One of the issues in the arbitration concerned SNICIL’s claims handling. After both parties submitted competing expert opinions on the issue, the arbitration panel advised that it would retain two workers’ compensation claims-handling experts to review the claims at issue (the “Reviewers”). The panel and the parties then exchanged correspondence and developed the following protocol governing the review process. First, the Reviewers examined a large sample of claim files selected by the panel. Next, the Reviewers met with the panel, ex parte, for three days, and then provided their conclusions in writing to the panel and the parties. The parties then submitted briefs responding to the Reviewers’ findings, after which a two-day hearing was held during which the parties examined the Reviewers, under oath. Last, the parties submitted post-hearing briefs to the panel concerning the issue.
The Panel ultimately issued a final award in SNICIL’s favor. U.S. Life moved to vacate the Panel’s award on the grounds that the panel was guilty of misconduct and exceeded its powers under the Federal Arbitration Act (“FAA”). SNICIL cross-moved to confirm. The U.S. District Court for the Central District of California ruled in SNICIL’s favor, confirming the award. U.S. Life then appealed to the U.S. Court of Appeals for the Ninth Circuit.
The Ninth Circuit affirmed the District Court’s decision on three bases. First, the court found that the Panel was not guilty of misconduct under Section 10(a)(3) of the FAA, because it did not refuse to hear evidence that was “pertinent and material” to the issues in the underlying arbitration. Although the parties were not allowed to participate in the panel’s ex parte meeting with the Reviewers, or question them about that meeting, the parties were permitted to examine the Reviewers’ written conclusions, question them about their qualifications and conclusions at a hearing and submit both pre-hearing and post-hearing briefs.
Next, the Court ruled that the panel’s decision to hold an ex parte meeting with the Reviewers did not constitute “misbehavior” under Section 10(a)(3). The Court noted that although the parties did not specifically permit the Panel to conduct the ex parte meeting, they conferred broad authority on the Panel at the outset of the arbitration to adopt certain processes and procedures to resolve the issues in the dispute.
Last, the Court found that the panel did not exceed its powers under Section 10(a)(4) of the FAA by requiring U.S. Life to pay SNICIL the investment income earned on the monies owed to SNICIL under the Reinsurance Agreement. The Court noted that the panel was empowered to make such a ruling, as the parties had provided the Panel with authority to award “such other and further relief” as the Panel deemed just and proper.
Click here to review a copy of the Ninth Circuit’s decision, captioned United States Life Ins. Co. v. Superior National Ins. Co., et al., No. 07-55938 (9th Cir., Jan. 4, 2010).
