Federal Court Confirms Arbitration Award for Cedent and Denies Reinsurers’ Petition to Vacate Using Details of the Arbitrator’s Reasoned Award

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Court decisions on petitions to confirm or vacate arbitration awards often go into some detail about the dispute. In a recent case, the court chose to use the arbitrator’s very comprehensive reasoned award to address both confirmation and vacatur in extreme detail.

In Hamilton Managing Agency Ltd. v. ICI Mutual Insurance Co., RRG, No. 2:25-mc-00079-cr, D. VT (Apr. 14, 2026), the cedent paid a claim to an insured under a D&O policy that was reinsured in part. The reinsurers disputed liability under the reinsurance contract and the parties arbitrated before a sole arbitrator. The arbitrator issued interim and final awards in favor of the cedent and apparently issued a detailed reasoned award. The reinsurers petitioned to vacate the award on multiple grounds. The cedent cross-petitioned to confirm the award.

In a lengthy and detailed wide-ranging opinion the court denied the petition to vacate and confirmed the arbitration award. What is different about this case is that the court chose to expound upon the arbitrator’s reasoned award in great detail to address the various grounds for vacatur and to support confirmation.

The issues arbitrated focused on whether “follow-the-fortunes” should be imputed into the reinsurance contract (or whether there even was a “follow-the-fortunes” clause) and whether the prior acts exclusion in the underlying policy precluded coverage of the subject matter of the dispute (reinstatement of financial filings with the SEC).

On the petition to vacate, among other things, the issue of arbitrator disclosure was raised in the context of seeking to vacate because of evident partiality. The ARIAS·U.S. Code of Conduct and its application to the allegations of non-disclosure were part of the court’s decision. The non-disclosure argument focused on the arbitrator’s prior expert testimony concerning whether industry custom and practice requires that “follow-the-fortunes” be imputed into all reinsurance contracts. The issue was raised with the arbitrator, who explained his position, which the court pointed out the reinsurers accepted. Ultimately, the court found that the reinsurers waived the argument. Nevertheless, the court looked at the substance of the argument and found that the arbitrator’s prior testimony on the imputation issue did not provide a basis for finding evident partiality.

The reinsurers also sought to vacate the award based on the arbitrator exceeding his authority and manifest disregard of the law. The court found that the arbitrator’s award was well within the scope of the arbitration clause, which included honorable engagement language. The court also found that the arbitrator provided a colorable justification for the award and that no egregious impropriety was apparent. Notably, the court stated that “[a]n arbitrator cannot manifestly disregard the law when he or she is empowered by the governing agreement to disregard it and follow industry custom and practice instead.” (citation omitted).

Arbitration awards are very hard to vacate. Where you have a well-reasoned award, the task is even harder.

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

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.

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.

Georgia Supreme Court Reverses and Remands Appellate Court Order Reversing Order Confirming Arbitration Award

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There is a whole world of automobile service contracts sold by car dealers that are sometimes “reinsured” by affiliated reinsurers. Many disputes have arisen out of these deals and many of these disputes are arbitrated.

In a recent case in Georgia, an arbitration award in an auto service contract dispute was issued and confirmed by the court. On appeal, the court of appeals vacated the arbitration award based on manifest disregard of the law. The Georgia Supreme Court took the case on certiorari and reversed the court of appeals and remanded the matter.

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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.

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