Source: http://openjurist.org/675/f2d/1197/middlesex-mutual-insurance-company-v-levine
Timestamp: 2016-12-08 23:28:00
Document Index: 46212566

Matched Legal Cases: ['§ 2201', '§ 10', '§ 682', '§ 10', '§ 10', '§ 682']

675 F2d 1197 Middlesex Mutual Insurance Company v. Levine | OpenJurist
675 F. 2d 1197 - Middlesex Mutual Insurance Company v. Levine HomeFederal Reporter, Second Series 675 F.2d.
675 F2d 1197 Middlesex Mutual Insurance Company v. Levine 675 F.2d 1197
MIDDLESEX MUTUAL INSURANCE COMPANY, et al., Plaintiffs-Appellees,v.Stuart LEVINE, et al., Defendants-Appellants.
Horton, Perse & Ginsberg, Edward A. Perse, Edward A. Moss, Miami, Fla., for defendants-appellants.
Daniels & Hicks, Mark Hicks, Spencer & Taylor, Arthur H. Taylor, Miami, Fla., for plaintiffs-appellees.
After suffering serious personal injuries in a 1974 automobile accident, appellant Stuart Levine filed uninsured/underinsured motorist claims with Middlesex Mutual Insurance Company (Middlesex), Patriot General Insurance Company (Patriot) and Allstate Insurance Company (Allstate) demanding arbitration. Middlesex and Patriot refused to arbitrate and filed a declaratory action pursuant to 28 U.S.C. § 2201 against Levine, his company-Gold Coast Leasing Corp., and Allstate regarding the nature and extent of available insurance coverage. The trial court entered an "Agreed Declaratory Judgment" submitting the resolution of Levine's claims to the jurisdiction of the American Arbitration Association (AAA).
In January, 1977, the Florida Bar filed a complaint against Hartnett based upon findings reflecting that he misappropriated trust account funds to make payments to Middlesex and Patriot. In July, 1977, only one month prior to the institution of the subject arbitration hearing, Hartnett responded to interrogatories propounded by the Florida Bar requesting an explanation of the circumstances surrounding the utilization of his trust account checks for these payments. Based upon its findings of fact, which are not disputed, the district court concluded that:23. At the time John Hartnett took the arbitrator's oath he was aware that he had been seriously entangled in a dispute with Middlesex/Patriot General and had been investigated by The Florida Bar about a trust account violation involving these insurers. Moreover, these were not the kind of dealings which could be considered part of the ordinary course of an arbitrator's private business. Garfield & Co. v. Wiest, 432 Fed. (2d) 849 (2d Cir. 1970).
25. The similarity between Fla.Stat. 682.13(1) and 9 U.S.C. 10(b) of the United States Arbitration Act suggest similar legislative intent. Thus it is appropriate to vacate an arbitration award where the neutral arbitrator has the appearance of bias although there is no evidence of corruption, fraud, or partiality. Commonwealth Coatings v. Continental Casualty, 393 U.S. 145 (89 S.Ct. 337, 21 L.Ed.2d 301) (1968); Carol City Utilities v. Gaines Construction, (Gaines Construction Co. v. Carol City Utilities, Inc.) 164 So.2d 270 (Fla. 3d Dist.Ct.App.1964).
Both the United States Arbitration Act, 9 U.S.C. § 10(b) (1970), and the Florida Arbitration Code, Fla.Stat. § 682.13(1)(b) (1981), authorize a trial court to vacate an arbitration award in cases of "evident partiality" of an arbitrator.1
The Supreme Court in Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 89 S.Ct. 337, 21 L.Ed.2d 301 (1968), delineated the requirements of impartiality in arbitration proceedings under 9 U.S.C. § 10. The challenged arbitrator had earned about $12,000 in fees over a period of four or five years for consulting services rendered to the prevailing party which included services involved therein. The arbitrator failed to disclose this relationship which also was unknown to the losing party. In his plurality opinion, Mr. Justice Black found that the arbitrator's failure to disclose warranted setting aside the award for evident partiality. He stated that a panel of arbitrators "not only must be unbiased but also must avoid even the appearance of bias" and thus must "disclose to the parties any dealings that might create an impression of possible bias."2 393 U.S. at 149-50, 89 S.Ct. at 339-40.
(A)rbitrators are not automatically disqualified by a business relationship with the parties before them if both parties are informed of the relationship in advance, or if they are unaware of the facts but the relationship is trivial....
... (I)t is enough for present purposes to hold, as the Court does, that where the arbitrator has a substantial interest in a firm which has done more than trivial business with a party, that fact must be disclosed.
(T)he law is well settled that arbitrators exercise judicial functions, and are in fact, judicial officers.... It therefore becomes of the utmost importance that ... every possible safeguard should be thrown about the proceedings to insure the utmost fairness and impartiality of those charged with the determination of the rights of the parties.
Cassara v. Wofford, 55 So.2d 102, 105 (Fla.1951). The Commonwealth Coatings Court warned that "we should, if anything, be even more scrupulous to safeguard the impartiality of arbitrators than judges, since the former have completely free rein to decide the law as well as the facts and are not subject to appellate review." 393 U.S. at 149, 89 S.Ct. at 339.
The Commonwealth Coatings holding has been interpreted as "somewhat analogous to a per se rule" or irrebuttable presumption requiring the award to be set aside once it is established that the arbitrator actually knew of, yet failed to disclose potentially prejudicial facts which could impair his judgment. Overseas Private Investment Corp. v. Anaconda Co., 418 F.Supp. 107, 110 (D.D.C.1976); see Gaines Construction Co. v. Carol City Utilities, Inc., 164 So.2d 270, 272 (Fla.Dist.Ct.App.1964) (requiring only a showing of a circumstance tending to bias judgment to disqualify arbitrator).
It is important that the parties have complete confidence in the Arbitrator's impartiality. Therefore, please disclose any past or present relationship with the parties or their counsel, direct or indirect, whether financial, professional, social or other kind. Any doubt should be resolved in favor of disclosure. If you are aware of such relationship, please describe it on the back of this form. The AAA will call the facts to the attention of the parties' counsel....
Qualification of Arbitrators : No person shall serve as an Arbitrator in any arbitration in which he has any financial or personal interest. Arbitrators serve without fee in accident claims cases. An Arbitrator shall disclose any circumstances likely to create a presumption of bias which might disqualify him as an impartial Arbitrator. (Emphasis added.)
The burden of proving facts which would establish a reasonable impression of partiality rests squarely on the party challenging the award. Tamari v. Bache Halsey Stuart Inc., 619 F.2d 1196 (7th Cir.), cert. denied, 449 U.S. 873, 101 S.Ct. 213, 66 L.Ed.2d 93 (1980); Reed & Martin, Inc. v. Westinghouse Electric Corp., 439 F.2d 1268, 1275 (2d Cir. 1971). Appellants thus contend that appellees failed to meet its burden to show arbitrator evident partiality. They rely on Hartnett's deposition testimony that he had forgotten the dispute, was no longer associated with the family firm, and had not litigated against Middlesex/Patriot.
Several appellate courts have held that information contained in the records of another branch of the government or a different department in the Veterans' Administration is not chargeable to the insurance service and have also held that information within the knowledge of one division of an insurance company is not chargeable to another department. E.g., Schrader v. Prudential Insurance Co., 280 F.2d 355, 361 (5th Cir. 1960); Halverson v. United States, 121 F.2d 420, 422 (7th Cir.), cert. denied, 314 U.S. 695, 62 S.Ct. 412, 86 L.Ed. 556 (1941); United States v. Depew, 100 F.2d 725, 728 (10th Cir. 1938). Although the government is distinct from a private insurance company and the relationship of the government to veterans or of an insurance company to an insured is distinguishable from the relationship between an insurance company and an arbitrator or its agent, the principle in Halverson, Schrader, and that line of cases is applicable here. This principle states that in the interest of processing expeditiously a great volume of business, a nationwide insurer is entitled to rely on the representations of a potential arbitrator without investigating all of its files to determine if the candidate is committing a fraud. "(E)ven its own earlier records do not put the insurer upon notice of the falseness of (these) statements ... unless there is some circumstance which directs attention to them." Schrader v. Prudential Insurance Co., 280 F.2d at 362.
Appellants contend, however, that Garfield & Co. v. Wiest, 432 F.2d 849 (2d Cir. 1970), cert. denied, 401 U.S. 940, 91 S.Ct. 939, 28 L.Ed.2d 220 (1971), supports their view that the arbitrator's breach of his duty to disclose any dealings that might create a reasonable impression of bias does not warrant setting aside an arbitration award where, as here, the appellees waived or are estopped to assert this objection. Appellants rely on section 24 of the Accident Claims Rules of the AAA which states:
Garfield & Co. v. Wiest held that, when parties have agreed to arbitration with full awareness of prior certain, almost necessary, dealing in the ordinary course of business between a potential arbitrator and one of the opposing parties, disclosure of these dealings is not required by Commonwealth Coatings. This is true because the parties are deemed to have waived any objections based thereon. 432 F.2d at 853-54. The Second Circuit emphasized, however, that the arbitrator's duty pertains to the disclosure of dealings which are not in the ordinary course of business, and of which the parties cannot reasonably be expected to be aware. 432 F.2d at 854; Cook Industries, Inc. v. C. Itoh & Co. (America) Inc., 449 F.2d 106, 108 (2d Cir. 1971), cert. denied, 405 U.S. 921, 92 S.Ct. 957, 30 L.Ed.2d 792 (1972).
To hold, in the circumstances of this case, that the insurers waived their right to contest the alleged impartiality of the neutral arbitrator because the insurers did not discover evidence of partiality prior to arbitration would put a premium on concealment. Waiver applies only where a party has acted with full knowledge of the facts. Mutual of Omaha Insurance Co. v. Eakins, 337 So.2d 418, 419 (Fla.Dist.Ct.App.1976). Further, estoppel can be invoked against an insurer only when its conduct has been such as to induce reliance upon it. 337 So.2d at 419. As Judge Tuttle stated, in another context: "The law is not tender toward those who fail in their responsibility to exercise the necessary good faith in their dealings with others." New York Life Insurance Co. v. Strudel, 243 F.2d 90, 94 (5th Cir. 1957).
Although federal law authorizes vacation of an arbitration award on the ground of evident partiality of any of the arbitrators on the panel, Florida law refers only to the neutral third arbitrator. 9 U.S.C. § 10(b) (1970); Fla.Stat. § 682.13(1)(b) (1981)
Compare Commonwealth Coatings Corp. v. Continental Casualty Co., 393 U.S. 145, 150, 89 S.Ct. 337, 340, 21 L.Ed.2d 301 (1968) (reasonable appearance of bias justifies vacating arbitration award) and Tamari v. Bache Halsey Stuart Inc., 619 F.2d 1196, 1200 (7th Cir.), cert. denied, 449 U.S. 873, 101 S.Ct. 213, 66 L.Ed.2d 93 (1980) (reasonable appearance of partiality) with International Produce, Inc. v. A/S Rosshavet, 638 F.2d 548, 551 (2d Cir.), cert. denied, 451 U.S. 1017, 101 S.Ct. 3006, 69 L.Ed.2d 389 (1981) (requiring clear, unexplained evidence of evident partiality)