The Limits on Challenging an Arbitration Award in an Insurance Dispute

Losing parties in arbitrations often seek to vacate the arbitration award claiming that the arbitrator was guilty of misconduct or manifestly disregarded the law. Convincing a court to vacate an arbitration award is not easy and is not typically successful. Under US law, particularly the Federal Arbitration Act (“FAA”), there is no appeal from an arbitration award and the bases to vacate the award are narrow and limited. See FAA, § 10.

In a recent Summary Order, the Second Circuit Court of Appeals, reiterated these principles, although the court did grant some relief to the party seeking vacatur.

In Oldcastle Precast, Inc. v. Liberty Mutual Insurance Co., No. 19-868-cv (2d Cir. Mar. 9, 2021) (Summary Order), the losing parties, including an insurance company, in an arbitration appealed the district court’s order granting the winning party’s petition to confirm an arbitration award and denying a partial motion to vacate the award. The losing parties argued that the failure of the arbitrator to award damages on their counterclaim was made in manifest disregard of the law and rose to the level of misconduct. The arbitrator found there was insufficient proof of actual damages to support the counterclaim and discounted the testimony of the losing parties’ witnesses.

On appeal, the circuit court reiterated the limited review given to a challenge based on manifest disregard of the law and the rarity of finding egregious conduct of the arbitrator that is apparent. The court pointed out that mere error or misunderstanding of the law is required and that an award will be enforced as long as there is a barely colorable justification for the outcome reached.

On the arbitrator’s actions, the court found that the arbitrator was entitled to weigh the evidence in making factual findings and that the courts may not conduct a reassessment of the evidentiary record. The court stated that even if the losing parties put in uncontroverted evidence “that does not obligate the arbitrator to find them an adequate and reliable basis for an award. If a statement is unrebutted it may be more likely to be accepted as true and as providing a sound basis for a finding, but the law does not deem unrebutted statements true or conclusive on a matter of fact. There is simply no basis to overturn the arbitrator’s decision.”

On the issue of pre-judgment interest, however, the court partially vacated the award and directed the district court to consider the contractual interest rate as agreed to by the parties. As the court stated, the contractual interest rate rules until entry of judgment.