Scandinavian Reinsurance Co. v. Saint Paul Fire & Marine Ins. Co.

• Decision Date: 03 February 2012
• Docket Number: Docket No. 10–0910–cv.
• Parties: SCANDINAVIAN REINSURANCE COMPANY LIMITED, Petitioner–Appellee, v. SAINT PAUL FIRE AND MARINE INSURANCE COMPANY; St. Paul Reinsurance Company, Limited; St. Paul Re (Bermuda) Limited, Respondents–Appellants.
• Court: U.S. Court of Appeals — Second Circuit

668 F.3d 60

SCANDINAVIAN REINSURANCE COMPANY LIMITED, Petitioner–Appellee,

v.SAINT PAUL FIRE AND MARINE INSURANCE COMPANY; St. Paul Reinsurance Company, Limited; St. Paul Re (Bermuda) Limited, Respondents–Appellants.

Docket No. 10–0910–cv.

United States Court of Appeals, Second Circuit.

Argued: Jan. 28, 2011.Decided: Feb. 3, 2012.

Patricia A. Millett, Akin Gump Strauss Hauer & Feld LLP, Washington, D.C.; Barry A. Chasnoff, Rick H. Rosenblum, David R. Nelson, Akin Gump Strauss Hauer & Feld LLP, San Antonio, TX; Michael C. Small, L. Rachel Helyar, Akin Gump Strauss Hauer & Feld LLP, Los Angeles, CA, for Petitioner–Appellee.

G. Eric Brunstad, Jr., Collin O'Connor Udell, Matthew J. Delude, Joshua W.B. Richards, Wayne I. Pollock, Dechert, LLP, Hartford, CT; David M. Raim, William K. Perry, Joy L. Langford, Chadbourne & Parke LLP, Washington, D.C.; John F. Finnegan, Chadbourne & Parke LLP, New York, NY, for Respondents–Appellants.

Before: SACK and LIVINGSTON, Circuit Judges, and MURTHA, District Judge.^*SACK, Circuit Judge:

The primary question presented on this appeal is whether the failure of two arbitrators to disclose their concurrent service as arbitrators in another, arguably similar, arbitration constitutes “evident partiality” within the meaning of the Federal Arbitration Act (the “FAA”), 9 U.S.C. § 10(a)(2). Respondents Saint Paul Fire and Marine Insurance Company; St. Paul Reinsurance Company, Limited; and St. Paul Re Limited (collectively, “St. Paul”) appeal from a decision of the United States District Court for the Southern District of New York (Shira A. Scheindlin, Judge ) granting a petition by Scandinavian Reinsurance Company Limited (“Scandinavian”) to vacate an arbitral award rendered in St. Paul's favor and denying a cross-petition by St. Paul to confirm the same award. St. Paul had initiated the arbitration (the “St. Paul Arbitration”) to resolve a dispute concerning the interpretation of the parties' reinsurance contract.

In deciding that vacatur was warranted on “evident partiality” grounds, the district court relied principally on the fact that two of the three members of the arbitral panel in the St. Paul Arbitration—Paul Dassenko and Peter Gentile—had failed to disclose that they were simultaneously serving as panel members in another arbitration proceeding: the “Platinum Arbitration.” The court observed that the Platinum Arbitration “overlapped in time, shared similar issues, involved related parties, [and] included ... a common witness.” Scandinavian Reins. Co. v. St. Paul Fire & Marine Ins. Co., 732 F.Supp.2d 293, 307–08 (S.D.N.Y.2010) (“ Scandinavian ”) (footnotes omitted). The district court determined that “these factors indicate that Dassenko and Gentile's simultaneous service as arbitrators in [both proceedings] constituted a material conflict of interest.” Id. at 308. The court then concluded that the arbitrators' failure to disclose this conflict of interest required vacatur of the arbitral award.

We disagree. Evident partiality may be found only “ ‘where a reasonable person would have to conclude that an arbitrator was partial to one party to the arbitration.’ ” Applied Indus. Materials Corp. v. Ovalar Makine Ticaret Ve Sanayi, A.S., 492 F.3d 132, 137 (2d Cir.2007) (internal quotation mark omitted) (quoting Morelite Constr. Corp. v. N.Y.C. Dist. Council Carpenters Benefits Funds, 748 F.2d 79, 84 (2d Cir.1984)). We conclude that, under the circumstances of this case, the fact of Dassenko's and Gentile's overlapping service as arbitrators in both the Platinum Arbitration and the St. Paul Arbitration does not, in itself, suggest that they were predisposed to rule in any particular way in the St. Paul Arbitration. As a result, their failure to disclose that concurrent service is not indicative of evident partiality. We therefore reverse and remand with instructions to the district court to confirm the award.

BACKGROUND

The facts are recited at length in the district court's opinion, see Scandinavian, 732 F.Supp.2d at 295–302, and we borrow freely from that description here. The facts are undisputed unless otherwise noted.

The Reinsurance Contracts

On August 21, 1999, Scandinavian and St. Paul—both reinsurance companies—entered into a specialized type of reinsurance contract known as a stop-loss retrocessional agreement.¹ See Retrocessional Casualty Aggregate Stop Loss Agreement AR 11914 (the “Agreement”). Under the Agreement, St. Paul ceded to Scandinavian some of the reinsurance liabilities that St. Paul had assumed from other insurance companies under reinsurance business that had been, or would be, written by St. Paul between January 1, 1999, and December 31, 2001.

In exchange for Scandinavian's assumption of these liabilities, St. Paul became obligated to pay premiums to Scandinavian. But the Agreement contemplated that instead of paying the premiums to Scandinavian directly, St. Paul would provisionally retain those funds within an “experience account,” ² where the funds would accumulate interest. Any amounts that Scandinavian became obligated to pay St. Paul based on the assumed liabilities would first be paid out of that account. Only if the experience account became fully depleted would Scandinavian have to pay St. Paul out of its own funds.

The Agreement contained a dispute-resolution clause providing for binding arbitration of “any dispute arising out of the interpretation, performance or breach of this Agreement, including the formation or validity thereof.” Agreement at 11. It required that such disputes be “submitted for decision to a panel of three arbitrators”—two party-appointed arbitrators and an umpire—all of whom would be “disinterested active or former executive officers of insurance or reinsurance companies or Underwriters at Lloyd's, London.” Id.

Emergence of the Parties' Dispute

In January 2002, Scandinavian entered into “run-off,” ³ thereby ceasing to underwrite new business. St. Paul also entered into run-off later the same year.

After St. Paul requested that Scandinavian indemnify it for much of its loss, two disputes emerged between the parties concerning the Agreement's interpretation. First, the parties could not agree on whether they had intended the Agreement to limit the volume of liability assumed by Scandinavian. Scandinavian argued that the parties had intended the Agreement to be “finite,” and that the maximum possible loss to Scandinavian that the parties had contemplated was about $21 million.⁴ St. Paul contended, however, that the Agreement contained no express limitation on the extent of risk that Scandinavian had assumed and that no such limitation should be read into the Agreement. St. Paul ultimately sought to charge Scandinavian with losses of approximately $290 million.

Second, the parties could not agree on whether the Agreement provided for a single experience account, or instead three separate experience accounts (i.e., one for each year covered by the Agreement). Scandinavian argued that the Agreement provided for one, while St. Paul argued that there were three separate accounts.

The Arbitrators and Their Disclosures

To resolve these disputes, in September 2007, St. Paul demanded arbitration. In accordance with the terms of the Agreement, the parties proceeded to select the three members of the arbitral panel. Scandinavian appointed Jonathan Rosen, and St. Paul appointed Peter Gentile. Paul Dassenko was selected to serve as umpire.⁵ The parties accepted Dassenko's appointment on November 29, 2007, following their receipt of his responses to a disclosure questionnaire.

Although the Agreement did not require the arbitrators to be affiliated with any particular arbitral association, all three arbitrators were certified by the AIDA Reinsurance and Insurance Arbitration Society (“ARIAS”). ARIAS has promulgated ethical guidelines for certified arbitrators, including Canon IV, which instructs arbitrators to “disclose any interest or relationship likely to affect their judgment” and to resolve any doubt about whether to disclose “in favor of disclosure.” ARIAS U.S., Code of Conduct—Canon IV, http:// www. arias- us. org/ index. cfm? a= 30 (last visited Dec. 20, 2011). In accordance with those guidelines, each of the arbitrators made initial disclosures to the parties. The form of those disclosures differed.

Dassenko, the umpire, responded in writing to a nine-page questionnaire jointly submitted by the parties.⁶ See [J.A. 112–30] Umpire Questionnaire (Nov. 21, 2007). In addition to disclosing his past employment at several firms affiliated with either St. Paul or Scandinavian,⁷ Dassenko noted that it was “likely” that he had “transacted or sought to transact business with most of the entities” listed by the parties on the questionnaire, including St. Paul and Scandinavian themselves. Id. ¶ 6(c). Dassenko represented, however, that he had never had any involvement with the subject matter of the dispute, nor did he have any significant professional or personal relationship with any officers, directors, or employees of the parties.⁸ Dassenko also indicated that he had previously served as an arbitrator in more than 150 insurance or reinsurance arbitrations, including two arbitrations in which Rosen had also been an arbitrator. At the prompting of St. Paul's counsel, Dassenko made additional disclosures by email on November 27, 2007, with respect to certain matters that he had forgotten to include in responding to the questionnaire.

The two party-appointed arbitrators made their initial disclosures orally at an organizational meeting held on February 25, 2008. Both Rosen, the Scandinavian-appointed arbitrator, and Gentile, the St. Paul-appointed arbitrator, made a variety of disclosures about past and present employment, their relationships to the parties or their law firms, and their participation as witnesses or arbitrators in other proceedings involving the same parties, their affiliates, their law firms, or the same...