May 17, 2011

Party’s Right to Appoint Replacement Co-Arbitrator is Inherent in Agreement, US Court Holds

A US district judge in Manhattan held last week that a party’s right to appoint a replacement co-arbitrator upon resignation of its original appointee is inherent in an arbitration agreement that provides for party-appointed arbitrators, even when there is nothing specifically stated about replacement of an arbitrator who resigns. The Court so ruled in an ongoing reinsurance arbitration  (Northwestern Nat’l Ins. Co. v. Insco, Ltd., 2011 U.S. Dist. LEXIS 50789 (S.D.N.Y. May 12, 2011)). In an arbitration marked by charges of bias and conflict of interest against the presiding arbitrator and the respondent reinsurer’s party appointee, the latter eventually resigned on the basis that if the award was favor of the reinsurer, a motion to vacate based on alleged evident partiality would ensue. But when the reinsurer declared its intention to appoint a replacement, claimant petitioned the US District Court under Section 5 of the Federal Arbitration Act, claiming there had been a lapse in the agreed method for appointment, and that the court should therefore appoint the replacement. Denying the petition, the Court held that permitting the party to appoint a replacement where it wished to do so was consistent with the intent of the parties that each should have the right of appointment of one arbitrator, and judicial selection of the replacement arbitrator would frustrate that intent. 

 

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