In OneBeacon America Insurance Co. v. Swiss Reinsurance America Corporation, 09-CV-11495-PBS (D.Mass. December 23, 2010), a motion was brought by petitioner OneBeacon to vacate an arbitration award on the basis that the arbitrators were guilty of misconduct for refusing to permit necessary discovery and hear certain evidence. The main issue in the arbitration itself concerned contract interpretation, but OneBeacon relied upon industry custom and practice to support its case. Although OneBeacon sought to depose numerous witnesses on this issue, the arbitration panel limited discovery by requiring the parties to each designate a single witness who was most knowledgeable with respect to industry custom and practice. During the hearing, the panel also limited the testimony of OneBeacon’s fact and expert witnesses to matters within their personal knowledge.
After the panel ruled in Swiss Re’s favor, OneBeacon filed a motion to vacate on the grounds that the panel deprived it of a full and fair hearing by limiting discovery and the testimony of OneBeacon’s witnesses. The court addressed OneBeacon’s motion on two bases: (i) whether the panel was guilty of misconduct by refusing to hear pertinent evidence, pursuant to Section 10(a)(3) of the Federal Arbitration Act; and (ii) whether the panel acted with “manifest disregard of the law” by limiting discovery in the manner discussed above.
The court held that OneBeacon’s motion should be denied under either standard. The court began by noting that arbitration panels have significant discretion in making decisions pertaining to discovery and evidence, and that vacatur on this basis is only appropriate when the exclusion of relevant evidence “so affect[ed] the rights of a party that it may be said that he was deprived of a fair hearing.” The court found that OneBeacon was not so deprived, given that it was able to appoint a company representative to testify on industry custom and practice and to cross-examine Swiss Re’s designed witness on this issue. Moreover, the panel did not preclude OneBeacon from calling any of its fact or expert witnesses. Rather, the panel simply limited the testimony of the fact witness to matters within his knowledge, and limited the testimony of OneBeacon’s expert witness to her experience with a similar treaty (distinguishing those courts that vacated arbitration awards where a party was precluded from presenting any evidence to support its position). Accordingly, the court held that OneBeacon failed to establish that the arbitrators were guilty of misconduct by refusing to hear pertinent and material evidence, or that it had acted in manifest disregard of the law.