United States: Appellate Court Rejects Claim Of Arbitrator Bias Based On Umpire's Service As A Party Arbitrator In Other Matters Involving A Retrocessionaires' Alleged Affiliate

The Second Circuit has rejected the attempt of a retrocedent, IRB Brasil Reseguros S.A. ("IRB"), to vacate certain arbitration awards against it in favor of its retrocessionaire, National Indemnity Company ("NICO"). IRB argued that vacatur was required because the neutral umpire on a three arbitrator panel accepted a position as party arbitrator on behalf of an alleged affiliate of NICO while the NICO/IRB arbitration was ongoing. Notwithstanding this, the court found that this did not amount to "evident partiality" or any other basis for vacatur of an arbitration award under the Federal Arbitration Act based upon arbitrator misconduct.

IRB and NICO were involved in a series of arbitrations over seven years regarding NICO's obligations to indemnify IRB for losses it incurred under certain reinsurance contracts that covered losses suffered by large Brazilian company. The three-member arbitration panel was made up of two party-appointed arbitrators and one neutral umpire. In 2012, IRB demanded that the neutral umpire withdraw from the arbitration because he had served as a party-arbitrator for an alleged affiliate of NICO in another matter. The umpire refused to step down and later accepted another appointment as a party-arbitrator for that same purported NICO affiliate. The majority of the arbitration panel in the NICO/IRB matters ultimately issued three awards in NICO's favor.

The court found that the umpire's conduct did not demonstrate "evident partiality" under the FAA, which the court, quoting an earlier Second Circuit decision, said exists when "a reasonable person, considering all the circumstances, would have to conclude that an arbitrator was partial to one side." The umpire was not alleged to have a familial, business, or employment relationship with NICO or its alleged affiliate, or a financial interest in the outcome of the arbitrations, and had in fact voted against NICO's purported affiliate when acting as party arbitrator. The court also rejected IRB's argument that his conduct constituted "misbehavior" under the FAA because this argument was not raised before the district court. However, the court found that IRB's arguments were not frivolous and thus rejected NICO's request for attorneys' fees and costs. National Indemnity Co. v. IRB Brasilia Reseguros S.A., No. 16-627-cv (2d Cir. Jan. 31, 3017)

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