In the Spring 2016 issue of AIRROC Matters, we featured Part 1 of a multipart arbitration series by Michael Goldstein and Dan Endick titled, “When Courts Peek Under the Arbitral Veil: The Role of the Courts in Managing Your Reinsurance Arbitration.” Part 2 was “Lifting the Veil on Arbitration Proceedings: Who’s Your Counsel – Disqualification of Counsel by Courts” and it appeared in the Summer 2016 issue. This is Part 3 of the series.
In addition to resignations, disqualification of an arbitrator in a pending arbitration is another remedy that is more frequently sought in the courts. Although not considered the “general rule,”1 it is difficult to see why more litigants have not attempted to make analogous arguments as they do with resignations. See, e.g., Ins. Co. of N. Am. v. Pub. Serv. Mut. Ins. Co., 609 F.3d 122, 130 (2d Cir. 2010); WellPoint, Inc. v. John Hancock Life Ins. Co., 576 F.3d 643, 647 (7th Cir. 2009). A common request for disqualification asserts that an arbitrator was not disinterested or was not properly selected under the relevant contractual provisions and therefore must be replaced. One might argue that the entire panel should be replaced because there is a potential that the newly-selected arbitrator would be tainted by the two remaining arbitrators. Although this might be a plausible argument, given the case law involving arbitrator disqualification, it seems that the courts generally respect the parties’ rights pursuant to contract to select an arbitrator and are hesitant to intervene to disqualify one.
In Trustmark v. John Hancock, for example, the plaintiff filed an action attempting to ask the court to declare that an arbitrator was not disinterested and therefore should be disqualified. Trustmark Ins. Co. v. John Hancock Life Ins. Co. (U.S.A.), 631 F.3d 869, 871 (7th Cir. 2011). The District Court found that the arbitrator, who had acted as an arbitrator in a prior arbitration between the parties, was not disinterested because he could have been called as a fact witness about the prior proceedings. Id. at 871. The District Court ruled in favor of the plaintiff and granted an injunction to enjoin the arbitration proceeding. Id. Additionally, the court found that only a judge could determine what the confidentiality agreement signed by the arbitrators required. Id.
The Seventh Circuit reversed, finding that mere knowledge of the prior proceedings was not enough to claim the arbitrator was not disinterested. Id. at 873. The court analogized this situation to judges, who often have knowledge of and experience with multiple suits arising from the same issue. Trustmark, 631 F.3d at 873. The court found that the District Court erred in concluding that arbitrators could not interpret the confidentiality agreement, as the agreement to arbitrate encompasses all arbitration disputes. Id. at 873-74. The appellate court found that the confidentiality agreement was “presumptively within the scope of the reinsurance contracts’ comprehensive arbitration clause.” Id. at 874.
Finding that the arbitrator had no financial stake in the outcome of the proceedings, the court declined to intervene. Id. The court noted that although the arbitrator was familiar with the parties, “[n]othing in the parties’ contract requires arbitrators to arrive with empty heads.” Id. at 873. Additionally, the court stated that the arbitration panel was entitled to determine the meaning of the confidentiality agreements. Trustmark, 631 F.3d at 874-75. “But among the powers of an arbitrator is the power to interpret the written word, and this implies the power to err; an award need not be correct to be enforceable.” Id. at 874. The court held that as long as “the arbitrators honestly try to carry out the governing agreements,” the panel is within its discretion and the court should not intervene. Id.
For the full article, refer to page 14 in the Fall 2016 issue. https://www.airroc.org/assets/docs/matters/airroc%20fall%202016%20vol%2012%20no%203.pdf
