Reinsurance Award Vacated for Evident Partiality of Two Arbitrators

A judge in the U.S. District Court in Manhattan has vacated a reinsurance arbitration award on grounds of evident partiality of the presiding arbitrator and one party-appointed co-arbitrator. The award was signed by these two arbitrators, with the third arbitrator registering dissent. During the course of the proceedings, the two arbitrators who ultimately signed the award had been appointed to sit together on a second case. Their disclosures about the new appointments failed to mention that parties in the two cases were affiliates, that there was a common witness whose testimony had already been heard and evaluated in the second case, and that an issue in common to both cases was addressed by that testimony.
The Court applied the legal standard stated by the U.S. Second Circuit Court of Appeals in Applied Industrial Materials Corp. v. Olvalar Makine Ticaret Ve Sanalyli A.S., 492 F.3d 132 (2d Cir. 2007): “An arbitrator who knows of a material relationship with a party and fails to disclose it meets [the] evident partiality standard: A reasonable person would have to conclude that an arbitrator who failed to disclose under such circumstances was partial to one side.” Here, the Court rejected the argument that a different standard should apply to relationships with co-arbitrators and witnesses, as opposed to parties, stating that it is the materiality of the relationship that is dispositive, not the arbitration participant with whom the relationship exists. (Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., 2010 U.S. Dist. LEXIS 15952 (S.D.N.Y. Feb. 23, 2010)).