Noble Assurance Company insured its parent, Shell Petroleum, Inc., and reinsured the risks with Gerling-Konzern General Insurance Co – UK. When a dispute arose over the reinsurance, the parties arbitrated the dispute in London. The Panel ruled in Nobel's favor, and Gerling then filed suit in US District Court in Vermont against Noble and Shell, seeking rescission of the reinsurance agreement, vacature of the London arbitration award on the basis that it violated public policy and was issued in manifest disregard of the law and declarations that various contracts were void. In a preliminary ruling, the District Court permitted jurisdictional discovery as to the claim against Shell, denied Gerling's motion for summary judgment and granted Noble's motion to dismiss in part. The fundamental issue of whether the US court action could attack the London arbitration award was not presented in these motions. Gerling-Konzern General Ins. Co – UK v. Noble Assurance Co., Case No. 06-76 (D. Vt. Nov. 1, 2006). It will be interesting to follow this action, since it appears to be, at least in significant part, a collateral attack on the London arbitration award.
Confirmation / Vacation of Arbitration Awards
Court denies multiple challenges to NASD arbitration award
A District Court has denied a motion to vacate an arbitration award in a securities matter entered by an NASD panel, which sought vacation on the following grounds: (1) the award was irrational, in light of the evidence presented; (2) the Panel improperly refused to hear the rebuttal testimony of an expert; and (3) one of the arbitrators exhibited evident partiality. The Court concluded that the “irrationality” argument amounted to nothing more than a disagreement with the arbitrators' decision, that the evidence ruling was within the discretion of the Panel and that there was insufficient evidence of evident partiality. The court noted that “[a]s long as there is some basis for the arbitrators' decision, no matter how 'slender' that basis may be, the award must be confirmed.” Edward Mellon Trust v. UBS Painewebber, Inc., Case No. 06-0184 (USDC W.D. Pa. Nov. 6, 2006).
Arbitration award refusing to avoid reinsurance confirmed
A court has confirmed, by agreement of the parties, an arbitration award that rejected an attempt to avoid multiple excess of loss reinsurance agreements based upon the contention that the reinsured had not disclosed information in its possession at the time of placement with respect to prospective losses. The Petition to Confirm Arbitration Award describes the background of the dispute, which resulted in an Award, which was confirmed in an Order entered based upon a joint stipulation. American Home Assur. Co. v. CGU Int’l Ins., Case no. 06-6819 (S.D. N.Y.).
Arizona Court rejects collateral modification of an arbitration award
Cundiff and State Farm arbitrated the amount of damage suffered by Cundiff as a result of an automobile accident while working. Neither party challenged the award or sought confirmation. The policy contained a provision allowing State Farm to offset benefits received from worker's compensation from any policy claim. Cundiff sued State Farm, contending that she was entitled to recover the full amount of her loss, without an offset for the workers' compensation benefits. The Court determined that the full amount of Cundiff's loss, at least implicitly including the offset issue, had been litigated in the arbitration, and that Cundiff's failure to follow Arizona law to seek modification of the arbitration award barred her action, justifying summary judgment in favor of State Farm. Cundiff v. State Farm Mut. Auto. Ins. Co., Case No. 2005-0209 (Az. Ct. App. Oct. 27, 2006).
Opinions on confirmation of arbitration awards
Four recent non-reinsurance opinions have applied accepted principles in the confirmation of arbitration awards:
- A party may not successfully contend that an arbitration award entered pursuant to what is referred to as the “baseball arbitration” process is “manifestly irrational and prejudicial” when the parties agreed to use that process. The Court also found that a claim that the award was the result of corruption, fraud or undue means failed because the proof of fraud was vague, rather than clear and convincing, and there was no nexus demonstrated between the alleged fraud and the basis for the award. U.S. Steel Mining Co. v. Wilson Downhole Services, Case No. 02-1758 (USDC W.D. Pa. Oct. 5, 2006)
- An arbitration award was confirmed where a panel granted a Respondent summary judgment, holding that the doctrines of res judicata, collateral estoppel and waiver all precluded the panel from deciding the merits of the Petitioner's claims. Sherrock Bos., Inc. v. DaimlerChrysler Motors Co., Case No. 06-351 (USDC M.D. Pa. Oct. 12, 2006)
- An arbitration award was confirmed, rejecting a contention that the award failed to draw its essence from the contract at issue, since the arbitrator's award arguably construed the contract. Appalachian Regional Healthcare v. Ky. Nurses Assoc., Case No. 06-150 (USDC E.D. Ky. Oct. 13, 2006)
- An arbitration award was vacated on the basis that it failed to draw its essence from the underlying contract, where an award contravened express contractual limits on the authority of the arbitrator. The Court rejected the suggestion that it was merely disagreeing with the award. Truck Drivers Local Union No. 164 v. Allied Waste Systems, Inc., Case No. 05-73509 (USDC E.D. Mich. Oct. 16, 2006).