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Certain Underwriting Members at Lloyd’s of London v. Insurance Company of the Americas

Issue Discussed: Evident Partiality/Failure to Disclose

Submitted by Timothy W. Stalker

Date Promulgated: March 31, 2017

 

Certain Underwriting Members at Lloyd’s of London v. Insurance Company of the Americas, No.16-CV-323 (VSB) (S.D.N.Y. Mar. 31, 2017)

Court:  United States District Court for the Southern District of New York

Issue Decided:  Arbitrator’s Failure to Disclose Business Relationships Demonstrated Evident Partiality  

 

The United States District Court for the Southern District of New York vacated an arbitration award rendered against reinsurers in the amount of $5.0 million (including current and future payments) involving Clash Catastrophe Excess of Loss reinsurance agreements.  In vacating the award, the Southern District Court noted that under Section 10 of the Federal Arbitration Act, clear and convincing evidence was required which was satisfied in this instance.

The Southern District Court found that the arbitrator’s undisclosed relationships with principals of the cedent warranted vacatur. The Court noted that the arbitrator failed to disclose business relationships that would lead a “reasonable person to conclude that an arbitrator was partial to one party to the arbitration.”  The Court also found that under the evident impartiality standard established by the Second Circuit, the arbitrator’s failure to disclose his long-term relationships with principals of the ceding company, most notably with one witness who was also the arbitrator’s chief financial officer, was sufficient to vacate the arbitration award. The Court found the “clear and unrebutted evidence” presented by reinsurers warranted vacatur. 

The Southern District Court also noted that the Second Circuit operates on a “case by case approach” when evaluating evident partiality.  The Court held that this standard allows a court to vacate an award when there is a finding of evident impartiality due to an undisclosed financial relationship that would lead a reasonable person to conclude the arbitration was partial to one side.  The Southern District Court also noted that the arbitrator also failed to disclose that at least one of his businesses operated from the same address and suite as the cedent and that he had current and former officers of the cedent listed as executives of his company.  Lastly, the Court found it particularly troubling that the party appointed arbitrator and his chief financial officer sat across from each other during the arbitration and that the chief financial officer testified during the arbitration on behalf of the cedent, but their relationship was never disclosed. 

Timothy (Tim) W. Stalker is a partner at Weber Gallagher with over 35 years of experience.  He is Co-Chair of the Insurance Practice Group.  Tim represents both domestic and international clients in reinsurance, bad faith and general coverage matters through arbitration and trial.  Tim has authored numerous articles and is a frequent industry speaker.  He is also an ARIAS certified arbitrator.