Matter of American Home Assur. Co. (Clearwater Ins. Co.)

Issue Discussed: Arbitrator Selection / Challenges / Judicial Intervention

Submitted by Justin G. Martin

Date Promulgated: January 15, 2013

Matter of American Home Assur. Co. (Clearwater Ins. Co.), 2013 N.Y. Misc. LEXIS 103 (N.Y. Sup. Ct. Jan. 15, 2013)

Issues Decided: (1) Whether disagreement between arbitrators is a condition precedent to appointing an umpire (or third arbitrator); and (2) What method of appointing an arbitrator should be used.

Background

American Home Assurance Co. and National Union Fire Insurance Company (collectively “American Home”) petitioned the court to appoint an umpire (or third arbitrator as the case may be) in three arbitrations involving separate reinsurance treaties with Clearwater Insurance Company, formerly known as Odyssey Reinsurance Corporation (“Clearwater”).

In the arbitrations, each party had appointed a party-appointed arbitrator; however, the arbitrators had failed to reach an agreement on a potential umpire.

New York’s Civil Practice Law Rules (“CPLR”) 7504 states that in the event the selection method for appointing an umpire failed, the court, upon application of a party, shall appoint an arbitrator. However, CPLR 7504 does not contain any specific instruction on the criteria for the appointment of an umpire. Naturally, each party advocated that its own method of selection was the superior method.

Holding

First, the court rejected Clearwater’s claim that disagreement between the party-appointed arbitrators was a condition precedent to the appointment of an umpire. Although the authority of an umpire, unlike that of a third arbitrator, may be limited to only those issues where the arbitrators disagreed, the court ruled that the umpire should be present from the outset of the arbitration in order to facilitate the umpire’s purpose.

Second, the court outlined a new approach for the appointment of an umpire or third arbitrator in arbitration proceedings. The selection process combined elements of the “ranking” method and the “strike and draw” method. Each party’s appointed arbitrator nominates a slate of five candidates. Each arbitrator then strikes three of the five arbitrators from the other’s list. The remaining candidates are then ranked in order of preference. The candidate who receives the highest cumulative ranking shall be appointed as the umpire. In the event the candidate who receives the highest ranking is unable or unwilling to serve, the candidate with the next highest ranking shall be appointed as umpire (and so on). If there is a tie for the highest cumulative ranking, the umpire will be drawn by random lot.

Finally, the court noted that despite the fact that all three arbitrations would feature the same three arbitrators, nothing in the court’s decision was to be construed as consolidating all three arbitrations.

*Justin G. Martin is an associate at the law firm of Bazil McNulty that focuses on complex reinsurance litigation.