Zev Lagstein, M.D. filed a claim for benefits under a disability policy issued by Certain Underwriters at Lloyd’s London (“Lloyd’s”) after he developed heart disease and other ailments. After Lloyd’s failed to pay out on Lagstein’s claim, he brought suit in federal court, which was stayed pending arbitration. A three-member arbitration panel ultimately found in favor of Lagstein, awarding him the full amount of benefits under the disability policy, plus punitive damages and damages for emotional distress.
Lloyd’s then moved in the U.S. District Court for the District of Nevada to vacate the panel’s award. The District Court vacated the arbitration award on the grounds that it was excessive and not supported by the record, but rejected Lloyd’s argument that vacatur was warranted due to the arbitrators’ failure to disclose the fact that two of them had previously been involved in a judicial matter together.
On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed the portion of the district court’s ruling that vacated the award. First, the Ninth Circuit found that, under Section 10 of the Federal Arbitration Act (“FAA”), the district court could not vacate the panel’s award merely because it believed the award’s size was excessive based on the record or disagreed with the panel’s interpretation of the underlying facts.
Next, the court found that the mere size of the panel’s award did not demonstrate manifest disregard of the law, as argued by Lloyd’s. Relying upon the U.S. Supreme Court’s recent decision in Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp., 130 S. Ct. 1758 (2010), and Ninth Circuit precedent, the court noted that Lloyd’s failed to point to any controlling law or legally dispositive fact that the panel overlooked in rendering its decision and award.
Last, the Ninth Circuit noted that, even if the district court disagreed with the panel’s construction of the Lloyd’s disability policy, that was not a sufficient basis for vacatur. So long as the award “drew its essence” from the Lloyd’s policy, which the court found to be the case, it should not have been disturbed.
The Ninth Circuit also affirmed the district court’s ruling that the award should not be vacated due to evident partiality on the part of the arbitrators. The court found that the undisclosed fact that one arbitrator previously served as a judge in an ethics proceeding involving another arbitrator was not evidence of bias towards Lagstein or against Lloyd’s.