Certain Underwriters at LLoyds, London v. Dryades YMCA

Background

Hurricane Ida damaged properties owned by Dryades YMCA on August 29, 2021. Dryades sought coverage under a commercial property-insurance policy issued by Certain Underwriters of Lloyd’s, London and other insurers. After a coverage dispute arose, Dryades sued the insurers in Louisiana state court, alleging breach of the policy and bad faith. The insurers removed the case to federal court and successfully sought an order compelling arbitration based on the policy’s arbitration clause.

The arbitration clause requires disputes relating to the insurance to be arbitrated in New York and provides that each side will select an arbitrator. Those arbitrators must try to agree on an umpire. If they cannot agree, either side may ask a New York court to select one. The two arbitrators proposed candidates over four months but failed to reach agreement, so the insurers filed this case and moved for appointment of an umpire. The parties agreed that an umpire should be appointed but disagreed about the appropriate candidates.

Authority to Appoint an Umpire

Magistrate Judge Gary Stein concluded that the Federal Arbitration Act authorized the court to appoint an umpire. Section 5 permits appointment when the parties’ agreed selection process has reached a lapse, including when the parties have proposed candidates but cannot agree. Section 206 also permits appointment in arbitrations governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Here, the policy expressly allowed either party to request selection by a New York court, and Dryades did not dispute the court’s authority for purposes of this proceeding.

The Parties’ Positions

The insurers argued that a New York-based umpire was appropriate because the arbitration would take place in New York and the policy states that New York law governs. Dryades argued that Louisiana law might apply and that a New York-based umpire might be less neutral on that question. Dryades instead proposed a non-Louisiana and non-New York attorney from Texas, Tennessee, or Florida.

The court declined to decide which state’s law governs the insurance dispute. It held that the arbitration tribunal, not the court, must decide that choice-of-law issue because the arbitration clause assigns all matters in dispute to the tribunal. The court rejected Dryades’ argument that New York-based candidates would be biased, finding no evidence that the proposed former federal judges could not decide the issue impartially. The New York location of the arbitration and the policy’s reference to New York law also favored a New York-based umpire.

Selection of Frank Maas

The insurers proposed four retired New York-based federal judges, including Frank Maas. The court concluded that the policy’s requirement concerning people with senior positions in insurance underwriting or claims did not prevent selection of a retired judge. Dryades had proposed retired judges itself and did not raise this objection in its opposition brief, so the court found that Dryades had either agreed to this type of candidate or had waived the argument.

The court also rejected Dryades’ objection to former Magistrate Judge Michael Dolinger based on his earlier work defending the United States in tort claims. The court found Dolinger qualified to serve neutrally. It concluded, however, that all four former judges were qualified and that Frank Maas was the most appropriate choice because of his judicial experience with insurance disputes and his later work as an arbitrator and mediator.

Recommendation and Procedure

Magistrate Judge Stein recommended that the insurers’ motion be GRANTED and that Frank Maas be appointed as umpire. This was a report and recommendation rather than the final ruling by the district judge. The parties were given fourteen days from the report’s date to file written objections with the Clerk of Court; requests for more time were to be directed to Judge John P. Cronan. The opinion did not decide the parties’ underlying insurance-coverage dispute or the choice-of-law question.