By Ugonna Kanu
A New York federal court has overturned an arbitration award brought against Lloyd’s of London underwriters on the ground of evident partiality of one of the tribunal members who failed to disclose his relationship with the respondent, Florida-based Insurance Company of Americas.
ICA has filed an appeal from a decision vacating the award in favor of Lloyd’s to the Second U.S. Circuit Court of Appeals. ICA claimed that New York U.S. District Court Judge Vernon S. Broderick confused the need for its party arbitrator’s “disinterestedness” with the need to be impartial.
ICA filed its brief July 20.
Broderick’s decision in Certain Underwriting Members at Lloyd’s of London v. Ins. Co. of the Americas, Case No: 1:16-cv-00323 (March 31)(available at http://bit.ly/2uIGkqY), was based on the evidence that the party-appointed arbitrator failed to disclose his relationship with the party that appointed him even after several opportunities were provided for such disclosure.
Broderick found that the “undisclosed relationships are significant enough to demonstrate evident partiality,” and vacated the award requiring Lloyd’s-represented reinsurance contracts to pay excess claims on two injury cases insured by ICA.
ICA argued that that “the only arbitrator qualification” for its tribunal pick “is that he be disinterested, which . . . means solely [a lack of] financial or other personal stake in the outcome.”
ICA also contended that other circuit courts “have found that evident partiality standards either do not apply or are even more relaxed in the case of party appointed arbitrators in tripartite industry arbitrations.”
District Court Judge Broderick adopted the evident partiality test set out in Three S Del., Inc. v. DataQuick Info. Sys., Inc., 492 F.3d 520, 530 (4th Cir. 2007(available at http://bit.ly/2vasPRv), to determine this case. The test includes four factors: the extent of the arbitrator’s personal interest in the proceedings; how direct the arbitrator’s relationship is with the party he was alleged to favor; the connection of the relationship to the arbitrator; “and the proximity in time between the relationship and the arbitration proceeding.”
In the case, the arbitrator and the ICA not only share the same building, but also the same suite. ICA’s treasurer and secretary, also a director of the company, is additionally the chief financial officer of the arbitrator’s company. The arbitrator had a business connection between the ICA president and others whose names were repeatedly mentioned during the arbitration, providing the arbitrator an ample opportunity to disclose, which he didn’t.
Finally, when the arbitrator was expressly asked of his business relationship with ICA, he said he had none.
Applying these factors, the federal district court held that the non-disclosure demonstrates evident partiality and is sufficient ground to vacate the award, which the court viewed a nondomestic award under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.
The reasoning, according to the opinion, was that, considering the relationship between the arbitrator and ICA, “a reasonable person would have to conclude that [the] arbitrator who failed to disclose under such circumstances was partial to one side.” Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132, 137 (2d Cir. 2007).
The opinion, however, noted that Lucent Techs. Inc v. Tatung Co., 379 F.3d 24, 28, 30 (2d Cir. 2004) held that the court didn’t “establish a per se rule requiring vacatur of an award whenever an undisclosed relationship is discovered.”
The appeal was filed on April 20. In its July brief asking the Second Circuit to reinstate the award, ICA returns to the distinction between disinterestedness and neutrality.
“The only neutrality requirement was disinterestedness—the lack of personal or financial stake in the outcome,” the brief noted, adding: “But the district court did not vacate the award on the ground that the party-appointed arbitrator failed to disclose matters that would require a reasonable person to conclude that the arbitrator had a financial or personal interest in the outcome. It vacated based on relationships that were irrelevant to the disinterestedness requirement.”
The ICA brief asking the Second Circuit to consider the case emphasized that “there is no evidence that the arbitrator had a personal or financial interest in the outcome.”
The author is an attorney in Nigeria who has just completed her L.L.M. in Dispute Resolution at the University of Missouri-Columbia School of Law. She is a CPR Institute 2017 summer intern.
One thought on “Insurer Appeals Evident Partiality Finding That Overturns Arbitration Award”
Well detailed and articulated article