The United States District Court for the Southern District of New York recently held that an arbitrator was not precluded by the doctrine of functus officio from modifying his findings regarding a prior award in a dispute between parties, since that award did not resolve the question of damages related to a particular issue and thus was not "final." Employers' Surplus Lines Ins. Co. v. Global Reinsurance Corp. – U.S. Branch, No. 07 Civ. 2521 (S.D.N.Y. Feb. 6, 2008).
Employers' Surplus Lines Insurance Company ("Employers") entered into a facultative reinsurance certificate with Global Reinsurance Corporation – U.S. Branch ("Global") in which Global agreed to indemnify Employers for a certain percentage of its losses under an insurance policy issued by Employers to The Coca-Cola Company and its subsidiary ("Coke"). The facultative certificate contained an arbitration clause that provided for final and binding arbitration in the event of a dispute between the parties concerning the interpretation of that agreement.
Employers initiated arbitration against Global to recover its share of loss payments made to Coke for certain asbestos claims. The parties agreed to proceed before a sole arbitrator, who issued a partial final award in which he found that Global was liable to Employers for losses incurred by it under the policy issued to Coke, but that Global was only obligated to reimburse Employers for payments of defense costs made to Coke where Coke had made a related indemnity payment to an underlying claimant. With respect to the second prong of the partial award, the arbitrator ordered Employers to submit a schedule indicating Coke's indemnity payments and related defense costs so that the arbitrator could determine damages.
A dispute arose between the parties regarding the scope and finality of the partial award. Ultimately, the arbitrator amended the partial award and issued a final award that adopted the first prong of the partial award regarding Global's liability to Employers for losses incurred under its policy with Coke, but expanded the second prong of the partial award such that Global was obligated to reimburse Employers for payments of defense costs to Coke in all cases and not just where Coke had made a related indemnity payment to an underlying claimant. Employers petitioned the United States District Court for the Southern District of New York to confirm the final award under the Federal Arbitration Act ("FAA"). Global cross-petitioned the court to vacate that award in its entirety under Section 10 of the FAA, arguing, among other things, that the arbitrator exceeded his powers, and that the functus officio doctrine precluded him from amending the award to hold that Global was obligated to reimburse Employers for all of its payments of defense costs to Coke. The doctrine of functus officio provides that an arbitrator's final decision on an issue strips him of authority to consider that issue further.
The court granted Employers motion to confirm, holding that the arbitrator did not exceed his powers in amending the partial award. Relying on Second Circuit precedent, the court found that the partial award was not "final" as it left open the question of damages with respect to the arbitrator's second liability finding, and thus the doctrine of functus officio did not apply to prevent the arbitrator from reconsidering his previous finding on that issue.