The US Court of Appeals for the Seventh Circuit has rejected a reinsurer's contention that its reinsured should not be permitted to appoint the same arbitrator for successive, related arbitrations (a not uncommon practice in reinsurance arbitrations) because the arbitrator was not impartial as a result of his involvement in the first arbitration. In Trustmark Insurance Company v. John Hancock Life Insurance Company (U.S.A.) , No. 09-3682 (7th Cir. Jan. 31, 2011), Trustmark sought to enjoin Hancock's party-appointed arbitrator from participating in the second arbitration, asserting that given his involvement in the first, he could not be "disinterested," as was required by the reinsurance contracts at issue. The Court of Appeals disagreed, explaining that "disinterested" means "lacking a financial or other personal stake in the outcome." Although the court recognized that a party-appointed arbitrator has an interest in potential future employment by that party, it reasoned that such interest is "endemic to arbitration that permits parties to choose who will decide" the dispute. Therefore, "a court cannot properly deem the interest in reemployment created by this arrangement a disqualifying event." Finding that the district court had incorrectly equated knowledge concerning the dispute with a prohibited, disqualifying interest, the Court of Appeals reversed the district court's imposition of an injunction.
In addition to validating common arbitrator appointment practices in reinsurance dispute resolution, the Court of Appeals' opinion appears to recognize potential value in repeat appointments in terms of background knowledge and efficiency. The court noted that "private parties often select arbitrators precisely because they know something about the controversy." Moreover, nothing in the contracts "requires arbitrators to arrive with empty heads." Trustmark's attempt to further its cause by using a confidentiality agreement executed by the parties and arbitrators in the first arbitration presented an additional twist. With successive arbitrations, issue or claim preclusion issues may arise in the subsequent proceeding. From a practical standpoint, it would seem to facilitate the informed application of preclusion doctrines to permit explanation of what occurred in the prior proceeding. The outcome advocated by Trustmark here, soundly rejected by the Court of Appeals, would have deprived the arbitrators in the subsequent proceeding of information facilitating informed resolution of preclusion issues.
This case addresses a number of points of interest to insurance and reinsurance arbitration parties and practitioners.