The United States District Court for the Southern District of New York vacated an arbitration award rendered against reinsurers in the amount of $5 million (including current and future payments) involving a Clash Catastrophe Excess of Loss Reinsurance Agreement. Weber Gallagher represented the first layer reinsurers in the matter.
Under the standard established by the Second Circuit, this is the first arbitration award in recent years vacated by the Southern District Court finding that the arbitrator's undisclosed relationships with principals of the ceding company warranted vacatur. The Court noted that the arbitrator failed to disclose business relationships that would lead a "reasonable person to conclude that an arbitrator was partial to one party to the arbitration." The ruling also found that under the "evident impartiality" standard established by the Second Circuit, the arbitrator's failure to disclose his relationships with the ceding company, most notably with one witness who was also the arbitrator's chief financial officer, was sufficient to vacate the arbitration award. The Judge found the "clear and unrebutted evidence" warranted vacatur.
The Court also noted that the Second Circuit operates on a "case by case approach" when evaluating evident partiality. The Court held that this standard allows a court to vacate an award when there is a finding of evident impartiality due to an undisclosed financial relationship that would lead a reasonable person to conclude the arbitration was partial to one side. Lastly, the Judge found it particularly troubling that the party appointed arbitrator and his chief financial officer sat across from each other during the arbitration, and that the chief financial officer testified during the arbitration but their relationship was never disclosed.
Tim Stalker, Ken Portner and Ken Sharperson represented the reinsurers in this case. This vacatur comes fourteen (14) months after the original briefing was filed to vacate the October 2015 arbitration results.
Comment: Arbitrators have an on-going duty to disclosure their relationships to the parties, principals and witnesses to an arbitration. For the integrity of the arbitration process, when in doubt, arbitrators should disclose. Further, this is one of few cases in recent years where the Southern District Court has found a basis for vacating the arbitration award under standards established by the Second Circuit.
For more information, please contact Timothy W. Stalker at firstname.lastname@example.org or 215.972.7922, Kenneth Portner at email@example.com or 215.972.7921 or Kenneth E. Sharperson at firstname.lastname@example.org or 973.854.1060.
Sara L. De Long