While most insurers, reinsurers and attorneys pay lip service to the importance of a fair and efficient arbitration, one side or the other often perceives fairness and efficiency as undesirable. Arbitration is not unique in this regard; courts wrestle with obstruction during litigation, and try to curtail it through sanctions under Rule 11, Rule 37 and 28 U.S.C. § 1927. Recent legislation directs courts to charge attorneys' fees against a party rejecting a settlement offer more favorable than the ultimate result at trial. See, e.g., Fla. Stat. § 768.79; Nev. R. Civ. P. 68(f)(2); N.J. Ct. R. 4:58-2; Ga. Code Ann. § 9-11-68. However, arbitration carries a unique potential for disruption, i.e., delay and obstruction in forming the arbitration panel.
In its purest form, a party may simply refuse to appoint an arbitrator. Fortunately, most insurance-related arbitration agreements now allow one party to choose the other party-appointed arbitrator where the opposing party fails to appoint its nominee within a set deadline. Courts regularly uphold the unilateral appointment of arbitrators in these circumstances.See, e.g., Universal Reinsurance Corp. v. Allstate Ins. Co., 16 F.3d 125, 129 (7th Cir. 1993) (strictly enforcing 30-day arbitration provision); Certain Underwriters at Lloyd's, London v. Argonaut Ins. Co., 444 F.Supp. 2d 909, 916-17 (N.D. Ill. 2006), aff'd, 500 F.3d 571 (7th Cir. 2007) (same); Nat'l Planning Corp. v. Achatz, 02-CV-0196E(SR), 2002 WL 31906336, at *2 (W.D.N.Y. Dec. 17, 2002) (strictly enforcing parties' agreement to designate arbitrators within the time required by the NASD rules). But see New England Reinsurance Corp. v. Tennessee Ins. Co., 780 F.Supp. 73, 77 (D. Mass. 1991) (excusing failure to comply with 30-day deadline due to honest mistake).
Even where the arbitration clause does not authorize the unilateral appointment of arbitrators, the Federal Arbitration Act provides a statutory remedy. In the event of a “lapse” in the naming of an arbitrator or umpire, either party may request a court to appoint the missing arbitrator. 9 U.S.C. § 5.
A similarly quick solution may not be available where arbitrators are nominated but their qualification or bias is challenged. In numerous decisions, courts have declined to address qualification or bias or other challenges prior to entry of a final award. See, e.g., Gulf Guaranty Life Insurance Co v. Connecticut General Life Insurance Co., 304 F.3d 476, 487-88 (5th Cir. 2002) (holding that court could not adjudicate before entry of the arbitration award whether an executive of a reinsurer constitutes an "executive of a life insurance company"); Baylor Health Care Sys. v. Beech St. Corp., 3:13-MC-054-D, 2014 WL 66470, at *2 (N.D. Tex. Jan. 8, 2014) (refusing to consider pre-arbitration argument that party’s nominee was tainted by prior service as umpire in a related matter); Serv. Partners, LLC v. Am. Home Assur. Co., CV-11-01858-CAS EX, 2011 WL 2516411, at *3-4 (C.D. Cal. June 20, 2011) (refusing to consider pre-arbitration argument that nominee was improperly “under the control of” the opposing party).
The judicial reluctance to intervene generally is supported by a healthy deference to the arbitration process. A significant purpose (in theory, anyway) of arbitration is a speedy adjudication. Few things are more antithetical to that than judicial intervention.
Therefore, courts' reluctance to intervene makes sense when the named arbitrator is challenged as biased. The necessary judicial inquiry would be fact-intensive and involve subjective judgments. Because bias is easy to charge, pre-arbitration judicial intervention to investigate charges of arbitrator bias could become the norm, rather than the exception. This would frustrate the purpose of arbitration.
However, immediate judicial intervention makes sense when the challenge involves an objectively measured qualification. For example, many arbitration clauses in reinsurance agreements require that the arbitrators be active or former officers of an insurer or reinsurer. Sometimes, a party may try to circumvent these requirements by naming a former regulatory official, rating agency personnel or outside counsel with insurance experience. While such a nominee might be a capable individual, he or she also plainly fails to satisfy the terms that the parties bargained for in their arbitration agreement.
Where one side names an arbitrator unqualified under the agreement's objectively-measureable qualification thresholds, it is neither speedy nor efficient to delay ruling until after the arbitration is complete. Nevertheless, this is the practice of many modern courts. See, e.g., Gulf Guaranty, 304 F.3d at 487-488 (refusing to adjudicate whether an executive of a reinsurer constitutes an executive of a "life insurance company"); Odyssey Reinsurance Co. v. Certain Underwriters at Lloyd's London Syndicate 53, 13 CIV. 9014 PAC, 2014 WL 3058377, at *1 (S.D.N.Y. June 30, 2014) (“Petitioner argues that Respondents' selected candidates are not qualified. But ‘a district court cannot entertain an attack upon the qualifications or partiality of arbitrators until after the conclusion of the arbitration and the rendition of an award.’” [cit.]); Ins. Co. of N. Am. v. Pennant Ins. Co., 97-MC-154, 1998 WL 103305, at *1-2 (E.D. Pa. Feb. 18, 1998) (refusing to determine, pre-arbitration, whether nominee met qualification as an “active or retired disinterested official of insurance or reinsurance companies”). Such delay rewards obstruction and eviscerates efficiency.
A few decisions support early intervention in these circumstances. See, e.g., Oakland-Macomb Interceptor Drain Drainage Dist. v. Ric-Man Const., Inc., 304 Mich. App. 46, 59, 850 N.W.2d 498, 505-06 (2014) (granting pre-arbitration motion to appoint a lawyer with a background in construction litigation as required by the selection procedures specified in the arbitration agreement); Safety Nat. Cas. Corp. v. Certain Underwriters at Lloyd's London, 02-CV-1146, 2011 WL 3610411 (M.D. La. Aug. 16, 2011) (indicating that although it was improper to remove an already-seated umpire, a court might have the authority to intervene when the parties were stalled at the selection phase, pursuant to FAA’s purpose of expediting arbitration). Cf. Aviall, Inc. v. Ryder Sys., Inc., 913 F.Supp. 826, 834 (S.D.N.Y. 1996) aff'd, 110 F.3d 892 (2d Cir. 1997) (observing that pre-award removal of an arbitrator may be possible “when the court concludes that one party has deceived the other, that unforeseen intervening events have frustrated the intent of the parties, or that the unmistakable partiality of the arbitrator will render the arbitration a mere prelude to subsequent litigation”).
Allowing judicial intervention in objectively-based qualification disputes makes sense. Of course, the line between objective and subjective judgments is not always distinct. For example, an arbitration clause may limit arbitrators to "executive officers," which are generally defined as “corporate officer[s] at the upper levels of management,” an admittedly ambiguous phrase in itself. See Black’s Law Dictionary, “Executive” (9th ed. 2009). Similarly, Gulf Guaranty, 304 F.3d at 487-488, involved whether an executive of a reinsurer qualifies as an executive of a life insurer. However, while such an inquiry may require some judgment on the court’s part, it should not be time-consuming or fact-intensive.
Note: The author would like to thank associate Sam VanVolkenburgh for his valuable contributions to this article.
