(Article from Insurance Law Alert, June 2018)
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Our April 2017 Alert reported on a New York federal district court decision vacating an arbitration award in a reinsurance dispute based on an arbitrator’s failure to disclose his relationship with a party to the dispute. Certain Underwriting Members at Lloyd’s of London v. Insurance Co. of the Americas, 2017 WL 5508781 (S.D.N.Y. Mar. 31, 2017). This month, the Second Circuit vacated the decision, finding that the district court applied an incorrect standard for evaluating the partiality of a party-appointed arbitrator. Certain Underwriting Members of Lloyds of London v. State of Florida, Dep’t of Fin. Svs., as Receiver for Ins. Co. of the Americas, 2018 WL 2727492 (2d Cir. June 7, 2018).
ICA entered into reinsurance treaties with certain Lloyd’s Underwriters. When a dispute over a reinsurance claim arose, ICA demanded arbitration and designated Alex Campos as its arbitrator. Each arbitration panel member made affirmative disclosures regarding their relationships with the parties and individuals involved in the dispute. Campos indicated that he had no personal relationship with any party or any business relationship with ICA. At the end of arbitration, the panel issued an award in ICA’s favor. The Underwriters moved to vacate the award based on Campos’ evident partiality. The district court granted the motion, concluding that the Underwriters had established evident partiality by clear and convincing evidence based on Campos’ failure to disclose his extensive business relationships with ICA and individuals associated with ICA.
The Second Circuit disagreed, holding that a party seeking to vacate an award under the Federal Arbitration Act must sustain a high burden to prove evident partiality on the part of a party-appointed arbitrator. Noting that party-appointed arbitrators are “expected to espouse the view or perspective of the appointing party,” the court held that evident partiality in this context requires a heightened showing that the relationship violates the contractual requirement of disinterestedness, or it prejudicially affects the award. As the court noted, several other circuit courts have concluded that the disclosure requirements for neutral arbitrators/umpires do not extend to party-appointed arbitrators.
The Second Circuit remanded the matter for a determination as to whether the Underwriters have shown by clear and convincing evidence that Campos’ omissions violated the contractual requirement of “disinterestedness” or had a prejudicial impact on the award.