This arbitration/reinsurance action arises from the plaintiff’s request for injunctive relief to enjoin further arbitration proceedings as a result of questions concerning the potential breach of a provision in the reinsurance contract between the parties that required that disputes be submitted to three arbitrators who are not under the control of any party to the agreement.
Specifically, plaintiffs contended that this provision was breached when defendant counsel participated in prohibited ex parte communications with a member of the arbitration panel. The plaintiffs also maintained this provision was breached because two orders, which adversely affect substantial issues, were issued by only two of the arbitrators, not the three party panel as contracted.
The arbitration agreement stated that all disputes were to be decided by “active or retired disinterested officials” of insurance or reinsurance companies “not under the control of either party to this Agreement.” The agreement also specified that the parties were to select a tripartite panel wherein each party would select its own arbitrator and the two selected arbitrators would choose an umpire.”
The arbitration panel considered the parties’ written submissions and issued a scheduling order months prior to the hearing stating that that “[e]x parte communications with any member of the panel shall cease upon the filing of the parties’ initial pre-hearing briefs.” However, a review of defendant counsel’s time records revealed numerous prohibited ex parte communication with an arbitrator as part of a cost and fees assessment of defendant’s submissions.
Thereafter, plaintiff’s immediately filed a motion seeking to stay all proceedings with the panel so that they may investigate whether ex parte communications between defense counsel and the arbitrator constituted a breach of the agreement.
In finding for the plaintiff, the court noted that the parties entered into a contract requiring that disinterested officials, not under the control of any party, serve as arbitrators. The court further noted that plaintiffs raised substantial questions going to the heart of the contract and their success on the merits turns on whether National Union violated the terms of the Treaty Agreement through ex parte communications with the arbitrator. The court cited several Michigan cases holding that the failure to disclose facts that might reasonably lead to an appearance of bias constitutes grounds for vacating an arbitration award, namely Cipriano v. Cipriano, 289 Mich App 361, 370 (2010).
The court further held that the plaintiffs are likely to prevail on their breach of contract claim for the failure to submit disputes before a three party panel noting that the agreement requires that any dispute, “shall be submitted to the decision of the board of arbitration, composed of two arbitrators and an umpire.” Yet, the plaintiffs’ arbitrator was not involved in two major decisions which impacted whether the plaintiffs would be liable for over $25 million dollars.
Consequently, the court concluded that the plaintiffs are entitled to the relief sought because of the strong evidence of ex parte communications between the arbitrator and defense counsel which raised credible issues concerning the fundamental fairness of the proceedings to date, and the integrity of the arbitration proceeding going forward. The court further noted, “just the fact of the ex parte communications looms large, even if the evidence ultimately shows that Arbitrator Rosen was not improperly influenced in any of his decisions.”