A New York Court vacated an arbitration award, finding that a party appointed arbitrator's undisclosed relationships with the appointing party amounted to a relatively infrequent instance in which such nondisclosure demonstrated evident partiality by clear and convincing evidence. In doing so, the court confirmed that "evident partiality" standard applies in tripartite arbitration involving party appointed arbitrators.
The arbitration at issue arose from a dispute where the reinsurers denied coverage for two workers' compensation claims by the reinsured. Pursuant to the reinsurance treaties' arbitration clause, each side appointed an arbitrator and the party appointed arbitrators then selected an umpire. The arbitration resulted in an award for the reinsured and the reinsurers brought this action against the reinsured to vacate the award. The plaintiffs argued that the arbitrator appointed by the defendant ("arbitrator") failed to disclose his significant business relationships with numerous executives of the defendant, which demonstrated such "evident partiality" as to warrant vacatur of the arbitration award. The court granted plaintiff's motion to vacate the arbitration award.
In finding "evident partiality," the court considered the arbitrator's nondisclosure of his relationships with the defendant's numerous principals. Those principals were involved in the arbitrator's own business in their capacity as the Chief Financial Officer, Managing General Agent, National Claims Manager, and counsel. The court found particularly relevant the arbitrator's nondisclosure of his relationship with a director of the defendant whom the arbitrator hired as the Chief Financial Officer of the arbitrator's own company just months before the arbitration hearing. The court held that a reasonable person would conclude that an arbitrator who failed to disclose such material relationships was partial to one side. Also, in response to defendant's argument that evident partiality standard applies "with reduced force, or not at all" in tripartite industry arbitration involving party appointed arbitrators, the court cited a Second Circuit case where the court applied the evident partiality standard to an arbitration panel with the same arrangement. Certain Underwriting Members at Lloyd's of London v. Ins. Co. of the Americas, Case No. 16-00374 (USDC S.D.N.Y. Mar. 31, 2017)
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