Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-07-55938/USCOURTS-ca9-07-55938-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 

---

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

UNITED STATES LIFE INSURANCE 

CO.,

Petitioner-Appellant,

No. 07-55938 v.

D.C. No. SUPERIOR NATIONAL INSURANCE CO.,  CV-07-00850-VBF SUPERIOR PACIFIC CASUALTY CO.,

(JTL) CALIFORNIA COMPENSATION

INSURANCE CO., COMMERCIAL OPINION

COMPENSATION INSURANCE CO., and

COMBINED BENEFITS INSURANCE CO.,

Respondents-Appellees. 

Appeal from the United States District Court

for the Central District of California

Valerie Baker Fairbank, District Judge, Presiding

Argued and Submitted

November 19, 2008—Pasadena, California

Filed January 4, 2010

Before: Susan P. Graber and Richard R. Clifton,

Circuit Judges, and Edward F. Shea,* District Judge.

Opinion by Judge Shea

*The Honorable Edward F. Shea, United States District Judge for the

Eastern District of Washington, sitting by designation. 

83

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 1 of 20
COUNSEL

Andrew S. Amer and Deborah Lynn Stein, Simpson, Thatcher

& Bartlett LLP. Kathleen M. Sullivan (argued), Quinn Emanuel Urquhart Oliver & Hedges LLP, Redwood Shores, California, for the petitioner-appellant.

Margaret M. Grignon (argued), Reed Smith LLP, Los Angeles, California; and Joseph K. Hegedus, Lewis Brisbois Bisgaard & Smith LLP, Los Angeles, California, for the

respondents-appellees.

OPINION

E. SHEA, District Judge:

We are asked to determine whether an arbitration panel

violated the Federal Arbitration Act (FAA), 9 U.S.C. §§ 2-16.

The process employed by the arbitration panel, which

included an ex parte meeting with panel-retained workers’

compensation experts, was unusual; however, after deferentially reviewing the panel’s award, we determine that the arbitration process provided the parties with a fundamentally fair

arbitration and that the arbitration award rested on a plausible

interpretation of the governing arbitration documents.

Accordingly, we affirm the arbitration award in favor of

Superior National Insurance Companies in Liquidation (SNICIL).

BACKGROUND

U.S. Life contractually agreed to reinsure the workers’

compensation risks insured by five California insurers

between May 1, 1998, and January 1, 2003. This reinsurance

contract contained an arbitration provision. These California

insurers later declared bankruptcy and will be referred to as

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 87

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 2 of 20
SNICIL. The California Insurance Commissioner became

SNICIL’s statutory liquidator. 

Ten years ago, on November 29, 1999, U.S. Life requested

arbitration, seeking: 1) rescission or reformation of the reinsurance contract because SNICIL misrepresented the reserves

during the underwriting process and 2) damages for SNICIL’s

bad-faith performance. SNICIL agreed to arbitrate, seeking a

declaration that the reinsurance contract was valid, a ruling

that U.S. Life was to perform its contractual obligations, and

damages. The panel, which consisted of an arbitrator

appointed by each party and a neutral arbitrator selected by

the parties’ arbitrators, bifurcated the arbitration proceeding

into two phases.1

Phase I addressed rescission and reformation claims. After

holding extensive hearings, the panel entered a Final Interim

Award that found no basis for rescission. The panel, however,

reformed the reinsurance contract so that U.S. Life became

liable for only 90% of the risks insured by SNICIL’s underlying policies because of SNICIL’s failure to be forthright during the contract formation period. The panel awarded SNICIL

interest on this 90% amount “at a rate equal to the average of

the 2 and 5 Year Treasury Notes as posted in the Wall Street

Journal.”

U.S. Life sought vacatur of the Final Interim Award. The

1At oral argument, the parties acknowledged that, before the submission

of the parties’ pre-hearing briefs on February 21, 2006, each party had ex

parte contact with its party arbitrator. This is customary in tripartite arbitration panels. See American Arbitration Association, Commercial Arbitration Rules and Mediation Procedures, Rule 18, available at http://

www.adr.org/sp.asp?id=22440&printable=true#18 (last checked on Dec.

21, 2009); JAMS, Arbitrators Ethics Guidelines, art. X, available at http://

www.jamsadr.com/arbitration-ethics/ (last checked on Dec. 21, 2009);

American Bar Association, The Code of Ethics for Arbitrators in Commercial Disputes, canons III(B) & X(c), available at http://www.abanet.org/

dispute/commercial_disputes.pdf (last checked on Dec. 21, 2009). 

88 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 3 of 20
district court denied U.S. Life’s petition; this court affirmed

the district court’s decision. U.S. Life Ins. Co. v. Ins. Comm’r,

160 Fed. App’x 559 (9th Cir. 2005).

Phase II proceeded to determine whether SNICIL engaged

in improper claims handling that resulted in bills to U.S. Life

in excess of the amounts due under the reinsurance agreement. A Phase II organizational meeting was held on April

14, 2005. Rather than review each of the 98,901 June 30,

2004 claims, U.S. Life’s expert selected 500 of the 12,604

contested claims files for an audit. SNICIL’s expert used this

same sample to conduct its audit. 

Prior to Phase II’s evidentiary hearings, SNICIL’s party

arbitrator advised the parties that he had terminal cancer, but

that he wished to continue as an arbitrator. The parties elected

to continue with the arbitration proceeding with SNICIL

appointing an alternate arbitrator to observe and potentially

replace SNICIL’s party arbitrator. The parties agreed that

Phase II would be governed by Protocols Governing the Presentation of Evidence (“the protocols”). The panel approved

the protocols.

In March 2005, the panel listened to the parties’ Phase II

evidence and arguments for approximately thirteen days.2

After the hearings, the panel advised the parties that it was

unable to reach a decision regarding the quality of SNICIL’s

claims handling and, more pointedly, U.S. Life’s reinsurance

contract obligations given the parties’ divergent expert opinions. To rectify this “stalemate,” the panel advised that it

would retain two workers’ compensation claims-handling

experts (“the reviewers”) to review the submitted bills.

The panel and the parties exchanged correspondence dis2On March 21, 2006, during the Phase II hearings, the health condition

of SNICIL’s party arbitrator forced him to resign. He was replaced by the

designated alternate SNICIL party arbitrator. 

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 89

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 4 of 20
cussing what review process to use. Ultimately, the panel3

determined that the following review process would be used:

1) the reviewers would review 162 of the 500-claim sample

of the June 30, 2004 claims; 2) the reviewers would meet with

the panel for three days (hereinafter, “the ex parte meeting”)

and no transcript would be prepared of the ex parte meeting;

3) the reviewers would provide their conclusions in writing to

the panel and the parties; 4) the parties could submit briefs

responding to the reviewers’ conclusions; 5) a two-day hearing would be held during which the parties could question the

reviewers, under oath, for five hours each as to their qualifications and the reasons for their conclusions, but not as to the

ex parte meeting; and 6) the parties could submit post-hearing

briefs to the panel. This procedure was used.

On December 6, 2006, the panel issued its Phase II Interim

Award, finding that all amounts billed prior to June 30, 2004,

were properly due.4 The panel determined, in addition to the

Phase I Final Interim Award interest requirement, that U.S.

Life was to disgorge its actual investment earnings on all

monies due under the reinsurance agreement as of June 30,

2004. The panel also required U.S. Life to pay post-June 30,

2004 bills within thirty days of billing.

On February 1, 2007, the panel issued its Phase II Interim

Final Award, which clarified that the panel’s December 6,

2006 ruling

[did] not change the interest awarded in its Final

Interim Award of December 30, 2004, as amended

and clarified. Any and all monetary awards for [SNICIL] of the excess investment earnings as set forth

in this PHASE II INTERIM FINAL AWARD and in

3

It is undisputed that all three arbitrators agreed upon this process. 

4U.S. Life’s party arbitrator disagreed with this interim ruling, along

with the subsequent February 2007 interim and final awards; however, he

did not issue a separate written decision. 

90 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 5 of 20
the Phase II Interim Award shall be deemed to be

interest or other monetary remedy for US Life’s disgorgement of unjust enrichment.

On February 18, 2007, the panel issued its Final Arbitration

Award, requiring U.S. Life to pay all bills submitted before

December 6, 2006, along with Phase I interest and Phase II

disgorgement. Furthermore, U.S. Life was required to pay all

post-December 6, 2006 bills within thirty days of receipt. 

U.S. Life filed an action in district court to vacate this

award. SNICIL answered and also filed a separate action to

confirm the award. After consolidating the two actions, the

district court upheld the arbitration award. U.S. Life now

seeks review.

ANALYSIS

A. Standard of Review 

When reviewing the district court’s confirmation of an arbitration award, the appellate court must accept the district

court’s findings of fact unless clearly erroneous but decide

questions of law de novo. First Options of Chi., Inc. v.

Kaplan, 514 U.S. 938, 947-48 (1995); Schoenduve Corp. v.

Lucent Techs., Inc., 442 F.3d 727, 730 (9th Cir. 2006);

Employers Ins. of Wausau v. Nat’l Union Fire Ins. Co. of

Pittsburgh, 933 F.2d 1481, 1485 (9th Cir. 1991). The issues

before us involve questions of law.

During this de novo review, we were cognizant that arbitration is an encouraged method of dispute resolution and that

our review of the arbitration panel’s decision is greatly limited. See United Paperworkers Int’l Union v. Misco, Inc., 484

U.S. 29, 36-37 (1987); Schoenduve Corp., 442 F.3d at 730. 

B. Federal Arbitration Act 

[1] The FAA, which governs arbitration proceedings, “replace[d] judicial indisposition to arbitration with a ‘national

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 91

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 6 of 20
policy favoring [it] and plac[ing] arbitration agreements on

equal footing with all other contracts.’ ” Hall St. Assocs.,

L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 1402

(2008) (quoting Buckeye Check Cashing, Inc. v. Cardegna,

546 U.S. 440, 443 (2006) (alterations in original)). Case law

recognizes that, in order to provide a relatively expeditious

and inexpensive dispute resolution, arbitration is not governed

by the federal courts’ strict procedural and evidentiary

requirements. Mitsubishi Motors Corp. v. Soler ChryslerPlymouth, Inc., 473 U.S. 614, 628 (1985); Kyocera Corp. v.

Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th

Cir. 2003) (en banc). Therefore, when interpreting and applying the FAA, we are mindful not to impose the federal courts’

procedural and evidentiary requirements on the arbitration

proceeding; rather, our responsibility is to ensure that the

FAA’s due process protections were afforded.

[2] Section 10 of the FAA sets forth grounds to vacate an

arbitration award. In March 2008, the Supreme Court resolved

a circuit conflict and ruled that § 10 lists the exclusive

grounds for vacating an arbitration award. Hall St. Assocs.,

128 S. Ct. at 1403. Section 10(a) provides:

In any of the following cases the United States court

in and for the district wherein the award was made

may make an order vacating the award upon the

application of any party to the arbitration—

(1) where the award was procured by corruption, fraud, or undue means;

(2) where there was evident partiality or

corruption in the arbitrators, or either of

them;

(3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing,

upon sufficient cause shown, or in refusing

92 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 7 of 20
to hear evidence pertinent and material to

the controversy; or of any other misbehavior by which the rights of any party have

been prejudiced; or 

(4) where the arbitrators exceeded their

powers, or so imperfectly executed them

that a mutual, final, and definite award

upon the subject matter submitted was not

made.

9 U.S.C. § 10(a). Section 10(a)’s limited grounds are “designed to preserve due process but not to permit unnecessary

public intrusion into private arbitration procedures.” Kyocera

Corp., 341 F.3d at 998. The burden of establishing grounds

for vacating an arbitration award is on the party seeking it.

See Employers Ins. of Wausau, 933 F.2d at 1489.

C. 9 U.S.C. § 10(a)(3) Misconduct

U.S. Life contends that, by closing the meeting of the panel

with the reviewers, the panel refused to hear pertinent and

material evidence regarding the appropriateness of SNICIL’s

claims handling.5 Although an ex parte meeting between an

arbitrator and a neutral expert is not a routine arbitration practice,6

 the panel had authority to adopt its own rules of proce5SNICIL contends that U.S. Life waived the ability to object to the

panel’s procedure, but U.S. Life’s spring 2006 emails sufficiently articulated its objection. See Avis Rent A Car Sys., Inc. v. Garage Employees

Union, 791 F.2d 22, 26 (2d Cir. 1986); cf. Fidelity Fed. Bank, FSB v.

Durga Ma Corp., 386 F.3d 1306, 1313 (9th Cir. 2004) (ruling that failure

to raise issue with arbitrator results in waiver of objection). 

6We deem it non-routine because the arbitration ethical codes promulgated by the American Bar Association, the American Arbitration Association, the National Academy of Arbitrators, and JAMS do not set forth

procedures for ex parte contacts with a neutral expert. See sources cited

supra n.1; National Academy of Arbitrators, Code of Professional

Responsibility for Arbitrators of Labor-Management Disputes, available

at http://www.naarb.org/code.html. 

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 93

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 8 of 20
dure and it did.7

 Our review of the record leads us to conclude

that the panel did not “refus[e] to hear evidence pertinent and

material to the controversy.” 9 U.S.C. § 10(a)(3). Before

explaining the basis for this conclusion, we note that the parties disagree as to whether § 10(a)(3) requires U.S. Life to

show prejudice as a result of the panel’s alleged refusal to

hear “evidence pertinent and material to the controversy.” 

[3] Our prior FAA cases have not directly interpreted the

text of § 10(a)(3). In Employers Insurance of Wausau, 933

F.2d at 1490, an FAA case, though we did not explicitly reference § 10(a)(3), we addressed the argument that a panel’s

refusal to admit certain evidence was misconduct necessitating vacatur. There we said:

National has neither argued nor demonstrated that

this evidentiary ruling influenced the outcome of the

arbitration. Yet a showing of prejudice is a prerequisite to relief based on an arbitration panel’s evidentiary rulings. See, e.g., Burchell v. Marsh, 58 U.S. (17

How.) 344, 350, 15 L.Ed. 96 (1854) (to warrant

reversal because of an arbitrator’s mistake in the

conduct of the hearing, party must show that “if it

had not happened, [the arbitrator] should have made

a different award”); [Mut. Fire, Marine & Inland

Ins. Co. v. Norad Resins. Co.], 868 F.2d [52, 57 (3d

Cir. 1989)]; Hoteles Condado [Beach, La Concha &

Convention Ctr. v. Union de Tronquistas Local 901],

763 F.2d [34, 40 (1st Cir. 1985)]; accord Misco, 484

U.S. at 40, 108 S.Ct. at 371 (vacatur appropriate only

if refusal to hear evidence amounted to affirmative

misconduct). Consequently, even were the excluded

evidence relevant, National still is not entitled to

7

See, e.g., Employers Ins. of Wausau, 933 F.2d at 1485 (holding that a

panel with authority could adopt rules of procedure permitting contact

between a party and its chosen arbitrator until the hearing concluded and

the deliberation began). 

94 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 9 of 20
vacatur because of its lack of evidence of prejudicial

impact.

Id.8

[4] Section 10(a)(3) provides:

[An arbitration award may be vacated:]

where the arbitrators were guilty [(1)] of misconduct

[(a)] in refusing to postpone the hearing, upon sufficient cause shown, or [(b)] in refusing to hear evidence pertinent and material to the controversy; or

[(2)] of any other misbehavior by which the rights of

any party have been prejudiced[.]

While an argument can be made that this text is ambiguous

given its language and punctuation, we need not resolve this

textual ambiguity, if any, for two reasons. First, we conclude

that the phrase “refusing to hear evidence pertinent and material to the controversy” necessarily implies prejudice to the

rights of a party, without regard to the final catch-all phrase.9

Second, we hold that U.S. Life failed to establish that the

panel’s refusal to let the parties participate in or question the

neutral experts about the ex parte meeting discussion constitutes a refusal to hear pertinent and material evidence. It was

only after the panel listened to, and considered, the parties’

experts’ opinions and other evidence that the panel determined it needed additional information to resolve the Phase II

dispute: U.S. Life’s obligations under the reinsurance contract. The panel advised the parties of its dilemma and deter8The broad principle of Burchell cited is limited by Hall Street Associates, which held “that the FAA confines its expedited judicial review to

the grounds listed in 9 U.S.C. §§ 10 and 11.” 128 S. Ct. at 1408. 

9We previously held “a showing of prejudice is a prerequisite to relief

based on an arbitration panel’s evidentiary rulings.” Employers Ins. of

Wausau, 933 F.2d at 1490. 

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 95

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 10 of 20
mined what process to use only after receiving input from

counsel through extensive and detailed correspondence. The

process employed ensured due process by allowing the parties

to present their respective arguments regarding the reviewers’

conclusions by 1) reviewing the written conclusions, 2) submitting briefing addressing these conclusions, 3) questioning

the reviewers about their qualifications and conclusions, and

4) submitting post-hearing briefing.10 Although the parties

were not privy to what occurred during the ex parte meeting,

the panel gave the parties ample opportunity to discover and

critique the reviewers’ conclusions. 

[5] Contrary to U.S. Life’s assertion, this process allowed

the parties to present material evidence because the parties

were allowed to address why the reviewers’ conclusions were

incorrect. Accordingly, the panel gave each of the parties to

the dispute an “adequate opportunity to present its evidence

and arguments.” Sunshine Moving Co. v. United Steelworkers

of Am., 823 F.2d 1289, 1295 (9th Cir. 1987). Arbitrators enjoy

“wide discretion to require the exchange of evidence, and to

admit or exclude evidence, how and when they see fit.” Indus.

Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d

1434, 1444 (11th Cir. 1998). The panel appropriately exercised this wide discretion; there was no panel misconduct.

This case is not similar to the arbitral misconduct in Gulf

10The employed process is consistent with that suggested by one

scholar: 

Should expert testimony be needed, the arbitrators might call

such witness on their own initiative. . . . [I]f outside investigation,

consultation, and conscious use of an arbitrator’s expert knowledge is permitted, the arbitrators could be required to so inform

the parties of the information so acquired before the award is

made, thus enabling answer, cross-examination, rebuttal, or the

submission of additional evidence as the situation may require. 

William R. Berkman, Comment, Arbitrators’ Ex Parte Consultations and

Investigations, 44 Cal. L. Rev. 899, 908 (1956). 

96 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 11 of 20
Coast Industrial Workers Union v. Exxon Co., USA, 70 F.3d

847 (5th Cir. 1995), where the arbitrator misled a party into

believing that evidence was admitted, but then ruled against

the party because it failed to present evidence on the very

point to which the excluded evidence was central. Nor is this

case similar to the arbitral misconduct in Teamsters, Chauffeurs, Warehousemen and Helpers, Local Union No. 506 v.

E.D. Clapp Corp., 551 F. Supp. 570, 578 (N.D.N.Y. 1982),

where the party was not given an opportunity to complete its

presentation of proof prior to the arbitration decision. Here,

the panel allowed each party the opportunity to complete its

presentation by submitting a brief and participating in the

hearing. 

We acknowledge that the panel clearly discussed pertinent

Phase II issues with the reviewers. Therefore, this case is

unlike Lefkovitz v. Wagner, where the Seventh Circuit determined it was unclear whether the arbitrator and an accounting

firm discussed ex parte a pertinent overpayment issue. 395

F.3d 773, 779 (7th Cir. 2005). Yet, the impact of the panel’s

ex parte meeting with the reviewers was mitigated by the

notice, extensive correspondence, and more inclusive procedures. The extensive correspondence reflects that the panel’s

intent was to accord due process—and it did. The panel did

not engage in misconduct.

[6] We recognize that “[e]x parte evidence to an arbitration

panel that disadvantages any of the parties in their rights to

submit and rebut evidence violates the parties’ rights and is

grounds for vacation of an arbitration award.” Pac. Reins.

Mgmt. Corp. v. Ohio Reins. Corp., 935 F.2d 1019, 1025 (9th

Cir. 1991). However, as set forth above, U.S. Life failed to

establish that the panel refused to hear material evidence.

Accordingly, U.S. Life’s request to vacate under § 10(a)(3)’s

second prong is denied.

D. 9 U.S.C. § 10(a)(3) Prejudicial Misbehavior

U.S. Life alternatively argues it was unable to respond to

evidence presented against it by the reviewers and therefore

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 97

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 12 of 20
the panel’s ex parte meeting and cross-examination limitation

constituted § 10(a)(3) misbehavior prejudicing U.S. Life. 

[7] As noted above, an arbitration award may be vacated

“where the arbitrators were guilty . . . of any other misbehavior by which the rights of any party have been prejudiced.” 9

U.S.C. § 10(a)(3). U.S. Life relies on the Fifth Circuit’s ruling

that “ ‘[a]rbitrators cannot conduct ex parte hearings or

receive evidence except in the presence of each other and of

the parties, unless otherwise stipulated.’ ” Totem Marine Tug

& Barge, Inc. v. N. Am. Towing, Inc., 607 F.2d 649, 653 (5th

Cir. 1979) (quoting In re Katz, 187 N.Y.S.2d 511, 518 (N.Y.

Spec. Term 1959)). The Fifth Circuit’s prohibition is too

broad, especially in light of the Supreme Court’s proarbitration stance in Hall Street Associates, because the FAA

does not expressly prohibit ex parte contact. Ex parte conduct

by an arbitration panel requires vacatur of an award only if the

ex parte contact constitutes misbehavior that prejudices the

rights of a party. See Glass, Molders, Pottery, Plastics &

Allied Workers Int’l Union AFL-CIO, CLC, Local 182B v.

Excelsior Foundry Co., 56 F.3d 844, 846 (7th Cir. 1995) (“An

ex parte conduct is not an automatic ground for invalidating”

an arbitration award.). 

[8] U.S. Life relies upon Totem Marine. 607 F.2d at 651.

Totem Marine is distinguishable. There, the arbitrators contacted a party to obtain a critical damages figure and then did

not allow the other party to respond to this damages figure.

Here, the ex parte contact was not with a party, but with neutral experts. Further, both parties were aware of the ex parte

contact, submitted suggestions as to the process to be used,

and had the opportunity to contest the reviewers’ conclusions.

Unlike arbitration by one person, the parties each chose an

arbitrator; those two then chose the umpire. Therefore, the

panel presented far less risk of prejudicial misbehavior than

if one arbitrator was used, particularly given the extensive

evidence of its efforts to provide due process to both parties

98 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 13 of 20
to this protracted and expensive dispute resolution. The parties did not specifically stipulate to the ex parte meeting, but

the parties did agree to allow the panel to “adopt such other

processes and procedures as it deems fair and expedient to

resolve issues before it to the extent that the issues are not

expressly or implicitly addressed by these Protocols.” The

protocols did not expressly or implicitly address what procedure or process was to be used if the panel was unable to

reach a decision as to U.S. Life’s reinsurance contract obligations. The parties were informed of the “stalemate”; after discussions with counsel, the panel unanimously determined that

it would hold an ex parte meeting with the reviewers, the

reviewers’ written conclusions would be shared, pre- and

post-hearing briefing would be allowed, and questions regarding the reviewers’ qualifications and conclusions would be

permitted. Because of the broad authority granted by the protocols to the panel, we hold that this process does not constitute misbehavior. The correspondence between the panel and

the parties reflects that the panel’s goal was to resolve the dispute in a relatively efficient manner while ensuring that the

parties received due process. It is noteworthy that U.S. Life’s

party arbitrator agreed to this process and that he did not mention arbitral misconduct or misbehavior in his dissent.

Indeed, the parties were not prejudiced by the process.

While the Phase II arbitration decision was not in U.S. Life’s

favor, U.S. Life failed to establish that it was denied an opportunity to present its case or to contest SNICIL’s evidence or

the reviewers’ conclusions. See Mut. Fire, 868 F.2d at 57

(“[M]ere assertion by appellants that the arbitrators used

information obtained ex parte in order to render their decision

. . . and to assess the credibility . . . is not enough, in our view,

to establish the requisite prejudice necessary for this court to

vacate the arbitrator’s award.”).

[9] “In short, perhaps [U.S. Life] did not enjoy a perfect

hearing; but it did receive a fair hearing. It had notice, it had

the opportunity to be heard and to present relevant and mateUNITED STATES LIFE v. SUPERIOR NAT’L INS. 99

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 14 of 20
rial evidence, and the decisionmakers were not infected with

bias.” Employers Ins. of Wausau, 933 F.2d at 1491. For the

above reasons, U.S. Life failed to establish that the ex parte

meeting and subsequent process constituted misbehavior to its

prejudice as required by § 10(a)(3)’s last prong.

E. Arbitration Award

[10] Section 10(a)(4) allows a court to vacate an arbitration

decision if the “arbitrators exceeded their powers.” 9 U.S.C.

§ 10(a)(4). “ ‘[A]rbitrators exceed their powers . . . not when

they merely interpret or apply the governing law incorrectly,

but when the award is completely irrational, or exhibits a

manifest disregard of law.’ ” Schoenduve Corp., 442 F.3d at

731 (quoting Kyocera Corp., 341 F.3d at 997). An arbitrator

does not exceed its authority if the decision is a “plausible

interpretation” of the arbitration contract. Employers Ins. of

Wausau, 933 F.2d at 1486 (quoting Pac. Motor Trucking Co.

v. Auto. Machinists Union, 702 F.2d 176, 177 (9th Cir. 1983))

(per curiam). Accordingly, the court must defer to the arbitrator’s decision “as long as the arbitrator . . . even arguably constru[ed] or appl[ied] the contract.” Misco, 484 U.S. at 38; see

also Teamsters Local Union 58 v. BOC Gases, 249 F.3d 1089,

1093 (9th Cir. 2001); New Meiji Market v. United Food &

Commercial Workers Local Union # 905, 789 F.2d 1334,

1335-36 (9th Cir. 1986). 

U.S. Life argues that the panel exceeded its authority by

requiring U.S. Life to pay “interest” in excess of the Phase I

award, pay all tendered bills, and pay all future bills within

thirty days.11 For the reasons given below, the panel’s deci11U.S. Life also argues that the district court erred in declining to find

the February 18, 2007 award void under the functus officio doctrine. The

functus officio doctrine provides that an arbitration panel is without

authority to reconsider an issue once the panel issued a final decision on

that issue. See McClatchy Newspapers v. Cent. Valley Typographical

Union No. 46, 686 F.2d 731, 734 (9th Cir. 1982). The title of the February

1, 2007 Phase II Interim Final Award belies the argument that the February 1, 2007 award was final. (Emphasis added.) Accordingly, the February

18, 2007 award is not void under the functus officio doctrine. 

100 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 15 of 20
sions were plausible interpretations of its authority under the

reinsurance contract’s arbitration agreement, the arbitration

demand submissions, and the protocols; accordingly, the

panel did not exceed its authority.

1. Disgorgement of investment income

[11] The panel’s authority extends to issues raised both

explicitly and implicitly by the reinsurance contract and the

arbitration demand submissions. See Schoenduve Corp., 442

F.3d at 732-33; see also Am. Postal Workers Union AFL-CIO,

Milwaukee Local v. Runyon, 185 F.3d 832, 835 (7th Cir.

1999). The arbitrator’s interpretation of the scope of the issue

must be upheld so long as it is rationally derived from the parties’ submission. Schoenduve Corp., 442 F.3d at 733. The

panel’s understanding of its scope of authority is entitled to

the “same level of [great] deference as [its] determination on

the merits.” Schoenduve, 442 F.3d at 733; see also Am. Postal

Workers Union, 185 F.3d at 835.

U.S. Life invoked its right to arbitrate under the reinsurance

contract’s12 broad arbitration provision: “As a condition precedent to any right of action hereunder, in the event of any

dispute or difference of opinion hereafter arising with respect

to this Contract, it is hereby mutually agreed that such dispute

or difference of opinion shall be submitted to arbitration.”

SNICIL in its answer asked the panel to “direct [U.S.] Life to

perform fully all of its obligations thereunder.” U.S. Life did

not object to SNICIL’s request and itself asked the panel to

award “such other and further relief as the [p]anel shall deem

just and proper.” 

[12] U.S. Life argues that the panel’s broad arbitration

12The reinsurance contract’s arbitration section required the arbiters to

“consider this Contract as an honorable engagement rather than merely as

a legal obligation,” relieved them “of all judicial formalities,” and permitted them to “abstain from following the strict rules of law.” 

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 101

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 16 of 20
authority was limited by the Phase II protocols. We agree.

The panel’s authority is determined not only by the reinsurance contract and the arbitration demand submissions, but

also by the stipulated-and-panel-approved protocols. These

protocols stated, “Phase II shall be governed by ‘law of the

case,’ meaning that no issue decided by the Panel, as presently constituted, will be revisited if the Panel is reconstituted

. . . . [T]he ‘law of the case’ means that all prior deliberations

and decisions are binding on the alternate arbitrator.”

13

[13] U.S. Life contends that the Phase II award deviated

from the Phase I interest award and, therefore, the panel

exceeded its Phase II authority. We disagree. The Phase I

Final Interim Award stated:

Accrued Interest shall be paid on overdue balances.

A balance properly due shall be considered overdue

if not paid within sixty (60) days of the end of the

month for which the account giving rise to the balance was rendered. Interest on the overdue balances

shall be payable at a rate equal to the average of the

2 and 5 Year Treasury Notes as posted in the Wall

Street Journal.

The December 6, 2006 Phase II Interim Award not only

required U.S. Life to pay SNICIL the Phase I abovecalculated interest, but also required U.S. Life to disgorge

investment income in excess of the calculated interest.14 At

first glance, this Phase II “interest” award appears at odds

with the Phase I interest award, but it is not. The Phase I inter13“Law of the case” has a specific meaning in our case law. See Milgard

Tempering, Inc. v. Selas Corp. of Am., 902 F.2d 703, 715 (9th Cir. 1990).

But the parties put that phrase into quotation marks and then defined it.

In these circumstances, the arbitration panel plausibly used the protocols’

special definition, rather than a case-law definition. 

14“Disgorgement” means “[t]he act of giving up something (such as

profits illegally obtained) on demand or by legal compulsion.” Black’s

Law Dictionary 501 (8th ed. 2004). 

102 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 17 of 20
est award provided interest to SNICIL for its contractual right

of recovery. Phase II addressed different issues—the parties’

claims-handling arguments; therefore, the Phase II “interest”

award is a disgorgement award for U.S. Life’s delayed payment. The panel’s February 18, 2007 decision emphasized

that its disgorgement award was imposed to prevent unjust

enrichment and did not affect the Phase I interest calculation.

Therefore, the disgorgement award plausibly does not conflict

with the protocols’ “law of the case.” 

[14] The panel’s determination that disgorgement was an

appropriate remedy for U.S. Life’s delay in payment is also

a plausible interpretation of its scope of authority and its

broad power to fashion appropriate remedies. See Yasuda Fire

& Marine Ins. Co. of Europe v. Cont’l Cas. Co., 37 F.3d 345,

351 (7th Cir. 1994). The arbitration demand submissions

granted the panel the authority to award any relief it deemed

just and proper. The panel plausibly determined the disgorgement of investment income in excess of calculated interest

was necessary to ensure that U.S. Life fully performed its

obligations under the reinsurance contract. Accordingly, U.S.

Life failed to establish that vacatur is appropriate on this basis

under § 10(a)(4).

2. Amounts awarded on bills tendered between June 30,

2004, and December 6, 2006

[15] On February 18, 2007, in addition to requiring U.S.

Life to pay all June 30, 2004 bills, the panel awarded amounts

due on bills tendered between June 30, 2004, and December

6, 2006. U.S. Life contends that these bills were not included

in the issues submitted to the panel for arbitration. We disagree. As previously mentioned, U.S. Life did not object to

SNICIL’s request that the panel “direct U.S. Life to perform

fully all of its obligations” under the reinsurance contract. It

was a plausible interpretation of the reinsurance contract,

arbitration demand submissions, and protocols that the panel

could issue a decision addressing U.S. Life’s obligations

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 103

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 18 of 20
under the reinsurance contract after June 30, 2004. The panel

plausibly understood that the June 30, 2004 bills were used

for discovery purposes to allow the parties to present their

“global” claims-handling arguments and to assist the panel in

resolving these global issues; the panel then plausibly applied

their global rulings to post-June 30, 2004 bills. Accordingly,

U.S. Life failed to establish that the panel exceeded its authority by requiring U.S. Life to pay the tendered bills; vacatur is

not appropriate under § 10(a)(4). 

3. Future Bills

Lastly, U.S. Life asserts that the panel exceeded its authority by requiring U.S. Life to pay future bills within thirty days

of submission, arguing that this requirement is impractical

and violates Article XV.B. of the reinsurance contract, which

gives U.S. Life the right to verify the accuracy of SNICIL’s

claim. SNICIL acknowledges that U.S. Life has a verification

right, but argues this is a separate and distinct right from its

audit right. 

The two reinsurance contract provisions at issue are Article

XV and Article XVIII. Article XV.B, titled “Reports and

Remittances,” states:

Within 45 days after the end of each month, [SNICIL] shall report to [U.S. Life]:

1. Ceded gross premiums for the month,

including disbursement of the dividends and return premiums, if any;

2. Ceding commission thereon;

3. Ceded losses and loss adjustment

expense paid during the month;

4. Ceded unearned premium and ceded

outstanding loss reserves as of the end

of the month.

104 UNITED STATES LIFE v. SUPERIOR NAT’L INS.

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 19 of 20
The positive balance of (1) less (2) less (3) shall

be remitted by [SNICIL] with its report. Any balance

shown to be due [SNICIL] shall be remitted by [U.S.

Life] as promptly as possible after receipt and verification of [SNICIL]’s report. It is understood that

premium hereunder is payable as received by [SNICIL] on monthly billed policies.

(Emphasis added.) Article XVIII provides U.S. Life with

access to SNICIL’s records and allows U.S. Life to inspect

“all books, records and papers of [SNICIL] in connection with

any reinsurance hereunder.”

[16] We hold that the panel did not exceed its authority by

requiring U.S. Life to pay a tendered bill within thirty days of

receipt because a conclusion that U.S. Life’s Article XVIII

audit right is independent of its Article XV obligation to pay

a bill “as promptly as possible after receipt and verification”

is a plausible interpretation of the reinsurance contract. The

panel plausibly interpreted Article XV’s verification right as

not being a right to verify claims but as being a right to verify

the arithmetic done by SNICIL in its bill report. Having experience in the insurance field, the panel could have determined

that it was practical for U.S. Life to receive and verify SNICIL’s Article XV.B report within thirty days. The panel’s

reading of the reinsurance contract need not be correct; rather,

it must “ ‘draw[ ] its essence’ ” from the terms of the contract.

Misco, 484 U.S. at 36 (quoting United Steelworkers of Am. v.

Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960)). The

panel’s decision did so. For this reason, vacatur under

§ 10(a)(4) is inappropriate.

CONCLUSION

[17] We affirm the district court’s decision confirming the

panel’s Phase II arbitration award in favor of SNICIL.

AFFIRMED.

UNITED STATES LIFE v. SUPERIOR NAT’L INS. 105

Case: 07-55938 01/04/2010 ID: 7180854 DktEntry: 49-1 Page: 20 of 20