Fifth Circuit Definitively Rejects Manifest Disregard As a Ground for Vacatur of an Arbitration Award

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The grounds for vacating an arbitration award under the Federal Arbitration Act (“FAA”) are limited. For decades, however, parties have raised manifest disregard of the law as a ground for vacatur. Many courts have limited or rejected manifest disregard as a basis to vacate an arbitration award. In a recent decision, the Fifth Circuit Court of Appeals in a non-reinsurance case has relegated manifest disregard to the dustbin of history.

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In United States Trinity Energy Services, L.L.C. v. Southeast Directional Drilling, L.L.C., No. 24-10823 (5th Cir. Apr. 28, 2025), parties to a pipeline construction contract arbitration cross-petitioned to confirm and vacate a final award. The Texas District Court denied the petition to vacate and granted the petition to confirm. The losing party appealed to the 5th Circuit on this basis:

Trinity Energy appeals on the grounds that “the arbitration panel
exceeded its authority and acted in manifest disregard of the law.” The
contractor specifically contends the arbitration panel “failed to harmonize
numerous subcontract provisions limiting Trinity’s obligation to pay
Southeast’s standby costs.”

In affirming the order confirming the arbitration award, the circuit court flatly rejected manifest disregard of the law as a basis for vacating an arbitration award under the FAA. The court stated what we all know: vacating an arbitration award happens only in very unusual circumstances and that judicial review of an arbitration award is extraordinarily narrow.

The court noted that only limited circumstances allow for vacatur of an arbitration award. Indeed, stated the court, Section 10 of the FAA provides the exclusive statutory grounds. In addressing the argument that the arbitration panel exceeded its powers, the court held as follows:

The final award reveals the arbitration panel reviewed the evidence presented, considered the effects of various provisions in the subcontract, and concluded that Trinity Energy
owed Southeast Drilling for stand-by costs. Vacatur is therefore unjustified under § 10(a)(4) because Trinity Energy failed to show the arbitration panel exceeded its powers by disregarding the subcontract entirely. The parties bargained for this dispute resolution arrangement, and we conclude this arbitration panel’s “construction holds, however good, bad, or ugly.” (citations omitted).

Getting to manifest disregard, the court noted that manifest disregard is not one of the statutorily enumerated grounds for vacatur and articulated the appellant’s argument as follows:

Although “manifest disregard of the law” is not a freestanding ground for vacatur of an arbitration award in our circuit (citation omitted), Trinity Energy alleges that manifest disregard of the law remains viable “as an independent ground for review or as a judicial gloss on the enumerated grounds for vacatur set forth at 9 U.S.C. § 10.” In other words, Trinity Energy essentially ignores its inapplicability as an independent basis while simultaneously attempting to subterfuge this non-statutory ground for vacatur within § 10(a)(4).

This the court rejected, holding that “[o]ur court has never held that “manifest disregard of the law” is a basis to establish that arbitrators “exceeded their powers” under § 10(a)(4).”

In short, we cannot substitute a court panel’s judgment in place of an arbitration panel’s decision by recognizing “manifest disregard of the law” as a basis for vacatur embedded within § 10(a)(4).

In the Fifth Circuit, any attempt to use manifest disregard as a basis to vacate an arbitration award will fail. Of course, this applies to arbitration awards rendered in reinsurance disputes as much as any other commercial arbitration.

Arbitration Award Confirmed Despite Recapture

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Confirming an arbitration award is straightforward, but what about confirming an arbitration award in a yearly renewable term life reinsurance dispute even after the business is recaptured?

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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.

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Federal Jurisdiction Matters to Vacate or Confirm an Arbitration Award

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Insurance and reinsurance arbitrations are often governed by the Federal Arbitration Act (“FAA”). Enforcement of arbitration rights under the FAA, however, may take place in either federal or state courts. To proceed in federal court, subject matter jurisdiction must exist. In a recent case, the United States Supreme Court addressed an open question concerning whether subject matter jurisdiction existed on competing applications to vacate and confirm an arbitration award so that the federal district court could hear the dispute.

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Confirming a Reinsurance Arbitration Award

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Reinsurance arbitration awards, like most commercial arbitration awards, are subject to confirmation in the courts. This turns the final arbitration award into a court judgment ripe for enforcement if necessary. This is nothing new and when there is no opposition to the petition to confirm there is no mystery as to the result. While the odd case does exist where the court will not confirm an arbitration award, generally an unopposed confirmation will be granted. So why talk about this then? Because sometimes it is good to revisit basic rules and concepts. That’s what a federal court did recently in confirming an unopposed reinsurance arbitration award.

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Power to the Arbitrators

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In the beginning, arbitration was unfavored and the courts intervened with frequency. Then came the Federal Arbitration Act (“FAA”), which created a federal policy in favor of arbitration. This policy applies equally in federal or state court as long as the contract involves interstate commerce.

The courts, however, were still involved in gateway issues like whether there was a valid arbitration agreement entered into by the parties (arbitrability). But as case law on arbitrability developed, the courts found that where the parties delegated the authority to decide gateway issues like arbitrability to the arbitrator, it was then up to the arbitrator, and not the court, to determine those arbitrability questions in the arbitration. Sounds counterintuitive, but there you have it in a brief summary.

That brings us to a short decision by a New York intermediate appellate court highlighting this issue in an insurance arbitration context.

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Cleaning Up the Balance Sheet: Why Not Resolve Lower Value Reinsurance Disputes Now?

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Every cedent and every reinsurer has on their balance sheets a number of contracts that are sitting in limbo with balances due or owing. Some of them are with entities in runoff or in insolvency proceedings. Others are legacy pieces of business with claims slowly running off. Still others are live disputes with relatively modest balances. With the high cost of collection, especially if it involves full-blown litigation or arbitration, these balances may sit on the company’s books for years (or decades). This blog post suggests some ways to help clean up the balance sheet.

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