The Fifth Circuit reversed a trial court's disqualification of a party-appointed arbitrator on the ground that he did not meet the arbitration clause's requirements and affirmed the denial of actual and punitive damages for alleged breach of the arbitration agreement and the tort of malicious, willful, or reckless disregard for the rights of one of the parties because of the other's refusal to move forward with the arbitration.
In this dispute over the reinsurance of certain credit life insurance certificates, the agreement's arbitration clause required that the party-appointed arbitrators be chosen from among the officers of other life insurance companies. The cedent appointed an executive of a reinsurance company, which the district court had held was not a life insurance company.
Observing that the rule was well established, the Fifth Circuit reversed, holding that, under the Federal Arbitration Act (FAA), the trial court was without authority to remove the cedent's arbitrator based on his alleged lack of qualification prior to the issuance of the arbitral award. The FAA only provides for potential vacatur of an award, said the three-judge panel, and appears not to endorse court power to remove an arbitrator for any reason prior to issuance of an arbitral award.
The Fifth Circuit also affirmed the trial court's dismissal of the cedent's claims for actual and punitive damages and attorneys' fees and costs arising from the reinsurer's alleged breach of the arbitration agreement and the independent tort of malicious, willful, or reckless disregard for its rights. The damages claims arose from the reinsurer's alleged refusal to proceed with the arbitration due to the parties' unresolved dispute over umpire selection. Under the FAA, the appellate court could find no authority for court jurisdiction to adjudicate such damage claims, noting that jurisdiction to intervene into the arbitral process prior to the issuance of an award was very limited (i.e., restricted to determinations regarding whether a valid agreement to arbitrate existed and the scope and enforcement of the agreement). Enforcement of an arbitration agreement, according to the court, does not appear to include any mechanism beyond those geared toward returning the parties to arbitration, thus appearing not to authorize compensation by a court to parties in the form of damages prior to issuance of an arbitral award.
Other preliminary matters addressed by the court included the affirmance of jurisdiction over this appeal in light of the case's procedural history and a ruling that the reinsurer had not waived its right to arbitrate this dispute when it attempted to veto the umpire allegedly selected by the party-appointed arbitrators.
Gulf Guaranty Life Insurance Co. v. Connecticut General Life Insurance Co., No. 01-60582, 2002 U.S. App. LEXIS 17965 (5th Cir. Aug. 30, 2002).