Carlton Fields

FEDERAL COURT CONFIRMS REINSURANCE ARBITRATION AWARD, FINDING THAT PANEL’S ALLEGED CALCULATION ERROR DID NOT JUSTIFY MODIFICATION OF THE AWARD

March 31, 2016 by Carlton Fields

A federal court recently granted a reinsurer’s motion to confirm an arbitration award, and denied a cedent’s petition to modify the same, holding that the panel’s alleged error in computing the amount due to the cedent was not apparent from the face of the award, and thus subject to the highly deferential review of review provided by the Federal Arbitration Act. Scottsdale Insurance Company sought indemnification from its reinsurers for an underlying settlement of a consolidated class action brought against its insured. Scottsdale allocated the settlement payment equally between two insurance policies implicated by the underlying suit, and billed its reinsurers on the grounds that there were ten “occurrences” under each policy. One of the reinsurers, John Deere Insurance Company, disputed the amount of Scottsdale’s settlement and its allocation methodology. The operative reinsurance agreements contained an arbitration provision, and thus the parties resolved their dispute before a three-person arbitration panel of insurance and reinsurance professionals. After a three-day hearing and post-arbitration briefing, the panel issued a final award that required John Deere to pay certain sums based on an “adjusted settlement amount” for “reinsurance billing purposes.” John Deere complied with the award.

Thereafter, Scottsdale commenced an action in the United States District Court for the District of Arizona seeking an order to modify or correct the panel’s award, on the grounds that the award contained a computational error. John Deere cross-moved to confirm. The Federal Arbitration Act, and not Arizona law, governed judicial review of the award, because the relevant provisions in the reinsurance agreements at issue provided that Arizona law only applied to the arbitration process, and not to judicial proceedings to challenge or confirm the award. Applying the federal standard, the court held the panel’s alleged calculation error was not apparent from the face of the award, and thus should not be disrupted, given the highly deferential review afforded by federal law. The court further noted that the panel was not obligated to detail its computational reasoning in the award, nor was it appropriate for the court to second-guess the panel’s legal conclusions or factual findings, even if erroneous. Accordingly, John Deere’s cross-motion to confirm was granted and Scottsdale’s Petition to Modify or Correct denied. Scottsdale Insurance Co. v. John Deere Insurance Co., No. 15-cv-00671 (USDC D. Ariz. Feb. 17, 2016).

This post written by Rob DiUbaldo.

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SECOND CIRCUIT RULES ON ARBITRABILITY QUESTION

March 30, 2016 by Carlton Fields

After a de novo review of the District Court’s ruling denying a bank’s motion to compel arbitration, the United States Court of Appeals for the Second Circuit reversed and remanded a district’s court order. The plaintiff argued that there was a factual issue whether a valid overdraft protection agreement existed and this needed to be determined by the court prior to order the matter to arbitration. However, this argument “put the cart before the horse.” As far as the motion to compel arbitration, the court considered whether a valid arbitration clause existed and if so, was the dispute within the scope of the arbitration agreement. There was a valid arbitration agreement and the dispute was covered by it. Therefore, the issue of whether there was a valid overdraft protection should be decided pursuant to the arbitration agreement. The matter was reversed and remanded to the district court to comply with the order. Hatemi v. M&T Bank, No. 14-4338-cv (2d Cir. Mar. 4, 2016).

This post written by Barry Weissman.

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NEW YORK FEDERAL COURT ADDRESSES UMPIRE’S “PRE-SELECTION” DISCLOSURE OBLIGATIONS IN REINSURANCE DISPUTE

March 29, 2016 by Carlton Fields

In a dispute arising out of a series of contentious reinsurance arbitrations over a seven-year period between National Indemnity Company (“NICO”) and IRB Brasil Ressegurous S.A., the court confirmed three awards issued by an arbitration panel in NICO’s favor. IRB had sought coverage for a significant property and business interruption loss under a retrocessional reinsurance contract entered into with NICO. A dispute arose concerning NICO’s indemnification obligations for the loss, which was submitted to arbitration before a three-person panel. Other issues between the parties, including whether NICO was entitled to keep certain premium paid under another retrocessional agreement between the parties, and its request for attorneys’ fees and costs, were also submitted to the panel. Ultimately, the panel issued three awards in NICO’s favor.

Each party sought confirmation and vacatur of the awards through various lawsuits filed in federal court, which were consolidated. One of the primary bases upon which IRB sought vacatur was that the umpire failed to disclose his appointment as party-arbitrator for an entity that was an alleged affiliate of NICO in a separate dispute during the period of time between his nomination as umpire (after his umpire questionnaire was completed) and his eventual appointment some two-years later. For this reason, IRB asserted that the umpire demonstrated evident partiality towards NICO, requiring vacatur of the awards under the Federal Arbitration Act. The court disagreed with IRB, finding that the umpire had no obligation to disclose the appointment during the period after he completed the umpire questionnaire, while he was up for consideration, and that the umpire’s voluntary disclosure post-selection (and decision not to withdraw) was sufficient. Further, the court noted that there was no case law supporting the notion that an arbitrator’s disclosure after being selected as umpire, instead of during the period in which his nomination was pending, constituted sufficient grounds to vacate an arbitration award. Notably, the decision cited to the ARIAS-US Code of Conduct in analyzing the umpire’s conduct, finding that he acted in accordance with the Code in addressing the situation. National Indemnity Co. v. IRB Brasil Ressegurous S.A., No. 15-cv-3975 (USDC S.D.N.Y. Mar. 10, 2016).

This post written by Rob DiUbaldo.

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UK COURT ADDRESSES ARBITRATOR’S PURPORTED CONFLICT OF INTEREST

March 28, 2016 by Carlton Fields

A dispute arose over a project in Iraq between a British Virgin Island claimant and a Malaysian defendant with a sole Canadian QC arbitrator. The claimant’s challenge of the arbitrator’s award was based upon bias because of the arbitrator’s purported conflict of interest. The basis of the conflict was that members of the arbitrator’s firm regularly represented the claimant’s affiliate, deriving substantial financial income from the representation. The arbitrator neither advised nor received income from the firm’s representation of the affiliate. Further, for the past dozen years or so, the arbitrator served almost solely as an international arbitrator, did not participate in partnership matters, nor really represented clients and is treated by the firm as a sole practitioner. In accepting the appointment, the arbitrator never disclosed that his firm represented the affiliate because the firm’s conflict system never disclosed the representation and he was not aware of it.

In finding that there was no possibility of bias, the court considered these facts: (i) the arbitrator was a partner in a law firm; (ii) the law firm earns a substantial amount of money from another entity that has the same corporate parent as the party in the arbitration; (iii) the party in the arbitration was not advised by the firm or the arbitrator; (iv) the arbitrator operated as a sole practitioner only using the firm for secretarial and administrative support; and (v) the arbitrator made all disclosures of which he was advised, although the firm’s conflict system had not advised him of its representation of the affiliate. The court then examined the 2014 International Bar Association Guidelines on Conflicts of Interest in International Arbitrations, pointing out that these were only guidelines and not the force of law. While the Guidelines contain a section entitled “Non-Waivable Red List” which encompassed this situation, the court took issue with them since he believed that this situation was clearly one that should be waivable. Finding that the challenge must fail, the award was confirmed. In the High Court of Justice Queen’s Bench Division Commercial Court, W Limited v. M SDN BHD, Neutral Citation Number [2016] EWHC 422 (Comm).

This post written by Barry Weissman.

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SECOND CIRCUIT AFFIRMS THE CONFIRMATION OF AN ARBITRATION AWARD, FINDING NO MANIFEST DISREGARD OF THE LAW

March 24, 2016 by Carlton Fields

The appellant argued that the arbitrator failed to weigh evidence properly when it made a finding of fact with respect to the passing of title. The Second Circuit rejected this as a basis of overturning an award based “manifest disregard of the law,” holding that the Second Circuit “does not recognize manifest disregard of the evidence as proper ground for vacating an arbitrator’s award.” The court then ruled out any other basis to find a manifest disregard of the law, and affirmed the lower court’s confirmation of the arbitral award. ISMT, Ltd. v. Fremak Indus., Inc., Case No. 15-2086 (2d Cir. Feb. 24, 2016).

This post written by Zach Ludens.

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