Opinion ID: 1436064
Heading Depth: 1
Heading Rank: 27

Heading: Imprecision in Incorporation by Reference

Text: 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 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.