Public Risk Innovations v. Amtrust Financial Services

Background

The parties filed cross-motions asking the court to compel arbitration. They agreed that two disputes—one involving the GL-1 Certificate and one involving the GL-2 Certificate—should be arbitrated. Their disagreement concerned the composition of the arbitration panels, particularly whether Mr. Conley, one of three arbitrators selected by PRISM, was qualified.

The arbitration agreement required panel members to be “disinterested current or former officials of property and casualty insurance or reinsurance companies not under the control or management of either party.”

Waiver argument

PRISM argued that AmTrust had waived its right to challenge Mr. Conley. The court rejected that argument. Applying the requirement that waiver be proved by clear and convincing evidence, the court found that PRISM had not met its burden. Although the agreement stated that “time is of the essence,” it did not establish a specific deadline for objecting to an arbitrator.

Whether Mr. Conley qualified

AmTrust argued that Mr. Conley was disqualified for two reasons: he was not a current or former official of an insurance or reinsurance company, and he was not disinterested.

The court rejected the first argument. Mr. Conley had been general counsel to joint powers authorities, self-insurance joint powers authorities, and risk pools. The court concluded that the agreement used “insurance” broadly enough to include these types of self-insurance arrangements. The Certificates referred to PRISM as a “Company” and described the relevant coverage as a policy and reinsurance contract, even though PRISM was a public entity.

The court agreed with AmTrust’s second argument. PRISM did not dispute that Mr. Conley was currently an official of entities whose members included PRISM members or that were themselves PRISM members. The court concluded that this relationship could create pressure for Mr. Conley to take positions favorable to PRISM, even if those entities or their members had no direct financial interest in the outcome. As a result, Mr. Conley was not a “disinterested” arbitrator under the agreement.

Disposition

The court ruled that Mr. Conley was not a qualified arbitrator and directed PRISM to select a new arbitrator or arbitrators for both the GL-1 and GL-2 arbitrations. The court rejected AmTrust’s argument that PRISM had forfeited its right to select an arbitrator for the GL-2 arbitration. According to the court, PRISM had acted by appointing Mr. Conley; his disqualification did not mean that PRISM had failed to appoint anyone.

Because the dispute before the court had been resolved, the court directed the clerk to administratively close the case. The court stated that the parties could request reopening if another dispute about an arbitrator’s qualifications arose, and directed them to raise any such dispute in a short joint letter rather than a fully noticed motion. The order disposed of Docket Nos. 12 and 20.