Facts Presented:

A reinsurer appointed a retired underwriter to serve as its party arbitrator in an arbitration brought by a ceding company to collect balances under a contract that was in force over 20 years ago. Aggregation of claims was one of the issues in dispute.

After acceptance of the Panel, cedent’s counsel asked the arbitrator to resign from the Panel because the arbitrator’s former employer was another reinsurer on the same contract and the arbitrator was the underwriter. Documents produced during discovery, and supplied to the Panel by cedent’s counsel, revealed that, while the contract was in force, the arbitrator was personally involved in responding in writing to an aggregation issue similar to the issue in dispute in the arbitration. 

The arbitrator responded that, given the passage of time, the arbitrator (a) had not recalled their direct involvement in the contract or the aggregation-related issue, and (b) felt they could be fair and impartial in the arbitration. In these circumstances, does the ARIAS∙U.S. Code of Conduct require the arbitrator to resign from serving as party-arbitrator?

Topic Areas: Integrity/Fairness/Disqualification, Canon I, Canon II, Canon IV

Opinion:

1. Based on these facts, the arbitrator should resign as a party arbitrator.
2. Canon I of the ARIAS∙U.S. Code of Conduct (“Code”), titled “Integrity,” specifies that “Arbitrators should uphold the integrity of the arbitration process and conduct the proceedings diligently.” Comment 4 to Canon I provides:

Consistent with the arbitrator’s obligation to render a just decision, before accepting an appointment as an arbitrator the candidate should consider whether any of the following factors would likely affect their judgment and, if so, should decline the appointment:

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d) whether the candidate has involvement in the contracts or claims at issue such that the candidate could reasonably be called as a fact witness

Comment 5 to Canon I refers to an important general principle inherent in Canon I, namely, “in upholding the integrity of the arbitration process arbitrators will avoid the perception of bias.”

3. Due to the timing of the request that the arbitrator resign, the arbitrator should also consider their obligations under Canon IV (“Disclosure”). Comment 5 to Canon IV provides:

After the Panel has been accepted by the parties, an arbitrator should recognize the consequences to the parties and the process of a decision to withdraw . . . In the event that an arbitrator is requested to withdraw by less than all of the parties, the arbitrator should withdraw only when one or more of the following circumstances exist.

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b) if the arbitrator, after carefully considering the matter, determines that the reason for the challenge is substantial and would inhibit the arbitrator’s ability to act and decide the case fairly.

4. Under Comment 4 to Canon I, it is the arbitrator themself who must weigh their prior involvement with the contract and assess whether it will likely affect their judgment. Under Comment 5 to Canon IV, the arbitrator must also consider whether the reason for the challenge is substantial and impedes their ability to decide the case fairly. Although the arbitrator did not recall their involvement with the contract when appointed (and therefore did not disclose it), they should consider the possibility that further documents and testimony may refresh their recollection. See Comment 6 to Canon IV (stating that the duty to disclose is continuing and, if a previously undisclosed interest or relationship is recalled during the course of the arbitration, it must be disclosed).  If the arbitrator’s ability to render a just decision in a fair manner would be impeded by their prior involvement with the contract, the arbitrator must withdraw. See Canon II (“Fairness”) and Comment 1 to Canon II.
5. Even if the arbitrator believes that the parties would not call the arbitrator as a fact witness, the arbitrator would (a) effectively be serving as a fact witness in light of the arbitrator’s prior writings regarding aggregation under the very contract at issue in the arbitration and (b) not be subject to cross-examination by the parties.
   
   
6. The arbitrator has an obligation under Canon I to avoid the perception of bias. This requires that the arbitrator consider how a reasonable person would view the arbitrator’s ability to render a just decision in light of the arbitrator’s prior personal involvement with the contract on an issue analogous to the one in dispute. The arbitrator’s subjective belief that they can be fair and the fact that only one side has asked the arbitrator to withdraw do not override the arbitrator’s ethical obligation to step down from the panel due to the reasonable perception of bias under these facts.