How Courts Select Umpires Where The Reinsurance Contract Gives Courts the Power

Some reinsurance contracts have a provision in the arbitration clause that allow the parties to ask a court to appoint the umpire if the parties cannot agree on the selection of one.  A court’s analysis of the candidates and whether they are qualified or should be disqualified from consideration as an umpire is always interesting for those who know the candidates and their backgrounds.  It is a bit like vetting umpire questionnaires and ranking candidates, except that the court actually picks one.

In Enstar EU Ltd. v. National Union Fire Insurance Co. of Pittsburgh, PA., No. 654089/2018 (N.Y. Sup. Ct., N.Y. Co. (Feb. 19, 2019), the parties reached an impasse in an arbitration over asbestos-related claims ceded to three casualty excess reinsurance contracts.  The contract provided that if the parties could not agree on an umpire they could apply to the court to appoint the umpire.  The decision goes into detail about the candidates proposed, which is in and of itself interesting when you know these people, but there were some other interesting things as well.

The judge, in a footnote, commented that “[i]n the future, the court urges the parties to consider diversity as a factor in selecting arbitrators and umpires.”  Why was the comment made?  The judge is a woman and all the candidates the judge reviewed were white men.  A diverse woman was initially proposed, but her candidacy, along with another white male, was not presented in the motion.  This is certainly an issue the industry struggles with and one that ARIAS is trying to address.

One of the candidates was knocked out because of expert witness work for the reinsurer some years before.  Because accumulation of asbestos exposures was an issue in the case, the prior expert testimony about “one event” language compelled the court to conclude that this candidate was “not entirely neutral as to this arbitration.”  Another candidate was knocked out because he was a party-appointed arbitrator in the same case as the expert witness because his vote (voted against the expert’s interpretation) “may be a predictor creating an appearance of possible bias.”  Two of the candidates were currently opposite each other in another case with an affiliate of the cedent.  The court disqualified both because there were so many other qualified candidates and “there was no reason to put [them] in this untenable position.

The court went on to strike one candidate because years ago he was employed by cedent’s law firm and that was enough to give rise to an impression of possible bias.  The court struck the next candidate because his background was deemed less applicable to construing one event language in the reinsurance contracts (he was a CPA).  The court finally accepted the last candidate, who as an attorney and was in-house counsel to several insurance entities.  He was considered the candidate in the best position to understand the issues.

The interesting thing here, given familiarity with all the candidates, is that many of the candidates stricken would not necessarily have been stricken by those familiar with the candidate’s backgrounds.  For example, the CPA that the court considered less able to construe the issues, had worked for several insurance companies in management positions and was a deputy liquidator of several insolvent insurers that had reinsurance contracts with one event language.  Nevertheless, the opinion provides an interesting exercise in umpire selection by a court without the industry familiarity with the various candidates.

To avoid these situations, many of us agree to umpire selection protocols, which override these court appointment provisions and allow for ranking and striking and methods to resolve an impasse.

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