When a party arbitrator dies or resigns during an arbitration, must the parties appoint a new panel and start all over again? Not according to a May 13th U.S. Court of Appeals for the Eighth Circuit decision, which held that if the appointing party refuses to designate a replacement, the other party may apply to the federal district court to appoint a substitute arbitrator pursuant to the Federal Arbitration Act (“FAA”).
In this case, the parties commenced arbitration in 1999 with each designating their arbitrators and them, in turn, naming an umpire pursuant to a fairly typical reinsurance arbitration clause. In late 2000, after more than a year of discovery proceedings and the issuance of numerous panel discovery orders, the reinsurer’s arbitrator resigned for health reasons. The cedent requested that the reinsurer appoint a new party arbitrator to fill the vacancy, but the reinsurer refused to do so and demanded that a new panel of arbitrators be appointed. Pursuant to Section 5 of the FAA, the cedent sought a district court order naming an arbitrator to fill the vacancy left by the resignation. The reinsurer contended that the district court was not statutorily authorized to appoint a replacement arbitrator under Section 5 and that the cedent had waived its right to arbitrate the dispute.
Affirming the federal district court decision, which cited the “inappropriate delay” and waste of resources that would be caused by starting the proceedings anew, the Eighth Circuit ruled that Section 5 authorized court appointment of a replacement arbitrator in this situation. In the absence of a method specified in the parties’ reinsurance agreement, the court of appeals held that Section 5 gave the district court this appointment power without the procedural prerequisite of the cedent filing a motion to compel arbitration under Section 4 of the FAA as the reinsurer had contended. Given that the parties had engaged in active discovery for over a year under the supervision of the previous panel, the reinsurer, according to the court, “cannot now use the resignation of its chosen arbitrator to abort the arbitration process.” Because it would “vitiate” Section 5, the Eighth Circuit declined to adopt the “general rule” cited in a 1992 Second Circuit decision, i.e., “‘where one member of a three-person arbitration panel dies before the rendering of an award and the arbitration agreement does not anticipate that circumstance, the arbitration must commence anew with a full panel.’” As for the reinsurer’s waiver of arbitration argument, the court held that once the panel was reconstituted, that issue could be presented for its consideration.
National American Insurance Co. v. Transamerica Occidental Life Insurance Co., 328 F.3d 462 (8th Cir. May 13, 2003).
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