164 F. Supp. 3d 457
S.D.N.Y.2016Background
- NICO (U.S. reinsurer) and IRB (Brazilian reinsurer) disputed whether NICO owed reinsurance for a large CSN loss falling between Nov–Dec 2007 (Extension Period) and Feb 2008–2009 (Renewal Period); NICO said it reinsured both periods, IRB disputed the 2008 Contract (Renewal Period).
- The contracts contained New York arbitration clauses; NICO initiated separate arbitrations which were later consolidated; a three-member panel (party-appointed arbitrators and neutral umpire Daniel Schmidt) conducted the consolidated arbitration in New York.
- Schmidt submitted a detailed 2009 umpire questionnaire disclosing many past relationships with parties and counsel; after selection as umpire in Jan 2012 he supplemented disclosures to reveal a concurrent appointment as party-arbitrator in an Equitas arbitration (an entity with substantial ties to NICO).
- IRB sought disqualification; Schmidt declined to withdraw after briefing and explanation; the panel conducted a full evidentiary hearing in Nov 2014, later issuing three awards in Jan, Apr, and May 2015 (finding NICO not liable for the CSN loss, ruling NICO was entitled to keep a $9.1M 2008 premium and IRB must indemnify NICO for claims, and awarding NICO fees/costs).
- IRB challenged the awards in this Court, principally arguing (1) Schmidt’s late disclosure and concurrent service + refusal to withdraw = "evident partiality" and (2) the panel lacked jurisdiction to decide the 2008 premium and related fees; NICO sought confirmation of the awards.
Issues
| Issue | NICO's Argument (Petitioner) | IRB's Argument (Respondent) | Held |
|---|---|---|---|
| Evident partiality based on Schmidt’s post-selection disclosure of concurrent service and refusal to withdraw | Schmidt disclosed promptly after selection; disclosed many prior similar relationships in 2009; overlapping arbitrator service in specialized fields is common and not disqualifying | Schmidt’s failure to disclose the Equitas assignment earlier and his concurrent role as party-arbitrator for an affiliate of NICO show material conflict and partiality | Court held no evident partiality: disclosure was timely after selection; facts not materially suggestive of bias and specialization/overlap expected in reinsurance arbitration |
| Materiality of nondisclosure / duty to continuously disclose | No contractual or legal rule imposing continuous pre-selection disclosure; prior questionnaire was accurate and supplemented promptly | There is an obligation of ongoing/timely disclosure; failure to update earlier nondisclosure warrants vacatur | Court rejected a continuous pre-selection disclosure duty here; nondisclosure alone insufficient—must be material; nondisclosed facts were not material enough to show evident partiality |
| "Undue means" or procurement of award by misconduct (NICO’s counsel knew of Schmidt’s role earlier) | No evidence of deception or fraud by NICO; IRB had opportunities earlier and resisted expanded disclosures; conduct does not meet the high bar for undue means | NICO’s counsel had knowledge and failed to volunteer Schmidt’s Equitas role, amounting to improper procurement/undue means | Court found no fraud or "undue means": IRB could have discovered the assignment earlier, and no affirmative deceptive conduct proved |
| Panel exceeded powers / lack of jurisdiction over 2008 Premium and fees (functus officio) | 2008 Contract and premium were squarely in dispute from the outset; NICO raised 2008 issues before hearing; panel retained jurisdiction and acted on timely submissions | The panel’s January 15 statement set a January 22 cutoff; subsequent awards on 2008 Premium and fees exceeded panel power or were issued after panel became functus officio | Court held the panel had authority: arbitrability favors arbitration, parties had notice of the 2008 Contract issue, and the panel’s statement was a deadline for submissions, not a relinquishment of jurisdiction |
Key Cases Cited
- Scandinavian Reins. Co. v. Saint Paul Fire & Marine Ins. Co., 668 F.3d 60 (2d Cir. 2012) (standards for evident partiality and nondisclosure analysis)
- Kolel Beth Yechiel Mechil of Tartikov, Inc. v. YLL Irrevocable Trust, 729 F.3d 99 (2d Cir. 2013) (narrow judicial review of arbitral awards)
- Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132 (2d Cir. 2007) (failure to investigate/disclose a material relationship can constitute evident partiality)
- Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters Benefits Funds, 748 F.2d 79 (2d Cir. 1984) (evident-partiality standard for arbitrators and tradeoff between expertise and impartiality)
- Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S. 145 (1968) (umpire compensation by party can show bias; importance of neutral umpire)
- United Paperworkers Int’l Union v. Misco, Inc., 484 U.S. 29 (1987) (arbitrator acting within scope of authority is entitled to deference despite legal error)