbitration provision can

compel party to charter agreement to arbitrate dispute within

provision's scope).



The court of appeals, however, refused to permit the

charterer-steel company's affiliate to compel arbitration

because the affiliate was neither a party to the subcharter

agreement nor a holder, shipper, or cosignee under the bills of

lading. Id. at 505 (stating that nonparty claimant that is not

holder, shipper, or cosignee of bill of lading cannot use

charter agreement's arbitration provision, even if agreement's

terms are incorporated into bill of lading). In addition, the

court of appeals stated that the terms of a bill of lading

"should be carefully if not restrictively construed” because a

bill of lading is the only document regulating the relations of

the bill's transferees and owner. Id. at 505-06. With this

consideration in mind, and noting that the arbitration clause

"was restrictive in scope in that it is limited to disputes

'between the Disponent Owners and the Charters,'” the court

of appeals concluded that "[i]t would be unduly stretching the

language of this arbitration clause to say that [the affiliate], a

mere notify party . . . is one of the 'Disponent Owners' or

'Charterers'” to which the clause applied. Id.



Almost 30 years later, the same court of appeals

distinguished Import Export Steel in Progressive Casualty. In

Progressive Casualty, a group of insurance companies insured

an oil company and then obtained reinsurance of that

coverage from a Venezuelan reinsurance company, RNV,

which, in turn, reached corresponding annual retrocessional

agreements with various retrocessionaires. 991 F.2d at 44.

One retrocessional agreement contained a provision stating

that it was "[s]ubject to” the underlying reinsurance contract.

Id. at 45. The reinsurance contract, in turn, included an

arbitration clause providing that "[a]ny question or dispute

arising between the contracting parties concerning the

interpretation of this Reinsurance Agreement . . . shall be



45



settled by arbitration.” Id. When a dispute arose, the

reinsurance company sought to compel its retrocessionaires to

arbitrate the dispute under the retrocessional agreement by

arguing that the retrocessional agreement through its "subject

to” clause incorporated the reinsurance agreement's

arbitration clause. Id. at 45-46.



Applying New York law, the court of appeals held that

the retrocessional agreement contained a valid agreement to

arbitrate between the reinsurer and the retrocessionaire

because it effectively incorporated the reinsurance

agreement's arbitration clause and the clause itself was not

worded so restrictively that it did not bind the

retrocessionaires. Id. at 45-48. Distinguishing Import Export

Steel, the court explained that while it previously had held

that "an arbitration agreement restricted to the immediate

parties does not bind a non-party, notwithstanding words of

incorporation or reference in a separate contract by which that

non-party is bound,” it also had held that "a broadly-worded

arbitration clause which is not restricted to the immediate

parties may be effectively incorporated by reference into

another agreement.” Id. at 47-48. The court concluded that

the arbitration clause in question, which called for arbitration

of disputes "between the contracting parties” without

specifying by proper name the identity of those parties, was

worded broadly enough to allow its effective incorporation

into other contracts:



Unlike the clause in Import Export, the

[reinsurance agreement's arbitration clause] is

not restrictively worded by referring to the

immediate parties to that contract by name.

Rather, the [reinsurance agreement] merely

provides for arbitration of disputes between 'the

contracting parties.' We do not think it would

be 'unduly stretching' the language of the

clause to term the American Reinsurers and

RNV 'contracting parties.'



46



Id. at 48 (internal citation omitted).



Century argues that we should adopt the principle of

Progressive Casualty and base our decision on whether the

arbitration provision is restrictively or broadly worded.

Inasmuch as the reinsurance treaties' arbitration clause

provides for arbitration of disputes "between the Company

[Argonaut] and INA [Century],” Century contends that the

retrocessional agreements, in incorporating that clause, cannot

include an agreement to arbitrate disputes between Century

and Lloyd's.



Century supports its argument with World Rentals &

Sales, LLC v. Volvo Construction Equipment Rents, Inc., 517

F.3d 1240 (11th Cir. 2008), a case in which the Court of

Appeals for the Eleventh Circuit addressed two separate sets

of agreements, one containing an arbitration clause and the

other incorporating it, related to franchising the sale and

leasing of construction equipment. In the first set, World

Rentals, the franchisee, entered into franchise agreements

with Volvo Rents, the franchisor, to sell and lease

construction equipment. These franchise agreements each

contained an arbitration provision stating that "all disputes . . .

arising between Franchisee and Franchisor shall be finally

resolved by arbitration.” Id. at 1242. The franchise

agreements also defined "Franchisor” as referring only to

Volvo Rents and specifically "not [to Volvo Rents'] corporate

parents or affiliates.” Id. at 1242-32.



In the second set of agreements, World Rentals

contracted with Volvo Finance, an affiliate of Volvo Rents,

for loans related to World Rentals' franchise operations.

These loan agreements contained an incorporation provision

stating that "[a]ll schedules, exhibits, and other documents . . .

referred [to] in this Agreement . . . are hereby incorporated in

this Agreement by reference in their entirety as if fully

restated in this Agreement.” Id. at 1243. Elsewhere, the loan

agreements referred to the franchise agreements in defining

World Rentals' failure to make payments under the loan



47



agreements and its default on the franchise agreements

between World Rentals and Volvo Rents as events of default

under the loan agreements.



After its business failed and World Rentals defaulted

on the loan agreements, it brought tort and contract claims

against both Volvo Rents and Volvo Finance in a district

court, and eventually moved to compel both Volvo units to

arbitrate. The district court denied World Rental's motion as

to Volvo Finance. On appeal, addressing World Rentals'

argument that Volvo Finance could be compelled to arbitrate

because the World Rentals-Volvo Finance loan agreements

incorporated by reference the franchise agreements and thus

their arbitration clause, the court of appeals considered two

questions: first, was the arbitration clause incorporated? And

second, did the dispute fall within the terms of that arbitration

clause? Regarding the first question, the court concluded that

the loan agreements between World Rentals and Volvo

Finance unambiguously incorporated the franchise

agreements, including those agreements' arbitration clauses.

Id. at 1245 ("[A]n arbitration clause can be incorporated even

if the relevant incorporation language does not specifically

refer to it.”) (citing J. S. & H. Constr. Co. v. Richmond

County Hosp. Auth., 473 F.2d 212, 215 (5th Cir. 1973)).



As for the second question, however, the court of

appeals held that the dispute fell outside the scope of the

arbitration clause. 21 Id. at 1246. Noting the proposition in

Progressive Casualty that "an arbitration agreement restricted

to the immediate parties does not bind a non-party,

notwithstanding words of incorporation or reference in a

separate contract by which that non-party is bound,” the court

of appeals explained that while there is a liberal policy



21



The court of appeals considered the issue whether Volvo

Finance and World Rents had agreed to arbitrate disputes arising

from the loan agreements as part of the "scope” question, rather

than as part of the initial "existence” question. See also Kirleis,

560 F.3d at 160 (citing Trippe, 401 F.3d at 532).



48



favoring arbitration agreements, "[t]here is no federal policy

favoring arbitration of disputes that the parties have

unambiguously excluded from their arbitration agreements.”

Id. at 1247 (citing Progressive Cas., 991 F.2d at 37, and Volt

Info. Scis., 489 U.S. at 479, 109 S.Ct. at 1256). In World

Rentals, the arbitration clause that was incorporated into the

loan agreements between World Rentals and Volvo Finance

unambiguously limited its application to disputes between the

franchisee, defined as World Rentals, and the franchisor,

defined as Volvo Rents, and expressly excluded any disputes

between World Rentals and Volvo affiliates such as Volvo

Finance. Id. In these circumstances, the court of appeals

concluded that Volvo Finance could not be compelled to

arbitrate its dispute with World Rentals because an order

compelling it to do so would "not only 'unduly stretch,' but

completely rewrite the arbitration clause, and compel a non-

party to arbitrate in the absence of ever having agreed to do so

in the first place.” Id. (quoting Imp. Exp. Steel, 351 F.2d at

506).



Century offers World Rentals in support of its claim

that restrictively phrased arbitration clauses cannot be

incorporated effectively through general incorporation-by-

reference clauses. But the cases we just discussed do not

reveal a widely observed, bright line rule. As the court of

appeals in World Rentals noted, an arbitration agreement

limited to the immediate parties effectively may be

incorporated by reference, despite its restrictive phrasing,

through different or additional incorporation language. Id. at

1247 n.6 (citing J. S. & H. Constr., 473 F.2d at 214 n.3). And

the reluctance to incorporate restrictively phrased arbitration

clauses that refer to the immediate parties did not preclude the

court in Haskell from recognizing that there was such an

incorporation. See Haskell, 742 F.2d at 275-76 (finding that

arbitration clause providing for arbitration of disputes "which

cannot be settled by negotiation between the Contractor and

the Owner” effectively incorporated by reference into

subcontract, and then to performance bond).



49



To support its claim that a "narrowly drafted”

arbitration clause incorporated by reference into a separate

contract, without more, cannot serve to bind parties not

specified in the original clause, Century also cites to Rice Co.

v. Precious Flowers Ltd., 523 F.3d 528 (5th Cir. 2008),

claiming that in Precious Flowers the Court of Appeals for the

Fifth Circuit applied Century's proposed rule. A question in

Precious Flowers, an international-shipping case reminiscent

of Import Export Steel, was whether the shipper, by relying

on theories of agency and incorporation by reference, could

compel the vessel owner to arbitrate a dispute over liability

under a bill of lading, even though the vessel owner was not a

signatory to an agreement containing an arbitration provision

with the shipper.



Precious Flowers involved three interrelated contracts

among a vessel owner, Precious Flowers; a time-charterer and

disponent owner, IBN; and a shipper and voyage-charterer,

the Rice Company. The first agreement was a time-charter

agreement between vessel owner Precious Flowers and IBN,

pursuant to which IBN obtained the vessel and became its

disponent owner for a period of time. Id. at 532. This time-

charter agreement between Precious Flowers and IBN

contained an arbitration clause requiring that "all disputes

arising out of this contract shall be arbitrated at London and . .

. governed by English law.” Id. at 532 n.6. It also provided

that the time-charterer, IBN, could act on behalf of Precious

Flowers by signing bills of lading, albeit only "without

prejudice to [Precious Flowers].” Id. at 532.



The second agreement was a voyage-charter agreement

between IBN and the Rice Company, the shipper, pursuant to

which the Rice Company would ship its cargo of rice on the

vessel from the United States to Togo. Id. at 532-33. The

voyage-charter agreement between IBN and Rice Company

contained an arbitration clause providing that "any dispute . . .

between Owners and Charterers . . . shall be referred to

[arbitration].” Id. at 533. The court of appeals determined



50



that the voyage-charter agreement defined the term "Owner”

as the time-charterer and disponent owner, IBN, and defined

the term "Charterers” as the voyage-charterer Rice Company.

Id. at 532-35. It also determined that Precious Flowers was

not a party to this agreement. Id.



The third agreement was a bill of lading that would

have been issued by IBN and held by the Rice Company. 22

Id. at 533. This agreement, assuming it was signed, provided

that "[a]ll terms and conditions [of the voyage-charter

agreement], including the law and Arbitration Clause, are

herewith incorporated.” Id.



After rough seas related to Hurricane Rita damaged the

rice on board, allegedly due to unseaworthy hatch covers, the

Rice Company filed suit against the vessel itself, Precious

Flowers, and IBN, and moved to compel arbitration. Id. at

531. There was no dispute that the bill of lading incorporated

the voyage-charter agreement. The court of appeals first

addressed whether the voyage-charter agreement bound

Precious Flowers by its own terms, noting that the court

recognized the distinction between "broad” arbitration

provisions, such as those not restricted to particular parties or

types of disputes, and "narrow” ones, such as those restricted

to disputes "between the Owners and Charterers.” Id. at 536

(internal citation omitted); cf. Rohm & Haas, 522 F.3d at 331-

32 (discussing broad-versus-narrow distinction with respect to

scope of arbitration agreement).23 But the court of appeals



22



The ship sailed early, and the bill of lading never was signed,

but assuming it had been the case's result would not have

changed. Precious Flowers, 523 F.3d at 535-36.



23



We note that Century quotes the Court of Appeals for the Fifth

Circuit to assert that that court recognizes Century's broad-

versus-narrow rule in the context of determining whether parties

can be compelled to arbitrate. Appellant's reply br. at 21 (citing

Precious Flowers, 523 F.3d at 536 ("[W]e do recognize the

distinction between a broad and narrow arbitration clause.”)).



51



emphasized that it did not follow this distinction between

broad and narrow clauses mechanically. Even in the case of

so-called broad arbitration clauses, if a particular dispute falls

outside an arbitration clause's terms, whether worded broadly

or narrowly, the parties cannot be compelled to arbitrate.

Precious Flowers, 523 F.3d at 536; accord, Rohm & Haas,

522 F.3d at 332. The voyage-charter agreement's arbitration

clause required arbitration only of disputes "between Owners

[defined as IBN] and Charterers [defined as the Rice

Company]”; as a matter of contractual construction, it was

straightforward that Precious Flowers could not be compelled

to arbitrate pursuant to the voyage-charter agreement because

Precious Flowers was not party to the agreement and was not

governed directly by the clause. Precious Flowers, 523 F.3d

at 536.



The Rice Company nevertheless argued that Precious

Flowers was bound to arbitrate the dispute pursuant to the bill

of lading, based on a combination of theories of incorporation

by reference and agency. The Rice Company argued that (1)

in the time-charter agreement Precious Flowers had

empowered IBN to ratify bills of lading as its agent, (2) IBN

then had ratified the bill of lading, thus binding Precious

Flowers, and (3) the ratified bill of lading incorporated the

terms of the voyage-charter agreement, including its

arbitration clause. Id. at 536.



The court of appeals rejected this argument because

Precious Flowers had not empowered IBN to bind it. It

explained that as a general matter, agency principles do not

offend the FAA's fundamental rule that parties are not

required to arbitrate when they have not agreed to do so. Id.

In so stating, however, the court of appeals relied on its caselaw

addressing the question of an arbitration agreement's scope, not

existence. Precious Flowers, 523 F.3d at 536 (citing Sedco, Inc.

v. Petroleos Mexicanos Mexican Nat'l Oil Co. (Pemex), 767

F.2d 1140, 1144-45 (5th Cir. 1985) (no dispute as to existence

of arbitration agreement)).



52



at 538 ("[W]here an agent signs a contract requiring

arbitration, the principal is bound by the arbitration

requirement.”). In Precious Flowers, however, the time-

charter agreement between Precious Flowers and IBN

expressly provided that even though IBN could ratify bills of

lading, it could do so only "without prejudice” to Precious

Flowers. Because Precious Flowers had limited the authority

of IBN as its agent, allowing it to sign bills of lading only

"without prejudice” to Precious Flowers, and because no

other agreement applied against it, Precious Flowers was not

bound to arbitrate the dispute with the Rice Company. Id. at

538-39.



In so concluding, the court of appeals distinguished

Cargill Ferrous International v. Sea Phoenix MV, 325 F.3d

695 (5th Cir. 2003), another admiralty case. In Sea Phoenix,

three documents were implicated: (1) a time-charter

agreement between the ship owner and the disponent owner,

(2) a voyage-charter agreement between the disponent owner

and the shipper containing an arbitration clause, and (3) a bill

of lading that was ratified by the shipper and the vessel owner

through its agent and that incorporated the voyage-charter

agreement's arbitration clause. In these circumstances, the

vessel owner could compel the shipper to arbitrate their

dispute because the bills of lading between the vessel owner,

through its agent, and the shipper incorporated the arbitration

clause of the shipper's voyage-charter agreement with the

disponent owner. Id. at 698-700.



In Precious Flowers, by contrast, the court of appeals

rejected an attempt to bind a nonsignatory to an arbitration

clause where it had not signed the arbitration agreement and

where it had not authorized its agent to sign an arbitration

agreement. It thus is true that the court ruled that the

arbitration clause which named the specific parties to which it

applied, did not bind the nonsignatory. But Precious Flowers

depended on the application of principles of agency, not on a

mechanical application of Century's proposed rule that an



53

arbitration agreement restricted to the immediate parties does

not bind a nonparty, notwithstanding words of incorporation

or reference in a separate contract by which that nonparty is

bound.



f. Questions of Existence and of Scope



It seems clear that because Century predicated its

argument on its contention that an incorporated arbitration

clause's narrow or broad phrasing determines whether there is

an arbitration agreement between the incorporating parties, it

risks confusing its proposed rule with the narrow-versus-

broad distinction relating to the separate question of an

arbitration agreement's scope. Local 827, Int'l Bhd. of Elec.

Workers v. Verizon N.J., Inc., 458 F.3d 305, 310 (3d Cir.

2006). In particular, Century cites to Rohm & Haas, 522 F.3d

331-32, in asserting that we have refused to enforce

arbitration agreements and have respected clauses' limitations

where such clauses are "narrow.” Appellant's opening br. at

35-36; Appellant's reply br. at 22.



In Rohm & Haas, a labor-dispute case, we addressed

whether certain employees who disputed denials of their

disability claims under an employee-benefits plan could

compel the company and the plan administrator to submit the

dispute to arbitration pursuant to a separate collective-

bargaining agreement's grievance procedure. The first

agreement, effective 2000-2004, was the collective-

bargaining agreement between the company and the union

covering a particular facility (the "CBA”). The CBA applied

"only to the wages, hours, and working conditions of the . . .

employees” and created a dispute-settlement procedure for

disputes "involv[ing] wages . . ., hours . . ., and working

conditions.” Id. at 327-28. According to this procedure, if

other means fail, "either party [the union or the company]

may submit the matter to arbitration as described” in another

CBA provision. Id. at 328.



54



The second agreement, effective beginning in 2003,

was the employee-benefits plan. This plan provided certain

benefits to both union and non-union employees working at

various facilities, not merely the one covered by the CBA, and

the plan, as is common under such plans, vested the sole

discretion to interpret and apply the plan in an administrative

committee. Id. at 329. Moreover, the plan provided a

procedure for submitting claims, including a requirement for

claimants denied benefits to be notified of their statutory

rights to bring ERISA claims. 24 Unlike the CBA, the plan did

not provide for arbitration of disputes. Id. at 329-30. The

union was not a signatory to the benefits plan which,

significantly, did not incorporate or otherwise refer to the

CBA. Id. at 329. Addressing whether the CBA's

arbitration clause should be deemed narrow or broad, we

concluded that the clause was broad because it did not

expressly exclude categories of grievances, such as issues

concerning disability benefits, from arbitration. Id. at 332.

But we emphasized that, regardless of whether an arbitration

clause is labeled as broad or narrow, the central questions

with respect to its application remain whether the parties

agreed to submit disputes to arbitration and whether the

particular dispute falls within the arbitration agreement's

scope. Id.



There was no dispute that the CBA contained a valid

agreement between the company and the union to arbitrate

certain matters. Nevertheless, we concluded that the

employees and their union could not compel arbitration of

disputes arising from the benefits plan pursuant to the CBA's

arbitration clause despite that clause's broad wording because

the dispute over employee benefits was outside that clause's

scope, which was limited to wages, hours, and working

conditions, and because neither agreement referred to or

incorporated the other: the CBA's mention of a sickness plan

did not incorporate the benefits plan and the benefits plan did

24



See 29 U.S.C. § 1133.



55



not provide that adverse determinations were subject to the

CBA's grievance procedure. Id. at 332-36.



We based our decision in Rohm & Haas on the scope

of a valid arbitration agreement. Accordingly, Century's

attempt to apply the logic of Rohm & Haas to support its

contention that the parties did not form a valid arbitration

agreement is misplaced. Our decision in Rohm & Haas does

not confirm Century's proposed approach to the

incorporation-by-reference question based on an incorporated

arbitration clause's narrow-versus-broad or restrictive-versus-

unrestrictive phrasing.



Similarly, Century cites Chimicles, 447 F.3d at 210-11

to support its contention that we should not apply the

incorporation-by-reference clause in the retrocessional

agreements to form an agreement between Century and

Lloyd's to arbitrate. In essence, Century reads Chimicles to

hold that a "narrow” arbitration clause when incorporated into

another contract cannot apply to disputes under that contract,

and thus, in its view, Chimicles supports our adoption of the

rule in Progressive Casualty: the incorporation of an

arbitration clause that specifies parties to which it applies

does not bind parties to the distinct agreement containing the

incorporation-by-reference clause.



In Chimicles, we considered whether two limited

partners in a partnership in receivership could compel the

partnership's receiver to arbitrate a dispute over the

requirements of subscription agreements between the limited

partners and the partnership. The limited partners based their

argument on an arbitration clause contained in the partnership

agreement between the limited partners and the general

partner.



The partnership agreement was between an LLC as

general partner and certain investors as private limited

partners. The partnership agreement contained an arbitration

clause stating that "[t]he General Partner and the Private

Limited Partners . . . hereby agree that any and all

controversies . . . arising out of . . . this Agreement . . . shall



56



be settled by arbitration . . . .” Chimicles, 447 F.3d at 210.

The partnership agreement also included a choice-of-venue

clause providing that an "[a]ction to enforce any provision of

this Agreement or any action brought by the Partners against

the General Partner or the Partnership shall be brought

through arbitration in New Jersey, pursuant to [the arbitration

clause].” Id. The partnership agreement indicated that it was

a fully integrated contract. Id.



In the subscription agreements between each investor

and the partnership, each investor agreed to make certain

capital contributions to the partnership "in accordance with

the terms and conditions described herein and in the

Partnership Agreement.” Id. at 210. In addition, each

investor agreed "to be bound by all of the terms and

conditions of the Partnership Agreement.” Id. But neither

subscription agreement contained an arbitration clause, and

the subscription agreements indicated that they were fully

integrated contracts. Id.



When the partnership's receiver sought to enforce the

investors' contribution requirements under the subscription

agreements, the investors moved to compel arbitration

pursuant to the partnership agreement's arbitration clause.

We rejected this effort on several grounds. We explained that

the partnership itself was not bound directly by the

partnership agreement because it was not a signatory to the

agreement. Even assuming that the subscription agreements

incorporated by reference the partnership agreement's

arbitration clause, they did so against the investors and not

against the partnership itself. Id. at 209-10 (subscription

agreements providing that investors agree "to be bound by all

terms and conditions of the Partnership Agreement”). And

even if a court were to read the incorporation-by-reference

clause as binding against the partnership, the arbitration

clause was intended to apply to suits that the limited partners

brought, not to those that the partnership brought. Id. at 210-

11. Finally, even if the partnership somehow were bound to

arbitrate, we noted a provision in the partnership agreement



57



that would have negated that obligation in the circumstances

of the case. Id. In what did not seem to be a close case, we

concluded that the partnership had not formed an arbitration

agreement with the investors, so it could not be compelled to

arbitrate.



Century focuses on our statement in Chimicles that

"[e]ven assuming arguendo that [the incorporation clause of]

the subscription agreement incorporates by reference the

terms and conditions of the partnership agreement, the

arbitration provision does not apply to an action brought by

[the partnership or its receiver].” Id. at 210; Appellant's

opening br. at 38-39. Century argues that this statement

"directs that the narrow arbitration clause in the [reinsurance

treaties] be interpreted according to its own terms, even if

incorporated into the [retrocessional agreements].”

Appellant's reply br. at 26. But in concluding that the

arbitration provision did not apply to actions brought by the

partnership, even if incorporated, we also relied on the

incorporation clause itself, which incorporated the terms and

conditions of the partnership agreement only against the

limited partners. Chimicles, 447 F.3d at 210. Considering the

multiple bases for our conclusion that there was not an

agreement to arbitrate, Chimicles does not bear the weight

that Century would put on it.



g. John F. Harkins Co.



Lloyd's asserts that we have rejected the rule proposed

by Century in John F. Harkins Co. v. Waldinger Corp., 796

F.2d 657 (3d Cir. 1986). In John F. Harkins, a construction

case involving a dispute between a primary contractor and a

subcontractor, the question was whether the primary

contractor and subcontractor intended the terms of the

principal contract between the project manager and primary

contractor, including the principal contract's restrictive

arbitration clause, to govern the terms of the subcontract



58



between the primary contractor and the subcontractor, where

the subcontract included a broader arbitration clause but

incorporated the general contract's obligations.



The principal contract between the project manager

and the primary contractor addressed arbitration of disputes,

providing for arbitration only of those disputes named in the

contract as arbitrable: "[i]n any case in which it is provided by

the terms of this contract that any specific dispute or specific

payment to be made shall be determined by arbitration, such

arbitration shall be conducted [in a certain manner].” Id. at

660-61. Elsewhere, the principal contract provided for

arbitration only of disputes over written change orders: "[i]n

case of disagreement as to the amount to be paid or allowed

[under a written change order], the Contractor shall promptly

comply with the order and the amount shall be determined by

arbitration as herein provided.” Id. at 661.



In contrast to the principal contract, the subcontract

between the primary contractor and the subcontractor

contained a broadly worded arbitration clause providing that

"[a]ll disputes . . . arising hereunder shall be subject to

arbitration . . . .” Id. at 660. The subcontract also included a

section referring to the principal contract. This section

provided that the subcontractor's work and materials used

"shall be in strict accordance with the [principal]

CONTRACT DOCUMENTS.” Id. It also provided that

"SUBCONTRACTOR shall be bound by all provisions of

these documents and also by the applicable provisions of the

PRINCIPAL CONTRACT to which the CONTRACTOR is

bound, and to the same extent . . . .” Id.



Reviewing for clear error, we upheld the district

court's interpretation—which was based on the provisions'

language and on extrinsic evidence that included an

unopposed affidavit stating that the parties intended the

subcontract's "shall be bound” section to limit the

subcontractor's rights against the primary contractor to those

of the primary contractor against the project manager—that

the parties intended the subcontract to incorporate the



59



principal contract's more restrictive arbitration clause. Id. at

659-62. Under this interpretation, we upheld the district

court's decision that arbitration must be enjoined because the

dispute did not fall within that clause's scope.



Lloyd's reads John F. Harkins as a basis for rejecting

Century's distinction between the effects of incorporated

arbitration clauses that specify the parties to whom they apply

and those lacking such restrictions. Considering the case's

standard of review and its facts, however, John F. Harkins

does not support Lloyd's's interpretation. But neither does it

compel a result based solely on an arbitration clause's

specifying by name the parties to which it applies, because, as

seen in John F. Harkins, a second agreement's incorporating

language may affect the application of that clause to new

parties. The result depends on the parties' intent.



h. Incorporation by Reference for a Limited

Purpose



In an argument related to its claim that restrictively

worded arbitration clauses referring to the immediate parties,

when incorporated into another agreement, generally cannot

support arbitration of disputes between parties not identified

in the clause, Century also argues that the parties may intend

general incorporation clauses to have a limited purpose.

Here, Century contends that the parties intended the

retrocessional agreements' incorporation language only to

clarify the scope of Lloyd's's "substantive” obligations under

the reinsurance treaties—that is, its liability—and not to

incorporate other obligations that Century characterizes as

"procedural,” such as the agreement to arbitrate. In

illustration, Century cites AgGrow Oils, 242 F.3d at 779.



In AgGrow Oils, a surety case, the Court of Appeals

for the Eighth Circuit considered a dispute between the owner

of a processing facility and the surety to a contractor hired by

the owner to build the facility. AgGrow Oils, the plant owner,



60



entered into a construction contract with a construction

company for it to build the processing facility. The

construction contract contained an arbitration clause stating

that "any controversy or Claim arising out of or related to the

Contract, or the breach thereof, shall be settled by arbitration

in accordance with the Construction Industry Arbitration

Rules of the American Arbitration Association.” Id. at 780

n.1. The construction company guaranteed that the completed

facility would reach a certain level of performance. Id. at

779. The construction contract also stated that it should "not

be construed to create a contractual relationship of any kind . .

. between any persons or entities other than [the plant owner

and the construction company].” Id. at 781.



In related contractual dealings, the construction

company purchased processing equipment from a

manufacturer and obtained engineering services from the

construction company's own subsidiary. In addition, the

construction company's surety issued a performance bond to

the plant owner guaranteeing the construction company's

performance by binding the surety "to the [Plant] Owner for

the performance of [the construction company's obligations

under] the Construction Contract, which is incorporated

herein by reference.” Id. at 779.



After construction was completed, the facility failed to

meet the construction company's performance guarantees,

and a variety of disputes ensued that later were consolidated

into a single action. The surety then moved to stay the plant

owner's suit and to compel the plant owner to arbitrate its

claim against the surety under the performance bond, based

on the construction contract's arbitration clause that the surety

claimed was incorporated into the bond.

Applying North Dakota law, the court of appeals held

that the incorporation clause was ambiguous on the issue of

arbitrability. Id. at 781. The court found that the

incorporation clause's main purpose was to clarify the

construction company's performance obligations that the

construction company's surety undertook to guarantee. But



61



the court found that the clause did not clearly reflect the

owner's and the surety's intent to provide for arbitration of

their disputes under the bond, particularly in light of the

performance bond's provision referring to judicial settlement

of disputes and the construction contract's provision stating

that the contract not create contractual relations between any

other parties. Id. The court further considered the purpose of

surety bonds generally: to provide recourse to an obligee

against a secondary obligor in the event of the principal

obligor's failure to perform the underlying obligation. Id.



The court acknowledged that there were several

decisions concluding that performance bonds incorporating

the terms of underlying contracts also incorporated those

contracts' arbitration agreements. Id. at 781-82.

Nevertheless, the court concluded that, in the circumstances it

confronted, the owner and the surety had not reached an

agreement to arbitrate disputes under the performance bond

because the purpose of the bond's incorporation clause was to

define the scope of the surety's liability, not to apply the

entirety of the construction contract to the bond:



Mindful of the fundamental principle that

arbitration under the [Federal Arbitration] Act is

a matter of consent, not coercion, we are

unwilling to construe an incorporation clause

whose obvious purpose was to clarify the extent

of the surety's secondary obligation as also

reflecting a mutual intent to compel arbitration

of all disputes between the surety and the

obligee under the bond. . . . [W]e conclude there

was no such agreement to arbitrate.



Id. at 782 (internal citation and quotation marks omitted) (first

alteration in original).



Thus, even if an incorporated arbitration clause is not

restricted to the immediate parties in the original agreement,

courts may refuse to compel arbitration where the parties do

not intend to incorporate the agreement to arbitrate. Century

cites this decision to show that parties may incorporate a

62

separate contract into their agreement for certain purposes and

not others, and argues that the parties intended here for the

retrocessional agreements to incorporate the reinsurance

treaties only to clarify the extent of the obligations that

Lloyd's assumed under the retrocessional agreements.



i. The Retrocessional Agreements



(1) The Agreement's Language and

Structure



With the cases we have discussed in mind, we turn to

the agreements at issue in this case. The three reinsurance

treaties between Century and Argonaut largely contain

identical language and, so far as germane here, do not differ

materially. Article 15 of each treaty contains an arbitration

clause under which Century and the Company, defined

previously as Argonaut, agree to submit disputes to

arbitration:



If any dispute shall arise between the

Company [Argonaut] and INA [Century]

with reference to the interpretation of this

Agreement or their rights with respect to

any transaction involved, the dispute

shall be referred to three arbitrators, one

to be chosen by each party and the third

by the two so chosen. . . . The arbitrators

shall consider this Agreement an

honorable engagement rather than merely

a legal obligation; they are relieved of all

judicial formalities and may abstain from

following the strict rules of law. The

decision of a majority of the arbitrators

shall be final and binding on both the

C om pany [A rgonaut] and IN A

[Century]. The expense of the arbitration

and arbitrators shall be equally divided



63



between the Company [Argonaut] and

INA [Century]. Any such arbitration

shall take place in San Francisco,

California, unless some other location is

mutually agreed upon by the Company

[Argonaut] and INA [Century].



App. at 59-60, 101, 127 (bracketed material added). Notably,

this arbitration provision specifies the parties to whom it

applies. Cf. Progressive Cas., 991 F.2d at 47-48 (holding that

arbitration provision referring only to "contracting parties”

was "worded broadly enough to allow its incorporation by

reference into other contracts”).



We next turn to the three corresponding retrocessional

agreements between Century and Lloyd's, each containing

essentially the same terms. Under the retrocessional

agreements' Paragraph 1, Century ceded to Lloyd's 90% of

the premiums and losses resulting from Century's reinsurance

treaties with Argonaut: Century would pay Lloyd's 90% of

the premiums it received from Argonaut, and, in exchange,

Lloyd's would pay Century 90% of the losses that Century

paid to Argonaut under the reinsurance treaties.25 Paragraph 1

of each retrocessional agreement also refers to and

incorporates the corresponding reinsurance treaty in stating

that a copy of the treaty is attached and "made a part hereof.”

App. at 30, 71, 109 (Para. 1).



25



Paragraph 1 of the retrocessional agreements states in part:

[Century] agrees to cede and [Lloyd's] agrees to accept

90% (ninety percent) of the liability which accrues to

[Century] under its Reinsurance Agreement . . . issued to

[Argonaut]. [Century] shall pay to [Lloyd's] 90%

(ninety percent) of all premiums paid to [Century] under

the policy, and [Lloyd's] shall pay to [Century] 90%

(ninety percent) of the losses and loss adjustment

expenses paid by [Century] thereunder.



App. at 30, 71, 109 (Para. 1).



64



Paragraph 2 of the retrocessional agreements provides:

Subject to the percentage allocation in the

preceding paragraph, all terms and provisions of

the [reinsurance treaty] shall be applied to this

agreement as if contained herein, and [Lloyd's]

shall receive prompt notice of any change in the

Policy. Material changes are not binding on

[Lloyd's] unless agreed.



App. at 30, 71, 109 (Para. 2). Thus, immediately after

Paragraph 1 incorporates the corresponding reinsurance

treaties, Paragraph 2 "applie[s]” them.



(2) Construing the Agreement



As we already have indicated, neither party claims that

the provisions of the retrocessional agreements are ambiguous

with respect to the first fundamental question on this appeal,

whether the parties entered into a valid arbitration agreement

establishing a mechanism for resolution of the dispute in this

case. Thus, we will seek to give effect to the parties'

agreements and thus their obligation vel non to arbitrate

disputes solely by making reference to the documents

themselves, taking the entire contracts into consideration and

assuming that the sophisticated parties to the agreements

chose their language, particularly that of the incorporating

provisions, carefully. See Murphy, 777 A.2d at 429-30. Our

approach recognizes that this case involves contractual

construction and that we are exercising plenary review rather

than applying the clearly erroneous standard applicable in

contract interpretation cases.26 See, e.g., John F. Harkins, 796



26



We cannot prejudice Century by our exercise of plenary

review because application of that standard of review only can

enhance the possibility of an appellant obtaining a reversal on an

appeal. Of course, if we attempted to ascertain the parties'



65



F.2d at 659-60. We are dealing with retrocessional

agreements designed to shift risk, defined through reference

to the underlying reinsurance treaties, from Century to

Lloyd's. In this regard, Paragraph 1, it seems clear, is

intended to define the scope of Lloyd's's derivative liability.

See AgGrow Oils, 242 F.3d at 781-82 (noting that purpose of

incorporation by reference was to define surety's secondary

liability). Paragraph 1 identifies the reinsurance treaty that

Lloyd's will insure, attaches and incorporates that document

by reference, and specifies the percentage of that treaty's

liabilities and premiums that Lloyd's will assume. App. at 30,

71, 109 (retrocessional agreement para. 1) (emphasis added).



Paragraph 2 again refers to the reinsurance treaties, but

it does so in markedly different language. It "applie[s]” all

terms and provisions of the incorporated reinsurance treaty to

the retrocessional agreement:



Subject to the percentage allocation in the

preceding paragraph, all terms and provisions of

the Policy shall be applied to this agreement as

if contained herein, and [Lloyd's] shall receive

prompt notice of any change in the Policy.

Material changes are not binding on [Lloyd's]

unless agreed.



intent with respect to the specific issues involved here, we

would be engaging in a process equivalent to writing a work of

fiction because we do not find in the record any reason to

believe that when the parties were negotiating the retrocessional

agreements they intended to deal with the precise questions

involved in this case. Accordingly, though the parties surely

intended to be bound by the retrocessional agreements,

including the incorporation-by-reference clause, it would be

difficult to decide this case on a meeting-of-the-minds

determination similar to our process in Par-Knit Mills. Indeed,

we have no doubt that if the parties had foreseen the dispute

involved here, they would have dealt with it directly in the

retrocessional agreements and thereby avoided incurring the

significant cost and uncertain outcome of this litigation.



66



Id. (para. 2) (emphasis added). Considering Paragraph 1 and

2 together, see Murphy, 777 A.2d at 429-30, if Paragraph 2's

incorporation provision only clarified the extent of Lloyd's's

derivative liability—something that Paragraph 1 just

accomplished—then Paragraph 2 would be superfluous.

Rather, Paragraph 2's incorporating language, in differing

from Paragraph 1's, suggests a different purpose. The

incorporation applies "all” terms of the pertinent reinsurance

treaty.



Indeed, this reiterative incorporation clause is phrased

more strongly and expansively than those in many of the

cases that the parties cite, including those in which the

provision was held to incorporate the arbitration clause. See,

e.g., Progressive Cas., 991 F.2d at 45-46 (finding arbitration

clause was effectively incorporated against nonsignatory

solely through "subject to” language). Applying the

retrocessional agreement to give effect to all its provisions as

Pennsylvania law directs that we do, Capek v. Devito, 767

A.2d 1047, 1050 (Pa. 2001), Paragraph 2 applies as to Lloyd's

and Century the terms and provisions of the reinsurance

treaties, precisely what Paragraph 2 says.



Century also asserts that Paragraph 2's introductory

clause, "[s]ubject to the percentage allocation in the preceding

paragraph,” indicates that only certain obligations were

incorporated because only "substantive” issues relating to

liability can be subject to the percentage allocation of risk and

premiums, while "administrative” provisions such as the

arbitration clause cannot. But Paragraph 2's text does not

easily admit such a reading; its incorporating language is

inescapably broad. Thus, the more reasonable reading of

Paragraph 2 is that the parties applied "all” of the reinsurance

agreements' terms and provisions to the retrocessional

agreement, except that Lloyd's's rights and obligations

respecting premiums and losses are defined as stated in

Paragraph 1 of the retrocessional agreements. The

reinsurance treaties' arbitration provision does not conflict



67



with Paragraph 1's allocation of liability and premiums, so the

provision may be applied to the retrocessional agreements.



(3) Language Absent from the Incorporation

Clauses



We note as well certain language that the

retrocessional agreements and the reinsurance treaties lack.

Many cases denying motions to compel arbitration have

involved contractual provisions that limited the applicability

of the incorporated arbitration clause. In Chimicles, for

example, a partnership was not compelled to arbitrate

pursuant to certain subscription agreements to which it was a

signatory because the subscription agreements, which

incorporated the terms of another agreement, including that

agreement's arbitration clause, did so only as against the

limited partners, not against the partnership itself. Chimicles,

447 F.3d at 209-10. And even if it had bound the partnership,

the partnership agreement in that case also contained a

provision specifically excluding from arbitration the exact

circumstance in which the dispute in that case arose. Id. at

211.



Moreover, the retrocessional agreements do not limit

the parties against which the reinsurance treaties' arbitration

clauses are applied. Cf. Chimicles, 447 F.3d at 209-10

(partnership not bound by arbitration agreement where

subscription agreements incorporated terms of partnership

agreement, including its arbitration clause, only against

limited partners and not against partnership itself). Nor is

there a specifically applicable contractual exclusion. Id. at

211 (partnership agreement that purportedly incorporated

arbitration clause also specifically excluded from arbitration

exact circumstance under which dispute in that case arose).



Similarly, in AgGrow Oils, the construction contract,

later incorporated into the subcontract, specifically provided

that it "should not be construed to create a contractual



68



relationship of any kind” other than that between the parties to

that contract. 242 F.3d at 781. And in World Rentals, 517

F.3d at 1242-43, the underlying contract's arbitration clause

specifically defined the parties bound to arbitrate and, in an

unusual provision, explicitly excluded corporate parents or

affiliates. Cf. Precious Flowers, 523 F.3d at 532-35 (finding

that agency theory though applicable inadequate to bind

vessel owner where underlying contract authorized agent to

sign bills of lading only "without prejudice” to the vessel

owner).27 Century does not point to any such limiting

language here.



(4) Century's Problems

Century points to certain problems with Lloyd's's



position that we should construe the retrocessional

agreements to incorporate "all” of the reinsurance treaties'

provisions, including their arbitration clause, as against

Century and Lloyd's. First, applying each and every

provision of the reinsurance treaties to the retrocessional

agreements results in some duplication, because the

agreements and the treaties both contain provisions giving



27



We also note that the retrocessional agreements do not contain

language indicating an assumption of the obligations of the other

party to the underlying contracts. See Haskell, 742 F.2d at 275

("Subcontractor hereby assumes the same obligations and

responsibilities with respect to his performance under this

Subcontract, that Contractor assumes towards Owner with

respect to his performance on the General Contract.”); Gilbane

Bldg., 992 F.2d at 388 (involving agreement stating "[general

contractor] shall assume toward [subcontractor] all the

obligations and responsibilities that the owner, by [the prime

contract], assumes toward [general contractor]. [General

contractor] shall have the benefit of all rights, remedies, and

redress against [subcontractor] which the owner, by [the prime

contract], has against [general contractor].”).



69



each party access to the other's books, designating John F.

Sullivan Co. as intermediary, and providing for interim loss

payments upon request.



In addition, Century asserts that applying "all”

provisions produces absurd results. The reinsurance

agreements' Article 8 refers to employer insurance. Century

argues that it is preposterous to conclude that the parties

intended through the incorporation clause to obligate Lloyd's

on policies that Century issues directly to its own employees.

Similarly, Century claims that it is absurd to construe the

provisions covering lines of businesses through the

incorporation clause to make Lloyd's liable on any policies

Century directly issued. We note, however, that the effect of

the parties' agreement on these provisions is not before us,

and if it were the asserted absurdity possibly would be an

argument against concluding that the parties incorporated

these provisions against each other. On the other hand, it

surely would not be absurd for the retrocessional agreements

to incorporate the arbitration provisions of the reinsurance

treaties.



Moreover, Century has a more pointed problem of its

own. In view of its position here, it is significant that

Century's position during arbitration suggested that the

incorporating provisions had broad effect. In this regard,

Century in its prehearing brief during the arbitration

proceedings directed the panel to the reinsurance treaties'

follow-the-fortunes clauses:



It cannot be disputed that the contracts at issue

contain the follow the fortunes and settlements

provisions. The contracts state that: 'All loss

settlements made by the Company [Argonaut],

within the terms of this Agreement, shall be

unconditionally binding upon INA [Century],

and amounts falling to the share of INA

[Century] shall be payable by them upon

reasonable evidence of the amount paid[.]'

(XOL Treaties, Exhibit '2', Article 10.)



70



App. at 231-32 (immaterial footnote omitted) (quoting

reinsurance treaties). Century then argued that this provision

in the reinsurance treaties applied to Lloyd's vis-à-vis Century

under the retrocessional agreements:



That means that Underwriters [Lloyd's] are

bound by Century's settlements with Argonaut

and must pay Century when Underwriters

[Lloyd's] are presented with 'reasonable

evidence of the amount paid' by Century.



App. at 231-32 (immaterial footnote omitted). Consequently,

Century's position is that at least some of the resinsurance

agreements' provisions that were phrased restrictively by

referring to the immediate parties were "applied” to the

retrocessional agreements in a manner that involved

transposing the parties' names—that is, provisions referring to

Argonaut and Century can refer, through their incorporation

into and then their "application” within the retrocessional

agreements, to Century and Lloyd's. Indeed, Century

continues before us to maintain that the retrocessional

agreements contain follow-the-fortunes clauses. Appellant's

opening br. at 47.28 Century's position regarding the follow-

the-fortunes clauses thus strongly undercuts its position that

the parties did not provide for the incorporated arbitration

clause to apply vis-à-vis Century and Lloyd's to their

disputes.



(5) The Forum-Selection and Service-of-Suit

Clause



28



Of course, it hardly can do otherwise because in a sense the

entire controversy in this case centers on Century's argument

that Lloyd's was obligated to follow Century's fortunes when

Century made its payments to Argonaut.



71



Century also argues that the retrocessional agreements'

service-of-suit clause indicates that disputes between the

parties should be resolved exclusively in the courts. The

provision in question states:



In the event of the failure of [Lloyd's] hereon

to pay any amount claimed to be due hereunder,

[Lloyd's] hereon, at the request of [Century],

will submit to the jurisdiction of any Court of

competent jurisdiction within the United States

and will comply with all requirements necessary

to give such Court jurisdiction and all matters

arising hereunder shall be determined in

accordance with the law and practice of such

Court.



App. at 32 (retrocessional agreement para. 12). Cf. AgGrow

Oils, 242 F.3d at 780-81 (reading performance bond's clause

providing for judicial settlement of disputes to indicate

ambiguity as to intent to incorporate agreement to arbitrate);

Collier Dev. Co. v. Jeffco Constr. Co., 25 Pa. D. & C. 4th

193, 196-99 (Pa. C.P. 1995) (finding no intent to incorporate

agreement to arbitrate where subcontract expressly provided

different method for settlement of disputes). But service-of-

suit clauses do not negate accompanying arbitration clauses;

indeed, they may complement arbitration clauses by

establishing a judicial forum in which a party may enforce

arbitration. See Patten Secs. Corp. v. Diamond Greyhound &

Genetics, Inc., 819 F.2d 400, 406-07 (3d Cir. 1987); Suter v.

Munich Reins. Co., 223 F.3d 150, 155-56 (3d Cir. 2000);

Gaffer Ins. Co. v. Discover Reins. Co., 936 A.2d 1109, 1114-

15 (Pa. Super. Ct. 2007) (contract's service-of-suit and

consent-to-jurisdiction clause does not override contract's

arbitration clause because, giving meaning to whole contract

and to each provision if possible, provisions can coexist).

Here, the service-of-suit clause does not indicate that the

parties provided for the resolution of disputes only through

litigation.



72



(6) Imprecision in Incorporation by

Reference



As our discussion of many cases demonstrates, the

scope of incorporation-by-reference clauses in practice can

lead to uncertainties when the clauses are translated from the

underlying contract to the incorporating one. Take, for

example, an arbitration clause in a contract between A and B

stating that the clause applies to "the contracting parties” but

not specifying the bound parties by name. Assume that this

clause then is incorporated into another agreement between B

and C. If the incorporated clause strictly preserved its

original, literal meaning, "the contracting parties” would

include only the parties to the original contract, i.e., A and B.

But courts nevertheless have held that such clauses, when

incorporated into subsequent contracts through general

language of incorporation, may apply to the parties to the

incorporating contract, i.e., B and C. See, Progressive Cas.,

991 F.2d at 44-46 (where arbitration clause provided for

arbitration of disputes "between the contracting parties” in

original agreement, incorporation-by-reference clause of

subsequent agreement could bind signatories to subsequent

agreement and thus require arbitration without unduly

stretching arbitration clause's language). Parties employing

such general incorporation language therefore require for the

incorporation to be effective, and the courts perform, a certain

level of transplantation or translation to resolve the

imprecision inherent in general incorporation language.



This imprecision is at the heart of this case.

Nevertheless, having considered the agreements at issue here

in light of the cases and principles that we have discussed, and

after recognizing that it surely is difficult, if not impossible, to

reconcile all of these cases, we conclude that the most

reasonable, probable, and natural construction of the

incorporation-by-reference clause of the retrocessional

agreements is to apply the clause to include the arbitration

provision of the reinsurance treaties. The retrocessional



73



agreements' general incorporation clause, the second of two

clauses containing incorporation language, makes clear that

the clauses incorporated "all” of the reinsurance treaties'

terms and provisions so as to "appl[y]” them to the

retrocessional agreements. By employing two incorporation

provisions, including one that "applied” "all terms and

provisions of the [indicated reinsurance treaty],” the parties

bound themselves by the arbitration agreement. This

agreement to be bound is all that Pennsylvania requires for

them to be bound. Pennsylvania law does not require and

under the FAA could not require an "express” and

"unequivocal” statement specifically referring to the

arbitration clause itself to incorporate that clause in another

agreement. Despite what we acknowledge are certain strong

arguments that Century advances in support of its contentions,

applying general principles of Pennsylvania contract law we

hold that the retrocessional agreements incorporated the

arbitration clause of the reinsurance treaties and thus formed

an agreement between Century and Lloyd's to arbitrate

disputes.



4. Whether This Particular Dispute Falls

Within the Scope of the Valid Agreement to

Arbitrate



Having determined that there was a valid agreement to

arbitrate between Century and Lloyd's, we turn to the second

and we think easier aspect of the first fundamental issue in

this case: whether the particular dispute in this case falls

within the scope of that agreement. See Kirleis, 560 F.3d at

160. Regarding this question, "there is a presumption of

arbitrability in the sense that [a]n order to arbitrate the

particular grievance should not be denied unless it may be

said with positive assurance that the arbitration clause is not

susceptible of an interpretation that covers the dispute.”

AT&T Techs., 475 U.S. at 650, 106 S.Ct. at 1419 (internal

quotation marks and citations omitted) (alteration in original).



See also Rohm & Haas, 522 F.3d at 331 (citing AT&T

Techs.). We have held, however, "that the presumption of



74



arbitrability does not apply in all circumstances. Where

the arbitration provision is narrowly crafted, we cannot

presume, as we might if it were drafted broadly, that the

parties here agreed to submit all disputes to arbitration.”

Local 827, Int'l Bhd., 458 F.3d at 310 (internal citation and

quotation marks omitted).



Century and Lloyd's dispute whether the retrocessional

agreements obligated Lloyd's to reimburse Century for

payments that Century made to Argonaut to cover expenses

under the reinsurance treaties. The reinsurance treaties'

arbitration clause, which we are holding that the

retrocessional agreements incorporate as against Century and

Lloyd's, provides for arbitration of "any dispute . . . with

reference to the interpretation of this Agreement or [the

parties'] rights with respect to any transaction involved.”

App. at 59-60, 101, 127. Rather than excluding various

disputes from arbitration, this arbitration clause's scope is

broad, and the presumption of arbitrability applies to it. And

because this arbitration clause is undoubtedly susceptible of

an interpretation that covers the dispute in this case, see

AT&T Techs., 475 U.S. at 650, 106 S.Ct. at 1419, we hold

that the dispute between Century and Lloyd's over Lloyd's's

obligation with respect to the declaratory judgment expenses

falls within the scope of their arbitration agreement. Indeed,

it seems clear that the arbitration provision was written to

cover disputes exactly like the one between the parties here

and we would reach our result with or without the

presumption of arbitrability.



5. Whether The District Court Properly

Compelled Arbitration



In sum, under general principles of Pennsylvania

contract law, the retrocessional agreements each incorporated

and applied the pertinent reinsurance treaties' arbitration

clauses. First, inasmuch as the terms of the unambiguous

retrocessional agreements reflect that the parties incorporated

the arbitration clauses to form agreements to arbitrate, the

incorporation resulted in valid agreements between Century



75



and Lloyd's to arbitrate certain disputes. Second, inasmuch

as the arbitration agreements' scope included disputes arising

from the retrocessional agreements, the dispute in this case

over Lloyd's's obligations under the agreements falls within

that scope. Accordingly, because there was a valid agreement

to arbitrate between Century and Lloyd's and because the

particular dispute here falls within the scope of valid

arbitration agreements, we hold that the District Court

properly compelled Century to submit the dispute to

arbitration.



B. Whether the Arbitration Award Should Be

Vacated Because the Arbitrators Excluded Certain

Evidence from Consideration

Having found that the District Court properly



compelled arbitration, we consider the second fundamental

question that Century raises on this appeal; whether the

District Court properly confirmed the arbitration panel's

decision in favor of Lloyd's. Century challenges the

arbitration panel's decision, contending that the panel erred in

refusing to hear extrinsic evidence that Century sought to

submit regarding reinsurance industry custom and practice,

the parties' course of dealing, and Lloyd's's own historical

corporate practice of paying as well as seeking reimbursement

for declaratory judgment expenses under reinsurance

contracts covering expenses. Century claims that this

exclusion deprived it of a fair hearing and therefore requires

the vacating of the award.



The FAA allows district courts to vacate arbitration

awards "only under exceedingly narrow circumstances.”

Dluhos v. Strasberg, 321 F.3d 365, 370 (3d Cir. 2003) (citing

9 U.S.C. § 10).29 One such circumstance is "where the



29



Section 10(a) of the FAA states:



In any of the following cases the United States court in

and for the district wherein the award was made may



76



arbitrators were guilty of misconduct . . . in refusing to hear

evidence pertinent and material to the controversy.” 9 U.S.C.

§ 10(a)(3); Dluhos, 321 F.3d at 370. Section 10(a)(3)

"cannot be read, however, to intend that every failure to

receive relevant evidence constitutes misconduct which will

require the vacation of an arbitrator's award.” Newark

Stereotypers' Union No. 18 v. Newark Morning Ledger Co.,

397 F.2d 594, 599 (3d Cir. 1968). After all, even district

courts sometimes reject evidence that they should admit and

yet such erroneous rulings hardly can be characterized as

"misconduct.”



The cases make clear that vacatur pursuant to section

10(a)(3) is warranted only where "the arbitrator's refusal to

hear proffered testimony 'so affects the rights of a party that it

may be said that he was deprived of a fair hearing.'”

Teamsters Local 312 v. Matlack, Inc., 118 F.3d 985, 995 (3d

Cir. 1997) (quoting Newark Stereotypers' Union No. 18, 397



make an order vacating the award upon the application of

any party to the arbitration—



(1) where the award was procured by corruption,

fraud, or undue means;



(2) where there was evident partiality or

corruption in the arbitrators, or either of them;



(3) where the arbitrators were guilty of

misconduct in refusing to postpone the hearing,

upon sufficient cause shown, or in refusing to

hear evidence pertinent and material to the

controversy; or of any other misbehavior by

which the rights of any party have been

prejudiced; or



(4) where the arbitrators exceeded their powers,

or so imperfectly executed them that a mutual,

final, and definite award upon the subject matter

submitted was not made.



9 U.S.C. § 10(a).



77



F.2d at 599). See also Matteson v. Ryder Sys. Inc., 99 F.3d

108, 113 (3d Cir. 1996); Lessin v. Merrill Lynch, Pierce,

Fenner & Smith, Inc., 481 F.3d 813, 818 (D.C. Cir. 2007)

("Every failure of an arbitrator to receive relevant evidence

does not constitute misconduct requiring vacatur of an

arbitrator's award[;] a federal court may vacate an award only

if the panel's refusal to hear pertinent and material evidence

prejudices the rights of the parties to the arbitration

proceedings.”) (internal citations and quotations omitted).

Unsurprisingly, application of this "extremely deferential

standard” generally results in the confirmation of an

arbitration award, Dluhos, 321 F.3d at 370, though this is not

to say that a court never can vacate an arbitrator's award by

reason of his failure to consider relevant evidence.



Nevertheless a court reviewing an arbitrator's decision to

reject evidence might uphold an award even if an appellate

court when reviewing a trial court's erroneous rejection of the

evidence in similar circumstances might not find that the error

was harmless.



Certainly it is clear that "in making evidentiary

determinations, an arbitrator need not follow all the niceties

observed by the federal courts.” Lessin, 481 F.3d at 816

(citing Tempo Shain Corp. v. Bertek, Inc., 120 F.3d 16, 20

(2d Cir. 1997)) (internal quotation marks omitted). Rather, an

arbitrator "need only grant the parties a fundamentally fair

hearing.” Id. (internal quotation marks omitted). In fact, the

reinsurance treaties incorporated into the retrocessional

agreements recognized as much as they directed the

arbitrators to regard the treaties as "honorable engagement[s]”

and, consistently with this characterization, relieved the

arbitrators of "all judicial formalities” and any obligation to

"follow[ ] the strict rules of law.” Moreover, inasmuch as

arbitrators "have wide latitude in how they conduct

proceedings,” Official & Prof'l Employees Int'l Union, Local

No. 471 v. Brownsville Gen. Hosp., 186 F.3d 326, 334 (3d

Cir. 1999), it is well within an arbitrator's authority to refuse

to hear evidence that is of little relevance. See Lessin, 481

F.3d at 816; Ass'n of Flight Attendants, AFL-CIO v. USAir,



78



Inc., 960 F.2d 345, 350 (3d Cir. 1992) ("[I]f the arbitrators are

to receive evidence it must be up to them to decide issues of

relevance [or] admissibility of evidence.”).



Here, the arbitration panel refused to admit Century's

proffered extrinsic evidence based on the panel's

determination that the evidence was "irrelevant and

inadmissible.” App. at 175. The panel majority explained

that there was no need to resort to extrinsic evidence to

resolve ambiguities in the contracts because it had found the

contracts in question to be clear and unambiguous. Id.



According to Century, the excluded evidence was

pertinent and material under the follow-the-fortunes doctrine

as well as to the determination whether the agreements were

ambiguous, so its exclusion deprived Century of a fair

hearing. First, Century contends that the excluded evidence

was pertinent and material to the retrocessional agreements'

follow-the-fortunes clauses. Reinsurance contracts often

contain a follow-the-fortunes clause that "obligates the

reinsurer to indemnify the reinsured for any good faith

payment of an insured loss.” North River Ins. Co. v. CIGNA

Reins. Co., 52 F.3d 1194, 1199 (3d Cir. 1995). Such clauses

operate to prevent reinsurers from second guessing the

reinsured's good faith settlements with its insured and from

obtaining de novo review of judgments of the reinsured's

liability to its insured. Id. But follow-the-fortunes clauses

typically do not make the reinsurer liable for risks beyond

those it agreed to take in the reinsurance contract; a loss is not

reinsured if the original insurance policy does not contemplate

it or if the reinsurance agreement's terms expressly exclude it,

and a reinsurer retains the right to question whether the

reinsured's liability stems from such an unreinsured loss. Id.

at 1199-1200.



Second, Century contends that the proffered evidence

was pertinent and material to whether the retrocessional

agreements were ambiguous and therefore required extrinsic

evidence to ascertain the intent of the parties with respect to

the questions the arbitrators addressed. See Emerson Radio



79



Corp., 253 F.3d at 164 (discussing determination of contract

ambiguity).30 Century argues that, at the very least, a

determination as to ambiguity required consideration of the

extrinsic evidence in addition to the parties' proffered views.

Id. Century claims that the extrinsic evidence showed that the

term "expenses,” used in Paragraph 1 of the retrocessional

agreements, was at least ambiguous and that it was deprived

of a fair hearing by the evidence's exclusion.



The panel concluded that the retrocession and

reinsurance were unambiguous. Even so, the panel held a

hearing at which it heard argument regarding the "proper

construction of the contracts between the parties,” App. at

173, and before which it received witness statements from

Century "setting all the evidence which they would wish to

lead in chief from” two witnesses it proposed, id. at 174, as

well as written submissions from both parties regarding

objections to that evidence.



The panel considered Century's witness statements

containing the evidence that it would proffer in light of the

follow-the-fortunes clause and concluded that the evidence

was irrelevant or, at the very least, of very little probative

value to the resolution of the issues of the dispute. Inasmuch

as the question of whether the declaratory judgment expenses



30



As we have explained:



[W]hether a contract term is ambiguous is a question of

law that requires a court to hear the proffer of the parties

and determine if there [are] objective indicia that, from

the linguistic reference point of the parties, the terms of

the contract are susceptible of different meanings.

[B]efore we decide whether a contract is ambiguous, we

must consider the contract language, the meanings

suggested by counsel, and the extrinsic evidence offered

in support of each interpretation.



Emerson Radio Corp, 253 F.3d at 164 (internal citations and

quotations omitted).



80



were within the terms of the original reinsurance treaties or

the retrocessional agreements was to be based on

constructions of those contracts, extrinsic evidence was

irrelevant. Id. at 175-76. The arbitration panel further

concluded that the witnesses' testimony regarding prior

claims or payments by Lloyd's would be of little or no

probative value without further inquiries into the precise

circumstances of each claim or payment. Id. at 175-76.



Based on its conclusion that the evidence was of little or no

probative value and only would add unnecessary expense and

delay to the proceedings, the panel excluded it. Id. Likewise,

based on its conclusion that the construction of the

reinsurance and retrocession was clear and unambiguous, the

extrinsic evidence was irrelevant to construing the contracts

more generally. App. at 173-75.



Considering the arbitrators' wide latitude in making

evidentiary determinations, a latitude to which Century agreed

in the arbitration clause in the reinsurance treaties and thus,

by extension, agreed to in the retrocessional agreements when

they incorporated the treaties by reference, we cannot find

that there is a statutory basis to vacate the award. The

arbitration panel did not commit "misconduct in refusing to

hear evidence pertinent and material to the controversy.” 9

U.S.C. § 10(a)(3). Rather, the panel considered the evidence

and concluded, after receiving written submissions regarding

its substance and relevance, that it was irrelevant, a finding

that was within its authority to make. We emphasize that,

pursuant to the terms of the arbitration agreement, the

arbitrators were "relieved of all judicial formalities” and

permitted to "abstain from the strict rules of law.” App. at 59-

60, 101, 127. Because the panel's evidentiary ruling based on

written submissions and a hearing falls far short of arbitrator

misconduct depriving Century of a fair hearing, we affirm the

District Court's denial of Century's motion to vacate the

arbitration award.



* * *



See: http://www.ca3.uscourts.gov/opinarch/082924p.pdf

We construe the retrocessional agreements between

Century and Lloyd’s to incorporate the arbitration agreement

of the reinsurance treaties between Century and Argonaut,

Century’s reinsured, so that the arbitration agreement became

effective between Century and Lloyd’s, and we hold that the

dispute here fell within that arbitration agreement’s scope.

Consequently, we conclude that the District Court properly

compelled arbitration of the dispute arising from the

retrocessional agreements over Lloyd’s’s failure to pay

declaratory judgment expenses that Century had paid to its

reinsured under the reinsurance treaties. Moreover, we hold

that the arbitrators’ decision to exclude evidence Century

proffered based on the evidence’s irrelevance was well within

their authority in conducting the arbitration. We therefore

conclude that the District Court properly denied Century’s

motion to vacate the arbitration award under 9 U.S.C. §

10(a)(3). For these reasons, we will affirm the orders of the

District Court entered May 16, 2006, and May 30, 2008.

82