A reinsurance contract had what is termed a narrow arbitration provision, requiring arbitration only of disputes relating to the interpretation of the contracts. The service of suit clause provided for the resolution by a court of the failure to pay an amount claimed to be due. A dispute arose as to a claim submitted under the contract, specifically whether payment should be made to the insolvent claimant or its liquidator. A US District Court has determined that since the resolution of that question requires interpreting provisions of the reinsurance contract, the dispute is arbitrable. Railroad Insurance Underwriters v. Certain Underwriters at Lloyd’s London, Case No. 07-3071 (USDC S.D.N.Y. June 4, 2007).
Arbitration Process Issues
Arbitration Awards – Part I
There have been a large number of Court of Appeal and District Court opinions recently relating to arbitrations awards. This week, we present a two-part post to present these opinions. Today's post concerns evident partiality and venue, while tomorrow's will address the scope of arbitrators' authority and manifest disregard of law.
- In a potentially important opinion, the Second Circuit has issued a fairly detailed analysis of a situation in which an arbitrator came to be aware of a business relationship between his company and the parent company of one of the parties to the arbitration. Rather than investigate, he walled himself off with a “Chinese Wall” in an attempt to remain ignorant, and did not disclose his lack of investigation of the potential conflict. The District Court held that this constituted evident partiality, and vacated the arbitration award. The Court of Appeals affirmed. This case contains a good discussion of the legal principles relating to evident partiality. Applied Industrial Materians Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., Case No. 06-3297 (USCA 2d Cir. July 9, 2007).
- In Toroyan v. Barrett, Case No. 06-4422 (USDC SD N.Y. July 10, 2007), the court confirmed an arbitration award over objections of evident partiality and manifest disregard of law. The evident partiality claim was based on the fact that parties to the arbitration had contributed to maintaining an endowed chair in a different school of the University where the arbitrator was a professor. The court rejected the evident partiality claim for three reasons: (1) there was no indication that the arbitrator knew of the relationship; (2) the relationship was immaterial; and (3) the objector should have known about the issue and raised it prior to losing the arbitration.
- In The Ridge at Red Hawk, LLC v. Schneider, Case No. 06-4162 (USCA 10th Cir. July 9, 2007), the 10th Circuit affirmed a venue decision by an arbitration panel. This case is intersting in part because it involves parallel proceedings in a Texas state court and a Utah federal court, with Rooker-Feldman Doctrine implications. The courts concluded that a somewhat unique arbitration provision in the contract underlying the dispute allowed an appeal of the venue issue only if the determination was strictly legal in nature, and the arbitration award indicated that the venue determination was a combination of a legal and factual determination. Therefore, the courts dismissed the federal court challenge to the arbitration award.
- In ReliaStar Life Ins. Co. v. Certain Underwriters at Lloyd's London, Case No. 06-3845 (USDC D Minn. Feb. 1, 2007), the court confirmed an arbitration award by agreement of the parties. The Stipulation filed with the court includes a copy of the award.
Court Grants Reinsurer’s Motion To Compel Arbitration
Century Indemnity Company (“Century”) sued Clearwater Insurance Company (“Clearwater”) seeking payment under a facultative reinsurance certificate which contained an arbitration clause. Clearwater moved to stay the litigation and compel arbitration.
A New York district court granted Clearwater’s motion finding that the parties’ dispute, which involved differences of opinion with respect to the interpretation of the contract provisions, clearly fell within the purview of the arbitration clause. Additionally, the court concluded that Clearwater did not waive its right to arbitrate its dispute by waiting five months after the commencement of the litigation to demand arbitration. To the contrary, the court considered the five month period a “relatively short period of time.” Century Indemnity Company v. Clearwater Insurance Company, Case No. 06-0424 (S.D.N.Y. June 4, 2007).
Two Courts rule on Arbitrator Appointment Disputes
After the parties had appointed arbitrators in a reinsurance dispute, and proposed several names to the party-appointed arbitrators for their consideration as umpire, a dispute arose as to whether the parties had agreed to extend the time to provide additional names for consideration as umpire. A motion was filed to resolve the issue. The Court determined that one of the persons already selected should be appointed due to his connections with the parties or counsel on both sides of the dispute. Glacier Reinsurance AG v. Odyssey American Reinsurance Corp., Case No. 07-583 (USDC D. Conn. June 27, 2007).
An unusual situation was presented in Baylor Univ. Medical Center v. GE Group Life Assur. Co., Case No. 06-103 (USDC N.D. Tex. June 12, 2007), which had one Plaintiff and multiple Defendants. The arbitration was governed by the rules of the American Arbitration Association. The agreement stated that each party would appoint an arbitrator. The AAA interpreted this to require that the three Defendants jointly agree upon and appoint one arbitrator. Some of the Defendants disagreed with this interpretation. The Court decided that since the parties had consented to the authority of the AAA, that the AAA’s interpretation of the agreement controlled. The Court appointed one arbitrator on behalf of all of the Defendants.
Party To Arbitration Waived Right to Contest Consolidation
Plaintiff, Kentucky oil-and-gas developer Martin Ray Twist, sought an order compelling the defendant Investors to arbitrate separately their state law claims of securities violations, fraud, and other wrongs. Plaintiff’s motion was filed in federal court only weeks after a party-appointed arbitrator issued an order denying this identical request. The United States District Court for the Southern District of Indiana denied Plaintiff’s motion reasoning that “…Twist freely elected to let the arbitrator tackle the question.” The Court concluded that “[h]aving allowed the arbitrator to decide the issue, Twist cannot ask the court to overturn the ruling.” Martin Ray Twist v. Arbusto, Case No. 05-0187 (USDC S.D. Ind. June 8, 2007).