Source: https://www.arias-us.org/law_committee_report/trustmark-ins-co-v-john-hancock-life-ins-co-trustmark-ins-co-v-clarendon-national-ins-co-d-iii-2/
Timestamp: 2019-04-21 17:02:54+00:00

Document:
Issues Decided: Whether an arbitrator subject to a confidentiality agreement entered in one arbitration is considered “disinterested” in a subsequent arbitration when appointed by the same party in both and where the issues are the same or similar. Whether a court may remove an arbitrator for partiality or misconduct in an arbitration before a final award has issued?
In two separate cases in the Northern District of Illinois decided within a less than two weeks of each other, Trustmark moved to disqualify the other party’s arbitrator and for other relief. In the first case Trustmark was successful but in the second it was not. Both decisions have been appealed.
In Trustmark v. John Hancock, the first case, Hancock initiated arbitration in 2002 after Trustmark refused to honor billings associated with Hancock’s retrocessional business. The issue was whether the parties intended such business to be covered. The contract specified that all arbitrators were to be disinterested in the outcome of the arbitration. During the arbitration the parties entered into a Confidentiality Agreement regarding the documents and testimony of the case, as well as the award. However, the Confidentiality Agreement, itself, did not provide for arbitration. The panel issued an award which determined that the business was covered. The Court entered an order confirming the award and its confidentiality pursuant to the Confidentiality Agreement.
Subsequently, Trustmark disputed a new billing and Hancock initiated another arbitration. Hancock appointed the same arbitrator who had served on the first panel. At the organizational meeting, Trustmark questioned Hancock’s arbitrator about his ability to honor the Confidentiality Agreement entered in the first arbitration. He stated that while he “‘’would scrupulously abide by confidentiality’ he might find it ‘hard to segregate, difficult to deal with’ particular knowledge” he had acquired during the first proceeding, which Trustmark’s arbitrator and the umpire in the second arbitration lacked. Nonetheless, Trustmark did not object to his appointment.
During the hearing Hancock moved to authorize the use of materials from the first arbitration so that the parties could avoid relitigating whether retrocessional business was covered. Over Trustmark’s objection, with Hancock’s arbitrator and the umpire voting in favor, the panel issued an interim award which “‘extend[ed] and accept[ed] the confidentiality of the [F]irst [A]rbitration’” to Trustmark’s arbitrator in the second arbitration, as well as the umpire.
Later in the hearing, Hancock moved to bar Trustmark from relitigating certain matters, which Hancock argued were resolved in the first arbitration, including the issue of whether the contracts covered retrocessional business, With Trustmark’s arbitrator again objecting, the panel by majority vote granted Hancock’s motion.
At this point Trustmark filed an action for a preliminary injunction. In an opinion granting relief the Court considered Trustmark’s motions (1) to enjoin the panel from resolving disputes over the Confidentiality Agreement on the ground that it was not subject to arbitration; and (2) to remove Hancock’s arbitrator because he was no longer disinterested as required by the reinsurance contract. The basis for this motion was that he had breached the Confidentiality Agreement, infected the panel by participating in the deliberations on the issue of extending the Confidentiality Agreement and had served as Hancock’s party appointed arbitrator in the first arbitration.
In granting relief, the Court first rejected Hancock’s assertion that the challenge to it’s arbitrator’s partiality was premature, as the 7th Circuit, in Duthie v. Matria Healthcare, Inc., 540 F.3d 533 (7th Cir. 2008), had affirmed a pre-award injunction where the contract did not provide for arbitration of a specific dispute at issue. Here, Trustmark was not alleging partiality under the FAA but breach of the Confidentiality Agreement, which lacked an arbitration clause.
by breaching the Agreement, [Hancock’s arbitrator] had become a fact witness not subject to examination. We typically operate under the presumption that judges and arbitrators can disregard what they already know. This is a strong presumption with regard to arbitrators since, due to the non-binding [sic] nature of arbitration, they must routinely determine whether or not to consider an earlier arbitration in the course of a subsequent one.
However, Hancock’s arbitrator had rebutted the presumption by his statements at the organizational meeting in which he expressed doubts about segregating information from the first arbitration and dealing with the other panel members who did not have such knowledge. Further, the arbitrator’s hypothetical doubts were actually realized in in the second arbitration.During a conference he recounted his recollection of the first arbitration to dispute the account by one of the parties of what had occurred therein. Noting that an award may be vacated for arbitrator misconduct, the Court found that Trustmark “had demonstrated a strong likelihood of success on the merits” on it’s claim to disqualify.
As to whether the contract claim regarding the Confidentiality Agreement was subject to arbitration, the Court also found that Trustmark had shown a strong likelihood of success in showing there was no agreement to arbitrate. It found the question of whether the parties had agreed to submit a particular dispute to arbitration was for the Court to decide under Duthie v. Matria Healthcare, 535, F. 2d, 909, 915 which followed Howsam v. Dean Witter Reynolds Inc.,537 U.S. 79, 82 (2002). It observed that the Confidentiality Agreement lacked an agreement to arbitrate. Relying on Industrial Electronics Corp. Of Wisconsin v. iPower Distribution Group, Inc., 215 F.3d 677, 681 (7th Cir. 2000) the Court determined the arbitration clause in the reinsurance contract was not a bar to litigation because the Seventh Circuit had held that where one agreement contains an arbitration clause but the other does not, issues arising under the agreement lacking the clause may be litigated “‘ even where the two agreements are closely intertwined’”. The Court concluded that “ [i]t is difficult to see how the Confidentiality Agreement relates to the performance of the Underwriting Agreement of the validity of the cession”.
In Trustmark v. Clarendon, the second case, Clarendon reinsured Trustmark under a series of treaties in 1997 and 1998. The first, a quota share contract, “VQS I”, was effective on June 1, 1997 and renewed effective June 1, 1998, “VQS II”. The parties also entered into excess of loss agreements, referred to as “the 1998 XOL Treaties” (“XOL”). In all instances they agreed that in the event of arbitration, the arbitrators would be disinterested. After Trustmark demanded arbitration on both the XOL and VQS II treaties, Clarendon appointed Mary Ellen Burns as its arbitrator in both disputes.
In the XOL arbitration Clarendon moved consolidate ,which Trustmark opposed. The panel denied the motion. At the time, the VQS II panel had yet to convene. During the XOL proceedings, which culminated in a corrected final award on March 20, 2009, the parties, as well as the panel executed a standard ARIAS Confidentiality Agreement.
In August, 2009, Burns contacted Trustmark’s arbitrator to select an umpire for the VQS II dispute. Trustmark objected to her service as Clarendon’s arbitrator citing concerns with her duties under the XOL Confidentiality Agreement and whether she was disinterested as required by the VQS II arbitration clause.
It then filed an action in which it sought a preliminary injunction to disqualify Burns as an arbitrator in the VQS II dispute, find Clarendon in breach of the XOL Confidentiality Agreement for appointing her, and enjoin Clarendon from participating in the arbitration if Burns remained on the panel. Clarendon moved to dismiss the complaint, appoint an umpire and to order Trustmark to return to arbitration.
Regarding Trustmark’s claim that Burns must be be removed because she was not disinterested as required by the arbitration clause, the Court found that Trustmark was unlikely to succeed on the merits because under the FAA, courts could “vacate an arbitration due to arbitrator “misbehavior” after an award had been issued, but lacked the power to remove an arbitrator on a bias or partiality challenge before then. Citing a Seventh Circuit opinion in a similar case, he noted this result could not be avoided by couching the challenge as a breach of contract claim.
Turning to the Confidentiality Agreement, the Court first rejected Trustmark’s contention that Clarendon’s appointment of Burns had breached the Confidentiality Agreement by repudiating it.Trustmark had only described its concerns regarding a future breach of confidentiality but had failed to prove repudiation by pointing to a statement by either Clarendon or Burns that they had intended to breach the Agreement.
It then rejected Trustmark’s argument that a breach was inevitable because the parties had acknowledged that the XOL decision would be an important part of the VQS II arbitration.Trustmark maintained that it followed that Burns would “inevitably disclose confidential information regarding the decision making process of the 1998 XOL Treaties Arbitration Panel”. The Court found that Trustmark had “failed to detail any mechanism or facts making this disclosure ‘inevitable’ such that [Clarendon’s] umpire is unable to perform without breaching the Confidentiality Agreement.” The opinion noted that Clarendon’s arbitrator could still make her decision on the VQS II record before her without any reference to the XOL case, she did not need to disclose confidential information to fulfill her duties as an arbitrator, nor was she a fact witness. The Court distinguished Trustmark v. John Hancock, on the ground that there the arbitrator had already breached a confidentiality agreement, thereby rebutting the presumption recognized by the Hancock Court that “‘arbitrators can disregarded what they already know.’” It concluded that the essence of Trustmark’s claim was merely a fear of a breach, for which there was no cause of action. The court granted Clarendon’s motion to dismiss and denied Trustmark’s motion for injunctive relief.
Although there was no deadline in the reinsurance contract for agreeing upon an arbitrator, the Court held that because there had been a four month period in which no umpire had been appointed it would appoint one, itself. It also granted Clarendon’s motion to compel Trustmark to return to arbitration.

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