Judge: Relationship Involving Arbitrator Justifies Vacatur Of Award

Mealey's (April 4, 2017, 10:28 AM EDT) -- NEW YORK — A federal judge in New York on March 31 vacated a reinsurance arbitration award because of an arbitrator’s failure to disclose his relationships with one of the arbitrating parties (Certain Underwriting Members at Lloyd’s, London v. Insurance Company of the Americas, Nos. 16-cv-323, 16-cv-374, S.D. N.Y.). (Opinion available.  Document #12-170407-011Z.)

Certain Underwriting Members at Lloyd’s, London (Underwriters) sued the Insurance Company of the Americas (ICA) on Jan. 15, 2016, in the U.S. District Court for the Southern District of New York. 

Underwriters and ICA entered into a reinsurance agreement that was underwritten as a workers’ compensation catastrophe cover.  A dispute arose, and ICA demanded arbitration.  Underwriters said the arbitration panel issued a final award on Oct. 19, 2015, ordering that it is responsible for claims totaling more than $2.5 million.

Misconduct

In its complaint, Underwriters asked for an order vacating the arbitration award because a member of the arbitration panel allegedly engaged in misconduct by failing to disclose his relationship with ICA.  ICA cross-moved to confirm the award on Feb. 27, 2016.

In his opinion, Judge Vernon S. Broderick noted that the Federal Arbitration Act (FAA), 9 U.S. Code Section 9, 9 U.S.C. § 9, “provides for judicial confirmation of arbitration awards if the parties have consented to such confirmation in their agreement to arbitrate.”

“Under the FAA, a court may vacate an arbitration award upon an application of any party to the arbitration . . . where there was evident partiality or corruption in the arbitrators, or either of them,” the judge said.

Partial

Citing Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60, 64 (2d Cir. 2012), the judge said, “A court can only vacate an arbitration award for evident partiality ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’”

“Here, Underwriters . . . makes three principal arguments in support of vacatur:  (1) the award should be vacated because of arbitrator [Alex] Campos’s failure to disclose his extensive business relationships with ICA and individuals associated with ICA as well as his questionable background in the financial services industry; (2) the arbitration violated fundamental fairness to Underwriters . . . because the arbitration panel failed to adjourn the arbitration to allow for production of material information; and (3) the arbitration award must be vacated because it demonstrates a manifest disregard of the law,” the judge explained.

“Arbitrator Campos’s failure to disclose his significant relationships with principals of ICA, and with ICA itself, requires vacatur of the arbitration award,” the judge held.

Granting

In granting Underwriters’ motion to vacate the award, the judge denied ICA’s motion to confirm the award.

Underwriters is represented by Ryan A. Nolan, Timothy W. Stalker and Kenneth Porter of Weber Gallagher Simpson Stapleton Fires & Newby in Philadelphia and Joshua P. Broudy of Rosenthal Lurie & Broudy in Philadelphia.

ICA is represented by Philip J. Loree Jr. of Loree & Loree in New York.

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