Court Vacates Reinsurance Arbitration Award Based on “Evident Partiality”
The United States District Court for the Southern District of New York, in Scandinavian Reinsurance Co. v. St. Paul Fire & Marine Ins. Co., 09 CV 9531, 2010 U.S. Dist. LEXIS 15952 *1 (N.Y.S.D. February 23, 2010), recently vacated a reinsurance arbitration award on the grounds of evident partiality of the presiding arbitrator and one-party appointed co-arbitrator.
The court concluded that because it was undisputed that arbitrators Dassenko or Gentilte did not disclose their service as arbitrators in the Platinum Bda Arbitration, or that they had heard testimony from a common witness three months prior to his testimony in the Scandinavian Re Arbitration, the only question was whether the undisclosed relationships were material.
The court relied on the legal standard for evident partiality set forth in Morelite Constr. Corp. v. New York City Dist. Carpenters Benefits Funds, that “[e]vident partiality . . . will be found where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.” Id. at *7 (citing 748 F.2d 79, 84 (2d Cir. 1984). The court noted “[a] reasonable person concludes that an arbitrator is partial to one side because the undisclosed relationship is material, not because the material relationship is with a party” and that “[a]n arbitrator who knows of a material relationship with a party and fails to disclose it meets Morelite’s ‘evident partiality’ standard.” Id. at *7, 10.
In applying these standards to the case at bar the court found where two arbitration proceedings “were presided over by two common arbitrators, overlapped in time, shared similar issues and involved related parties [including] a common witness. . . ,” a material conflict of interest existed and that failure to disclose such conflict was sufficient to warrant an order vacating the arbitration award. Id. at *11.