Recently, the United States District Court for the District of Nevada vacated an arbitration panel's award that consisted of, among other things, punitive damages, finding that the award was in manifest disregard of the law and outside the scope of the panel's jurisdiction. See Zev Lagstein M.D. v. Certain Underwriters at Lloyd's of London, No. CV-S-03-1075 (D. Nev. Aug. 14, 2007).
The arbitration involved claims of bad faith, breach of contract and violations of the Nevada Unfair Trade Practices Act relating to the defendant insurers' denial of coverage under an insurance policy. The arbitration panel issued an award in favor of the claimant for (a) $900,000 in damages for breach of contract, bad faith and repudiation; (b) $1,500,000 in bad faith compensatory/emotional distress damages; and (c) attorneys' fees and interest. The panel also agreed, over the insurers objections, to set a future hearing date to determine the amount of a punitive damages that should be awarded to the claimant. Several months after the arbitrators' involvement in the matter was originally supposed to end, the panel conducted a separate hearing on punitive damages and found in favor of the claimant for $4,000,000.
The insurers moved in federal court to vacate both of the panel's awards pursuant to Section 10 of the Federal Arbitration Act and the claimant moved to confirm. The court vacated the portion of the panel's award for emotional distress damages and reduced the damages relating to the insurers' breach of contract, finding that such damages were excessive, biased, contrary to public policy and in manifest disregard of the law based upon the record in the underlying arbitration. The court also vacated the panel's award of punitive damages for the same reasons and found that the arbitration panel exceeded its powers by retaining jurisdiction to issue such damages after the date upon which the parties agreed that the arbitrators' involvement in the matter would cease.