First State Ins. Co. v. National Cas. Co.

Issue Discussed: Power of Arbitrators

Submitted by Lawrence S. Greengrass, Ann E. Halden*

Date Promulgated: March 20, 2015

First State Ins. Co. v. National Cas. Co., 781 F.3d 7 (1st Cir. 2015)

Court: United States Court of Appeals, First Circuit

Issues Decided: Whether an arbitration award should be vacated where a party argues that the arbitrators exceeded their powers.

Key Holding

National Casualty requested that the court vacate an arbitration panel’s contract interpretation award, claiming that the arbitrators had exceeded their powers by re-writing the terms of the parties’ agreement.  The court held that the sole inquiry is whether the arbitrators “even arguably” construed the underlying agreements in reaching their decision and, thus, acted within the scope of their contractual powers.  The court noted that only if the arbitrators acted so far outside the bounds of their authority that they can be said to have dispensed their “own brand of justice” will a court vacate the award.  The court reviewed the arbitration award and held that, in its view, there was no doubt that the arbitrators were interpreting the reinsurance agreement at issue and therefore had not acted beyond their authority.

In addition, with respect to the portion of the arbitration award that required National Casualty to specifically reserve its rights in order to preserve any objections to claim payments, the court held that honorable engagement language of the reinsurance agreement empowered the arbitrators to grant equitable relief not explicitly mentioned in the underlying agreement (such as setting up the reservation of rights procedure).  The court therefore denied the petition to vacate and affirmed the order confirming the contract interpretation award.

Key Takeaways

A court will not vacate an arbitration award where the award is based on the agreements being arbitrated.  In addition, honorable engagement language in an arbitration agreement empowers arbitrators to grant equitable relief not explicitly mentioned in the underlying contract.

* Lawrence S. Greengrass is Senior Counsel and Ann E. Halden is Special Counsel at Mound Cotton Wollan and Greengrass LLP, where they specialize in reinsurance litigation and arbitration.