Court Appoints Umpire in Coverage Dispute

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Many arbitration clauses, especially those that reference arbitration rules, provide for a party to go to the court where there is an impasse in appointing the arbitrator or umpire. In a case decided earlier in 2023, an insurance coverage dispute subject to arbitration landed in court to resolve a dispute over selection of the umpire.

In Allianz Global Corporate & Specialty SE v. HBC US Holdings Inc., No. 23-cv-553 (JLR) (S.D.N.Y. Aug. 4, 2023), the insurer sought the court’s intervention to appoint the umpire in a coverage dispute under an All Risks of Direct Physical Loss or Damage policy issued by the insurer to a well-known retail holding company involving the COVID-19 pandemic. Each side appointed an arbitrator but the parties (arbitrators) failed to agree on an umpire.

The arbitration clause in the policy provided that if the arbitrators did not choose an umpire within 15 days from their appointment “the umpire shall be selected by a judge of the Court of record in the State where Insured’s Home Office is situated.” The court characterized the parties’ dispute as follows:

the parties dispute whether this Court has jurisdiction to select the umpire, whether now is the appropriate time for the Court to appoint that umpire, and unsurprisingly, who that umpire should be.

In resolving the dispute in favor of appointment (thus in favor of the insurer), the court found that it had subject matter jurisdiction either under The Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) or based on diversity of citizenship (the insurer is domiciled in Germany). The court rejected the policyholder’s argument that diversity does not exist because of a nearly identical arbitration pending between the policyholder and another insurer. The court found that the existence of the other arbitration immaterial because the other insurer was not a party to this action.

Having found jurisdiction, the court rejected the policyholder’s argument that this action was premature because the parties were still negotiating over the umpire.

That the party-appointed arbitrators are continuing to negotiate and exchange umpire names many months later does not change the fact that there has been a “lapse” for more than 15 days.

Once a contractually agreed upon lapse exists, Section 5 of the Federal Arbitration Act gives the court the authority to appoint the umpire. The court found that here and held that it had the authority to appoint the umpire and that the request was not premature.

As to the umpire, the parties supplied the court with a bevy of umpire candidates. All, the court stated, would make good umpires. There was a dispute about certain candidates who have presided over disputes involving the policyholder. The court resolved the issue as follows:

the Court will select an umpire who has not been involved with prior arbitrations concerning this claim. The Court also finds, and neither party disputes, that an umpire with familiarity with insurance matters and complex contract disputes would be well suited for this matter.

The court granted the petition, appointed a judge familiar with coverage issues as umpire and denied the motions to dismiss made by the policyholder.

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