Party-Appointed Arbitrator's Prior Adverse Position Regarding Similar Dispute Held Not "Evident Partiality"

A Massachusetts federal district court upheld the use of “partisan” party-appointed arbitrators when the arbitration clause provided that “the dispute shall be referred to three arbitrators, one to be chosen by each party and the third by the two so chosen.” In this asbestos bodily injury reinsurance coverage dispute, the cedent sought to vacate an adverse arbitration award by alleging, inter alia, that the reinsurer's arbitrator was excessively biased against it because she had reached a similar or identical underwriting conclusion in a past dispute with that cedent while employed by another reinsurer.
Analyzing the cedent's motion in the context of the vacation of awards provision of the Federal Arbitration Act (i.e., Section 10(a)(2) provides: “Where there was evident partiality or corruption in the arbitrators, or either of them.”), the court observed that what constitutes improper partiality “will vary depending on the precise terms and procedures parties establish for their particular arbitration.”

Noting that “an arbitration often represents a 'tradeoff between impartiality and expertise,'” the court rejected the cedent's bias allegations. In this case, the arbitrator had taken an adverse position in a similar underwriting dispute with the same cedent some 18 years earlier when she was employed as an underwriter by another reinsurer. The court held that this was not evidence of bias in the absence of further proof from the cedent that her position was “so enduring” that she was unable or unwilling to reexamine it when acting as an arbitrator.

Observing that the reinsurer had a right to choose someone who was an expert in reinsurance contracts and who had encountered and resolved similar disputes in the past, the court stated:

“Any person of substantial experience would over the course of her career have developed some opinions about issues arising in the field of experience, but that general circumstance would not automatically disable such a person from fairly evaluating the merits of a particular controversy. Besides, the arbitration structure the parties chose expressly permitted them to nominate one arbitrator each whose general views would, at the very least, not be inimical to the nominator's interest in the case.”

In further support of this view, the court quoted the cedent's own arbitrator, who apparently commented on the record:

“The way I approach an arbitration is the party tells me what the case is and what their side of it is. If I disagree with them I tell them you better not appoint me. If their case seems right, I tell them I think they're right but I haven't heard the other side so I cannot guarantee that I will vote your way. I have to hear all the evidence before I make up my mind.”

The court found this sort of “prescreening” no more disqualifying than the reinsurer's arbitrator having expressed an underwriting opinion contrary to the cedent's position many years before.

Nationwide Mutual Insurance Co. v. First State Insurance Co., Civ. Action No. 00-10047-GAO, 2002 U.S. Dist. LEXIS 14270 (D. Mass. Aug. 2, 2002).