In a recent decision of the United States District Court for the Southern District of New York, TIG Ins. Co. v. Global Int’l Reins. Co., Ltd., No. 09 Civ. 1289 (Aug. 7, 2009), the court ruled that an arbitrator’s decision to ignore certain evidence is not a proper ground for vacating an arbitration award.
Global agreed to reinsure TIG for certain losses pursuant to a Loss Reserve Reinsurance Agreement with an aggregate limit of $315 million. The parties initially arbitrated the scope of the Reinsurance Agreement’s sublimit and whether certain claims had been coded and ceded correctly, eventually entering into a settlement agreement (the “Settlement Agreement”) in 2004 that dismissed with prejudice all claims raised but not resolved in the arbitration. When a later dispute arose as to how certain losses should be allocated, Global demanded arbitration, seeking damages for TIG’s alleged breach of the Reinsurance Agreement and the Settlement Agreement. The matter was submitted to a single arbitrator. Global asserted that TIG had fraudulently induced it to enter into the Settlement Agreement or, in the alternative, that TIG had allocated certain claims in bad faith. TIG moved in that arbitration for summary judgment, and the arbitrator subsequently dismissed Global’s claims.
Global petitioned the court to vacate the arbitration award pursuant to Sections 10(a)(3) and 10(a)(4) of the Federal Arbitration Act (“FAA”), arguing that the arbitrator granted summary judgment without a fully developed evidentiary record and without the benefit of discovery and testimony from witnesses. The court noted, however, that the arbitration clause in the Reinsurance Agreement explicitly relieved the arbitrator “of all judicial formality.” Further, it was undisputed that after TIG had submitted 35 exhibits in support of its motion for summary judgment, Global was given an unrestricted opportunity to respond, and submitted 23 exhibits, three sworn declarations and briefed the issue substantially. As such, the court ruled that the hearing on TIG’s summary judgment motion was far from being fundamentally unfair under Section 10 of the FAA. Moreover, the court held that the arbitrator’s ignorance of certain evidence was not a valid basis upon which the award could be vacated. The court explained that while the FAA authorizes vacatur of an arbitration award “where the arbitrators were guilty of misconduct…in refusing to hear evidence pertinent and material to the controversy,” the law allows arbitrators great latitude in restricting or controlling evidentiary procedures.