Morris Manning & Martin, LLP

Courts Consistently Rule in Favor of Disclosure by Arbitrators

09.01.2008

Once again, a court has raised the bar on required arbitrator disclosures necessary to avoid an appearance of bias.Advantage Med. Svcs., LLC v. Hoffman, 72 Cal. Rptr. 3d 935 (Cal. App. 4th 2008). In Advantage Medical, an arbitrator failed to disclose to Hoffman, a founding member of Advantage Medical, that he also served as an attorney for marine entities which procured reinsurance from the London market association to which Advantage Medical’s insurer belonged. Further, when an unidentified representative of Advantage Medical’s insurer showed up at the arbitration, and Hoffman discovered this connection herself, the arbitrator refused to disqualify himself and subsequently issued an interim award in favor of Advantage Medical. Thereafter, Hoffman moved to disqualify the arbitrator and to vacate the interim award.

While the arbitrator’s obstinance in refusing to disclose both his connection to the insurer and to require the insurer’s representative present at the arbitration to identify himself certainly cast a suspicion of bias, it is important to note the connection at issue here is not one of an arbitrator to a party or a party’s counsel but that of an arbitrator to an affiliate of a party’s insurer. This is arguably a remote connection.

Interestingly, it was expert testimony that carried the day for Hoffman and her petition to disqualify and vacate. She hired an expert in the insurance and reinsurance industry who provided a detailed description of the relationship between and among Advantage Medical, its insurer and the marine entities represented by the arbitrator.

The court, which received this matter on appeal from the American Arbitration Association, held the arbitrator was required to disclose his connection to the marine entities because such affiliation “could cause a person aware of the facts to reasonably entertain a doubt that the proposed neutral arbitrator would be able to be neutral” within the meaning of the California Arbitration Act. See Cal. Code Civ. Pro. § 1281.9(a). The court also noted that an arbitrator’s duty of disclosure is an ongoing obligation and applies from notice of an arbitrator’s proposed appointment until the conclusion of the arbitration.

Although California’s Arbitration Act does not provide for disqualification of an arbitrator after he has ruled on an issue of contested fact, the court here allowed such a disqualification because the arbitrator issued the interim award before Hoffman discovered the arbitrator’s failure to disclose his relationship to an affiliate of Advantage Medical’s insurer.

This and other recent cases continue to underscore the importance of vetting party-appointed arbitrators, neutral arbitrators and umpires to avoid the time and expense of a procedure that is subject to appeal and possibly an award that is vacated.

Jessica Pardi is a partner the firm’s Insurance Practice. She practices in the areas of insurance litigation, reinsurance dispute resolution, complex coverage disputes, and insurer insolvency. Jessica received her bachelor’s degree from Boston University and her law degree from University of Virginia.