Arbitration Process Issues

REINSURER LIMITED TO COMPLAINT’S REQUEST FOR APPOINTMENT OF NEUTRAL UMPIRE

November 14, 2011 by Carlton Fields

A dispute arose between Century Indemnity Company and Everest Reinsurance Company over reinsurance coverage for certain asbestos claims. The parties each selected an arbitrator pursuant to the procedure set forth in their reinsurance treaty. Unable to reach agreement on the selection of a neutral umpire, Everest filed an action seeking appointment of an umpire or, in the alternative, to compel Century to participate in an ARIAS neutral umpire selection process. After Everest filed its complaint, however, Century agreed to the ARIAS process as part of a global agreement involving the arbitration (the “Formosa Arbitration”), and two other pending arbitrations (the “Congoleum Arbitration” and the “Flintkote Arbitration”), mooting the issue. Everest thereafter moved to enforce the global agreement, complaining that Century had sought to consolidate the Congoleum Arbitration with another arbitration that was not part of the agreement, and in which a panel of arbitrators had already been selected, circumventing the agreed-upon panel selection process. The court denied Everest’s motion on the basis that it was outside the complaint’s scope, which merely sought appointment of a neutral umpire in the Formosa Arbitration. To obtain relief regarding the Congoleum Arbitration, Everest could file a motion with the Congoleum Arbitration panel or in the court where other motions relating to that proceeding were pending. Everest Reinsurance Co. v. Century Indemnity Co., Case No. 11-2789 (USDC D.N.J. Oct. 31, 2011).

This post written by Ben Seessel.

STATE INSURANCE LAW THAT PRECLUDES ARBITRATION PREEMPTED IN FAVOR OF THE FAA UNDER THE LIABILITY RISK RETENTION ACT

November 7, 2011 by Carlton Fields

A court recently compelled arbitration in a dispute between an insured and an insurer-risk retention group, concluding that the McCarren-Ferguson Act did not mandate the enforcement of a state anti-arbitration law over the FAA and broad arbitration agreements between the parties. The court held that while McCarran-Ferguson was met to the extent that (1) the federal law (the FAA) impaired the state insurance law, and that (2) the FAA does not clearly relate to the “business of insurance,” here the relationship between the parties was not a classic insurance relationship. The insurer was not a public offering insurance company, but rather a risk retention group, which necessitates the application of the federal Liability Risk Retention Act, a law that preempts state laws that impair the “formation or operation” of risk retention groups. The court concluded that such an impairment existed in this case because the state law prohibiting arbitration would significantly increase the costs of litigation, adversely affecting the risk retention group’s operations. Central Claims Service, Inc. v. Claim Professionals Liability Insurance Co., Case No. 10-04672 (USDC E.D. La. Sept. 2, 2011).

This post written by Michael Wolgin.

VACATUR OF AWARD BASED ON “MANIFEST DISREGARD” REVERSED IN SEVENTH CIRCUIT

November 3, 2011 by Carlton Fields

The Seventh Circuit recently reversed a lower court’s decision to vacate a portion of an arbitration award in a patent dispute that the lower court found to be a “manifest disregard of the law.” The Seventh Circuit explained that “manifest disregard” is not an independent basis for vacatur, and can only support vacatur to the extent it reflects that arbitrators “exceeded their powers” under the applicable contract. Here, the underlying arbitration was authorized to determine the inventorship of certain patents, and the lower court failed to identify any manner in which the arbitrators exceeded that contractual authority. Noting that arbitrators are free to act without issuing written opinions, the Seventh Circuit held that the lower court committed a “logical error” by inferring “from silence” that the arbitrators relied on an extra-contractual ground. “Silence,” the Seventh Circuit explained, “is just silence.” Affymax, Inc. v. Ortho-McNeil-Janssen Pharmaceuticals, Inc., Case No. 11-2070 (7th Cir. Oct. 3, 2011).

This post written by Michael Wolgin.

COUNSEL DISQUALIFIED FOR OBTAINING AND CONCEALING POSSESSION OF INTERNAL ARBITRATION PANEL COMMUNICATIONS

November 1, 2011 by Carlton Fields

On May 25, 2011, we reported on the denial of Northwestern National Insurance Co.’s petition to appoint a replacement arbitrator after opponent INSCO’s appointed arbitrator resigned in protest to perceived partiality by Northwestern’s appointee. The court has now disqualified INSCO’s counsel for improperly procuring from its former appointee, and then hiding, internal emails between members of the panel containing deliberations in the ongoing arbitration. INSCO’s counsel had requested the documents to substantiate its allegations that Northwestern’s appointed arbitrator was biased. The court found that it, rather than the panel, was the proper entity to determine attorney discipline and that INSCO’s counsel’s actions constituted “a serious violation of arbitral guidelines, as well as ethical rules.” Northwestern National Insurance Co. v. INSCO, Ltd., Case No. 1:11-cv-01124 (USDC S.D.N.Y. Oct. 3, 2011).

This post written by Michael Wolgin.

DISTRICT COURT REFUSES TO DISQUALIFY ARBITRATORS IN REINSURANCE DISPUTE

October 31, 2011 by Carlton Fields

IRB-Brasil and National Indemnity Company recently filed cross petitions concerning the ongoing arbitration between the parties. The arbitration arises out of a dispute over reinsurance policies issued by NICO to IRB. IRB sought to stay the arbitration, to disqualify NICO’s appointed arbitrator, and to appoint one in his place. It sought further to consolidate the two arbitration proceedings pending between the parties. In the alternative, IRB sought to form an arbitration panel to determine whether the arbitrations should be consolidated. NICO, for its part, sought to designate a neutral third-party arbitrator in one of the pending arbitrations. The court denied all petitions, concluding that under the Federal Arbitration Act it was not authorized to disqualify an arbitrator chosen in accordance with the parties agreement to arbitrate. The agreement specified only that the arbitrators be “active or retired officers of insurance or reinsurance companies,” a criterion that had been fulfilled. All other decisions before the Court stemmed from this conclusion and the petitions were accordingly denied. IRB-Brasil Resseguros v. National Indem. Co., No. 11-1965 (USDC S.D.N.Y. Oct. 6, 2011).

This post written by John Black.