Court Disqualifies Party-Appointed Reinsurance Arbitrator Prior to Arbitration

Challenging the qualifications of an arbitrator is difficult. Most courts reject pre-arbitration challenges and require the objecting party to wait for a final award to raise a challenge. But sometimes the stars align and the challenge is allowed. In a recent case, a California federal court accepted the challenge on cross-motions to compel arbitration and disqualified a party-appointed arbitrator for not being disinterested.

In Public Risk Innovations, Solutions, and Management v. AmTrust Financial Services, Inc., No. 21-cv-035730-EMC (N.D. Calif. July 12, 2021), an objection was made to a party-appointed arbitrator as unqualified because of not being a current or former official of an insurance or reinsurance company and because of he was not disinterested. Both parties agreed that the underlying dispute was arbitrable and both parties agreed that the court should decide this dispute over the arbitrator’s qualifications.

Interestingly, the court cited cases going both ways on this issue, but chose to go forward with the matter without expressly ruling on whether a pre-arbitration challenge was appropriate. If both parties had not agreed that the court should resolved the issue I wonder if the court would have gone forward.

In any event, the court rejected the challenge based on whether the arbitrator was qualified as a current or former official of an insurance or reinsurance company. The arbitrator was general counsel to several joint power authorities and self-insured joint power authorities and risk pools. The court held that in the context of the arbitration agreement the joint power authority could be seen as an insurance company, especially as a self-insured pool that essentially acts like an insurer.

Nevertheless, the court held that the arbitrator was not disinterested because he currently worked for entities that were members of the self-insured pool and could feel pressure to favor the pool’s position. Accordingly, the court found that the arbitrator was not qualified under the arbitration agreement.

The court also ruled that the pool could name a new arbitrator and rejected the argument that it forfeited its right to select an arbitrator. Simply put, the pool named an arbitrator and did not fail to do so. That the arbitrator was not qualified did not mean that the pool failed to act.

Notably, while the court directed the clerk to close the case file, it left open to the parties the opportunity to ask the court to reopen the case should there be another dispute about the qualifications of an arbitrator. But the court also strongly suggested that the parties move forward with arbitration and not engage in further litigation about the arbitration.