A District Court has confirmed an arbitration award finding no coverage under an insurance policy due to the presence of an absolute pollution exclusion. The policy did not have a choice of law provision, and the arbitration grew out of a declaratory judgment action filed by the insurer in US District Court in Indiana. Indiana law does not enforce the absolute pollution exclusion. Since the arbitration agreement provided for arbitration under the rules of the American Arbitration Association, which did not require that any substantive law apply, the arbitration panel declined to apply Indiana law, and arrived at what it viewed to be a fair and just decision. The District Court found no error in this decision. Reliance Ins. Co. v. Raybestos Products Co., Case No. 97-0027 (USDC S.D. Ind. Jan. 27, 2007). Additional background information may be found in the memoranda filed by Reliance and Raybestos as to whether the award should be confirmed or vacated.
Confirmation / Vacation of Arbitration Awards
In a non-insurance arbitration, the United States Court of Appeals for the Tenth Circuit has affirmed the confirmation of an arbitration award, rejecting an argument that the arbitrator had acted in manifest disregard of law. The Court found that while the arbitrator's decision on liability “may be a close call,” it did not constitute manifest disregard of law. The Court also rejected an argument by a party against which an award had been entered that it was not a proper party to the arbitration, since it was not a party to the underlying note. This argument was rejected, in part because the party had vigorously participated in the arbitration without making any objection to its being named as a party. Hicks v. Bank of America, Case No. 05-1399 (10th Cir. Feb. 21, 2007).
Following arbitration of a dispute between parties to a coinsurance arrangement, an arbitration panel awarded attorney and arbitrator fees and costs to one party. A District Court confirmed the award, but vacated the award of fees and costs, which exceeded three million dollars, concluding that the award exceeded the arbitrators’ powers. The court relied on the terms of the coinsurance agreements, which expressly stated that “[e]ach party shall bear the expense of its own arbitrator…and related outside attorneys’ fees.” The court held that despite the breadth of the agreements to arbitrate, these provisions made clear that the arbitrators had no authority to award outside attorneys’ fees. The Court's decision is reflected in an Order, and a Judgment, with additional information about the case available in Memoranda filed by Reliastar and EMC National Life. Reliastar Life Insurance Company of New York v. EMC National Life Insurance Company, No. 06-cv-10186 (S.D.N.Y., February 13, 2007).
In an appeal from an award in an NASD-sponsored arbitration, the Tenth Circuit has joined virtually all other Circuits in recognizing that arbitrators, arbitral forums and arbitral sponsors are immune from liability for actions taken in connection with administering arbitration. Pfannenstiel v. Merrill Lynch, Pierce, Fenner & Smith, Case No. 04-1274 (10th Cir. Feb. 20, 2007).
Three recent appellate opinions confirmed arbitration awards:
- The Eighth Circuit reversed a District Court Order, remanding for confirmation of an arbitration award. The District Court had vacated the award on the basis that the Panel's finding that California law applied, and its dismissal of a claim under the Minnesota Franchise Act, violated a fundamental public policy of Minnesota. The Court of Appeals reversed, finding that the applicable standards under the California and Minnesota franchise statutes were virtually identical. Twin Cities Galleries, LLC v. Media Arts Group, Inc., Case No. 06-1777 (8th Cir. Feb. 9, 2007).
- On January 27, 2006, the Sixth Circuit entered an opinion affirming the decision of a District Court vacating an arbitration award on the basis that the award did not draw its essence from an applicable collective bargaining agreement. However, in an en banc opinion, the Court has overruled the appellate panel, reversing and remanding for the entry of an Order confirming the arbitration award. The basis for the reversal rested upon findings that: (1) the arbitrator was not charged with fraud or dishonesty in making the award; (2) the arbitrator was arguably construing the contract in the award; and (3) the party challenging the award showed nothing more than an error or a “serious error” in the arbitrator's interpretation of the contract. Michigan Family Resources, Inc. v. Service Employees International Union, Case No. 04-2564 (6th Cir. Jan. 26, 2007).
- The Appellate Division of the New Jersey Superior Court has affirmed summary judgment against an arbitration claimant in a case arising out of an automobile accident. An arbitrator dismissed the claim based upon a failure of proof and failure to prove causation. An appeal was denied under the applicable appeal rules of the American Arbitration Association. The claimant then filed a Complaint in Court, contending that the respondent in the arbitration had committed fraud. The court granted summary judgment, finding that to be potentially viable, a fraud claim must allege fraud on the part of the arbitrator rather than a party, and that the Complaint was not timely filed. The appellate panel affirmed. Brown v. CSC Insurance Services, Docket No. A-2283-05T5 (Jan. 22, 2007).