Trustmark Insurance Co. v. John Hancock Life Insurance Co., No. 09-3682 (7th Cir. Jan. 31, 2011)

In Trustmark Insurance Co. v. John Hancock Life Insurance Co., the Seventh Circuit Court of Appeals reversed the district court’s opinion that had temporarily enjoined a pending reinsurance arbitration since January 2010. In the underlying proceeding, Trustmark Insurance Co. ("Trustmark") had obtained a temporary injunction from the district court to prevent the arbitration from continuing as long as John Hancock Life Insurance Co.'s ("Hancock") party-appointed arbitrator remained on the panel. Trustmark had argued, and the district court agreed, that Hancock's party-appointed arbitrator was not a properly “disinterested” arbitrator, due to his earlier service as Hancock’s party-appointed arbitrator in a prior arbitration involving the same parties. The district court further held that the arbitrators in the current proceeding were not permitted to construe the confidentiality agreement governing the prior arbitration because that agreement did not contain an arbitration clause.

The Seventh Circuit reversed the district court on all grounds. First, it held that Trustmark had failed to demonstrate the touchstone requirement of the injunctive relief it sought: irreparable injury. Under the Federal Arbitration Act, a party who believes a panel has exceeded its powers is free to seek a denial of the enforcement of any award. See 9 U.S.C. § 10(a)(4). As such, the court found that the only potential injury in allowing the arbitration to proceed would be the “delay and the out-of-pocket costs of paying the arbitrators and legal counsel.” The court noted that it had previously held that such an argument in support of irreparable injury is frivolous. Second, the court held that Hancock's party-appointed arbitrator's service in the prior arbitration did not vest him with a disqualifying interest in the outcome of the present proceeding. Rather, the requirement that an arbitrator be “disinterested” refers to “lacking a financial or other personal stake in the outcome” – not lacking factual knowledge of the dispute. Finally, the court held that the current panel was permitted to construe the confidentiality agreement governing the prior arbitration, despite its lack of an arbitration clause, because it was ancillary to the panel’s appointment to resolve the parties’ reinsurance dispute.