A New York federal court recently held that a reinsurer, and not the court, had the authority to appoint a replacement arbitrator, even though the reinsurance agreement at issue did not specify a method to do so.

Northwestern National Insurance Company and Insco, Ltd. were parties to an arbitration in which they each named a party-appointed arbitrator, as required by the arbitration clause in the reinsurance agreement at issue.  The parties then jointly selected a neutral umpire by drawing lots.  Although each party-appointed arbitrator disclosed potential conflicts at the outset of the arbitration, additional possible conflicts were revealed as the case was proceeding.  Shortly before oral argument on a summary judgment motion brought by Northwestern, Insco requested that the entire panel resign based on an alleged undisclosed conflict by Northwestern’s party-appointed arbitrator and the umpire’s alleged partiality.  Insco’s party-appointed arbitrator resigned from the panel, but Northwestern’s arbitrator and the umpire did not.

Insco named a new party-appointed arbitrator, whom Northwestern challenged on the grounds that Insco lacked the power to name a replacement under the reinsurance agreement.  Northwestern ultimately petitioned the U.S. District Court for the Southern District of New York to appoint a replacement arbitrator for Insco, pursuant to Section 5 of the Federal Arbitration Act (“FAA”).

The court noted that under the FAA, a reinsurance contract’s designated method for appointing arbitrators and umpires must be followed, and that a court is empowered to do so only where a contract does not specifically provide for a selection method.  Because the reinsurance agreement permitted each party to choose its own arbitrator, the court held that it did not have the authority to appoint Insco’s, even though the arbitration clause lacked a specific procedure for appointing replacements.

Click here to review the court’s decision.