Partial Arbitration Awards May Complicate Confirmation

Arbitration Award by Nick Youngson CC BY-SA 3.0 Alpha Stock Images

Many insurance and reinsurance arbitrations are bifurcated. That is, the issues in dispute are decided in phases. When arbitrations are held in phases the arbitration panel may issue partial or interim awards for each phase.

Whether a partial or interim award may be confirmed by a court will depend on whether the award is a “final” award for purposes of the Federal Arbitration Act (“FAA”). Under Section 9 of the FAA, if the parties in their agreement have a agreed that a court judgment may be entered on an arbitration award, a party may seek confirmation of that award. Case law provides that the award must be final, meaning that the award is a final and complete disposition of all issues.

In a recent case before the Seventh Circuit Court of Appeals, the court addressed a request to confirm phased awards and whether confirmation of two phased awards was permissible.

In Standard Security Life Insurance Co. of New York v. FCE Benefit Administrators, Inc., No. 19-2336 (7th Cir. Jul. 28, 2020), the court addressed an insurance arbitration where one of the parties sought to confirm two phased awards. The district court originally rejected the request to confirm the first award on damages, holding that the request was premature because not all the issues before the arbitration panel had been decided. After the second award was issued, the district court confirmed both awards. The losing party appealed arguing that the second award superseded the first award and therefore, the damages award was no longer effective.

In affirming the district court’s confirmation of both award, including the damages award, the court rejected the contention that the phase II award “erased” the phase I award because the phase II award contained the typical phrase: “all other claims for relief by the parties are denied.” Here, the court found that the arbitrators deliberately bifurcated the arbitration to decide discrete claims in each phase.

The panel plainly intended the Phase I Award to be final for all of the Phase I claims. Why else would it have entitled the Phase I Award ‘Partial Final Award – Phase I’? Both the word ‘partial’ and the word ‘final’ eliminate any possible doubt on the matter.

The court found that the “all other claims for relief by the parties are denied” phrase only made sense if it referred to the claims that were asserted in phase II, which were termed by the arbitration panel in the phase II award as “newly asserted claims in Phase II of this arbitration.”

The court also rejected the argument that the phase II award must supersede the phase I award otherwise it would be at odds with the district court’s original order dismissing (without prejudice) the first application to confirm. The court held that the arbitrators had the option of choosing a middle ground, which was to resolve one set of claims before the other. That the district court was not ready to resolve the case before the arbitration was fully resolved only reflected the different roles between the two tribunals and different rules of finality, said the court. The court found there was no conflict between the two decisions of the district court.

The court rejected other arguments as well, not directed to the bifurcated awards issue, while affirming the confirmation of both phased awards.