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District Court Enjoins Further Arbitration Proceedings Due to Ex Parte Communications

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In a decision issued in late 2013, the United States District Court for the Eastern District of Michigan, Southern Division enjoined an ongoing arbitration to allow the plaintiffs to pursue a claim for breach of contract against the defendant who allegedly breached the arbitration provision of the parties’ reinsurance contract, by among other things, having ex parte communications with its selected arbitration panel member. Star Insurance Company, et al, v. National Union Fire Insurance Company of Pittsburgh, PA, 2:2013CV13807 (Sept. 12, 2013).

Star Insurance Company, Savers Property & Casualty, and Williamsburg National Insurance Company (collectively “plaintiffs”) initiated arbitration proceedings against defendant National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) to resolve a dispute arising from the parties’ reinsurance contract. The reinsurance contract contained an arbitration provision which states that all disputes are to be decided by active or retired disinterested officials from an insurance or reinsurance background, and that the parties are to select a tripartite panel, whereby each party selects its own arbitrator and the two selected arbitrators then choose an umpire. The panel’s majority decision is final and binding upon all parties to the proceeding.

The parties selected a tripartite panel in accordance with the arbitration provision. The panel issued a scheduling order and set a hearing date. The scheduling order stated that “ex parte communications with any member of the panel shall cease upon the filing of the parties initial pre-hearing briefs.” Following briefing and a hearing, the panel issued an interim final award addressing liability, but leaving the damages issues open. Two members of the panel then issued two subsequent orders while the third arbitrator – plaintiffs’ selected arbitrator – was on a two-day vacation. Thereafter, plaintiffs learned that ex parte communications had taken place between National Union and its selected arbitrator after pre-hearing briefs were filed. 

Consequently, plaintiffs sought to enjoin further arbitration proceedings so that it could pursue a breach of contract claim against National Union for its violations of the arbitration provisions. The Court found plaintiffs proffered sufficient evidence to satisfy the requirements for injunctive relief, namely, that they will likely suffer irreparable harm if an injunction does not enter and that they are likely to succeed on the merits. In particular, plaintiffs presented evidence that defense counsel had at least four prohibited communications with its selected arbitration panel member. Plaintiffs discovered these ex parte communications after reviewing National Union’s time entries submitted in support of its petition for attorneys’ fees and costs. In addition, with respect to the two orders issued by only two panel members, plaintiffs submitted the dissenting opinion of its selected arbitrator wherein he confirmed that he did not participate in the decisions.

Thus, the Court enjoined the arbitration proceedings so that plaintiffs could pursue a breach of contract action against National Union. National Union recently filed an appeal with the United States Court of Appeals for the Sixth Circuit.

To read a copy of the court’s decision click here