Title: Lexington Insurance Co. v. Southern Energy Homes, Inc.
Citation: N/A
Docket Number: 1091617
State: Alabama
Issuer: Alabama Supreme Court
Date: August 17, 2012

REL: 08/17/2012
Notice: This opinion is subject to formal revision before publication in the advance
sheets of Southern Reporter.  Readers are requested to notify the Reporter of Decisions,
Alabama Appellate Courts, 300 Dexter Avenue, Montgomery, Alabama 36104-3741 ((334) 229-
0649), of any typographical or other errors, in order that corrections may be made before
the opinion is printed in Southern Reporter.
SUPREME COURT OF ALABAMA
SPECIAL TERM, 2012
____________________
1091617
____________________
Lexington Insurance Company and Chartis, Inc.
v.
Southern Energy Homes, Inc.
Appeal from Winston Circuit Court
(CV-10-900029)
MURDOCK, Justice.
Lexington 
Insurance 
Company 
and 
Chartis, 
Inc.
(hereinafter referred to collectively as "Lexington"), appeal
from an order of the Winston Circuit Court appointing a third
arbitrator to the arbitration panel established to settle a
1091617
dispute between Lexington and Southern Energy Homes, Inc.
("SEH").   We reverse and remand.  
1
I.  Facts and Procedural History
SEH designs and builds manufactured homes in Winston
County.  From January 1, 2002, through October 31, 2004, SEH
purchased from Lexington three commercial general-liability
("CGL") policies.  An endorsement to a CGL policy insuring SEH
from January 1, 2002, through December 31, 2002 ("the 2002
policy"), provides that SEH is responsible for a $100,000
self-insurance 
retention 
("SIR") 
"per 
occurrence."
Endorsements to two successive CGL policies that together
provided coverage to SEH through October 31, 2004, provide
that SEH is responsible for a $250,000 SIR per occurrence. The
SIR applies both to costs of defense incurred by SEH and to
amounts SEH pays in settlement or pursuant to a judgment. 
The 2002 policy contains the following arbitration
clause:
According to Lexington, Chartis, Inc., is a "holding
1
company" owned by Lexington.  SEH contends that Chartis, Inc.,
is "Lexington's claims handling office and holding company."
The parties disagree as to whether SEH makes any claims
against Chartis, Inc., in its underlying breach-of-contract
and bad-faith action that is the basis of arbitration.  This
dispute is immaterial to the outcome of the present appeal.
2
1091617
"Notwithstanding the Service of Suit clause
above, in the event of a disagreement as to the
interpretation of this policy, it is mutually agreed
that such dispute shall be submitted to binding
arbitration before a panel of three (3) Arbitrators,
consisting 
of 
two 
(2) 
party-nominated 
(non-
impartial) Arbitrators and a third (impartial)
Arbitrator (hereinafter 'umpire') as the sole and
exclusive remedy.  
"The party desiring arbitration of the dispute
shall notify the other party, said notice shall
include the name, address, and occupation of the
Arbitrator nominated by the demanding party.  The
other party shall within 30 days following receipt
of the demand, notify in writing the demanding party
of the name, address, and occupation of the
Arbitrator nominated by it.  The two (2) Arbitrators
so selected shall within 30 days of the appointment
of the second Arbitrator, select an umpire.  If the
Arbitrators are unable to agree upon an umpire, each
Arbitrator shall submit to the other Arbitrator a
list of three (3) proposed individuals from which
list 
each 
Arbitrator 
shall 
choose 
one 
(1)
individual.  The names of the two individuals chosen
shall be subject to a draw, whereby the individual
drawn shall serve as umpire.
"The parties shall submit their case to the
panel by written and oral evidence at a hearing time
and place selected by the umpire.  Said hearings
shall be held within thirty (30) days of the
selection of the umpire.  The panel shall be
relieved of all judicial formality, shall not be
obligated to adhere to the strict rules of law or
evidence, shall seek to enforce the intent of the
parties hereto and may refer to, but are not limited
to, relevant legal principles.  The decision of at
least two (2) of the three (3) panel members shall
be binding and final and not subject to appeal
except for grounds of fraud or gross misconduct by
the Arbitrators.  The award issued will be within 30
3
1091617
days of the close of the hearings.  Each party shall
bear the expenses of its designated Arbitrator and
shall jointly and equally share with the other the
expense 
of 
the 
umpire 
and 
the 
arbitration
proceeding.
"The arbitration proceeding shall take place in
or in the vicinity of Boston, Massachusetts. ... The
procedural rules of this arbitration shall, except
as provided otherwise herein, be in accordance with
the Commercial Rules of the American Arbitration
Association."
(Emphasis added.)  The SIR endorsement to the 2002 policy
contains an arbitration clause that reads exactly the same as
the arbitration clause in the body of that policy, except that
it does not contain a forum-selection clause and it states at
its conclusion that "[a]ll other terms, exclusions, and
conditions of this policy remain unchanged."  
CGL policies insuring SEH from January 1, 2003, through
October 31, 2003 ("the 2003 policy"), and from November 1,
2003, through October 31, 2004 ("the 2004 policy"), each
contain an arbitration clause identical to the arbitration
clause contained in the body of the 2002 policy.  The SIR
endorsements to the 2003 policy and the 2004 policy do not
contain arbitration clauses. 
From January 1, 2002, through October 31, 2004, SEH was
named as a defendant in 46 lawsuits alleging property damage
4
1091617
and personal injury resulting from SEH's using a vinyl-on-
gypsum product in the homes it manufactured ("the VOG
litigation").  SEH gave notice of these lawsuits to Lexington.
Further, on October 2, 2009, SEH gave written notice to
Lexington that SEH had exhausted its SIR amounts in the VOG
litigation and was entitled to reimbursement of $1,039,859.74
from Lexington. More than 120 days passed without SEH
receiving a decision from Lexington as to whether it agreed
with SEH's claim for this amount.  On February 4, 2010, SEH
made an 
arbitration 
demand pursuant to the arbitration clauses
of the CGL policies, including the SIR endorsement to the 2002
policy.  SEH's arbitration demand stated: "The subject policy
2
was issued and delivered to [SEH] in Addison, Alabama.
Accordingly, Addison, Alabama, shall serve as the site of the
subject arbitration."  
In the arbitration demand, SEH also identified its non-
impartial 
arbitrator 
in 
accordance 
with 
the 
procedure 
provided
Lexington insists that an arbitrable dispute does not
2
exist because it has not responded to SEH's claims under any
of the CGL policies.  SEH counters that it considered
Lexington's delay in responding to its claim submissions to be
a "constructive denial" of those claims.  That dispute is not
before us in this appeal.  
5
1091617
in the arbitration clauses: G. Thomas Sullivan, a Birmingham
attorney.  On March 4, 2010, Lexington identified its non-
impartial arbitrator: Robert H. Gaynor, a Boston attorney.
Pursuant to the arbitration clauses, the non-impartial
arbitrators were to select a third, impartial arbitrator
called the "umpire."  That selection did not occur, and the
trial court issued an order appointing the umpire.  That order 
is the subject of this appeal.
As noted above, the arbitration clauses provide that the
two non-impartial arbitrators "shall within 30 days of the
appointment of the second Arbitrator, select an umpire."  On
April 1, 2010, Sullivan wrote a letter to Gaynor that included
required disclosures and stated as follows:
"I believe that we are to select the umpire called
for by the arbitration clause within thirty (30)
days of your appointment, which I understand
occurred by letter dated March 4, 2010. I would be
glad to discuss any suggestions you might have.
Alternatively, if you think it would be more
efficient, we can just proceed by each designating
three potential arbitrators from which the other
selects one, with the umpire being drawn from those
two. Please advise me how you wish to proceed. I
look forward to working with you."
On April 2, 2010, Gaynor left a voice mail for Sullivan
stating that he soon would be forwarding his list of three
6
1091617
nominees to serve as umpire, along with his required
disclosures, and 
advising 
Sullivan that he understood from the
arbitration clauses in the CGL policies that the venue for
arbitration would be Boston.  Sullivan responded with another
letter on April 5, 2010, in which he offered the names of his
three nominees to serve as umpire, and added the following:
"As to venue of the arbitration, I believe that
there is another arbitration clause in a rider to
the policy which I believe is the provision under
which [SEH] is proceeding. That said, however, I
would suggest that venue is an issue for the parties
to resolve as opposed to the arbitrators. In either
case, I will review your designees upon receipt of
your letter and we can discuss how to proceed from
there with the umpire selection process."
Three days later, on April 8, 2010, Sullivan sent a
letter to the parties' counsel and to Gaynor that provided, in
pertinent part:
"This letter serves to confirm that the party
nominated arbitrators (myself and Mr. Robert H.
Gaynor) have failed to select an umpire within the
time period set out in the Arbitration clause. This
also confirms that on behalf of [SEH] I have timely
nominated three persons to serve as umpire, but that
I have not received nominees from the arbitrator
nominated 
by 
[Lexington]. 
As 
the 
Arbitration
Agreement calls for the arbitration hearing to be
conducted in this matter within thirty (30) days, it
appears that a lapse in the selection process has
occurred and the parties may wish to consider
protecting their interest as they deem necessary."
7
1091617
Later on the same day, April 8, SEH initiated a declaratory-
judgment action in the Winston Circuit Court by filing a
complaint seeking (1) a declaration that the venue of the
arbitration proceeding should be based upon the absence of a
forum-selection provision in  the arbitration clause of the
SIR endorsement to the 2002 policy; (2) a determination that
Lexington had "forfeited its 
right 
to designate three nominees
to serve as umpire because it failed to timely do so as
required by the arbitration agreement"; and (3) the
appointment by the trial court of an umpire pursuant to
9 U.S.C. § 5 of the Federal Arbitration Act ("the FAA").  It
is undisputed that SEH did not initiate service of the
complaint upon Lexington at the time it was filed.  
On April 9, 2010, unaware of the pending declaratory-
judgment action, Gaynor sent Sullivan 
a letter reiterating his
view that the venue for the arbitration proceedings was Boston
and 
expressing the concern that, "without addressing the 
locus
of the arbitration, the appointment process for an umpire is
premature."  Nonetheless, Gaynor provided in the letter the
names of his three nominees to serve as umpire in the
8
1091617
arbitration proceedings.  Gaynor also addressed the issue of
a "lapse" mentioned by Sullivan in his April 8, 2010, letter: 
"You also 
mention 
in 
your 
April 
8 
correspondence
that an apparent lapse in the selection process has
occurred. Notwithstanding the list of three proposed
umpires provided herein, my reading of the policies'
respective arbitration provisions is that the two,
party-nominated arbitrators have 30 days from the
appointment of the second arbitrator to select an
umpire.
"In the event you and I are unable to agree upon
an umpire, the arbitration clause provides that the
swapping of the 'lists of three' begins. I do not
read this process to be included in the 30-day
timeframe to select an arbitrator. Nevertheless,
again, I provide my list of three umpires above."
On April 12, 2010, after having received Gaynor's April
9 letter, SEH filed a "Motion for Expedited Hearing under Ala.
R. Civ. P. 57 and to Appoint Arbitrator under 9 U.S.C. § 5."
SEH faxed a copy of this motion to Lexington on April 12,
thereby apprising Lexington for the first time of the action
pending in the Winston Circuit Court.  Later that day,
Lexington filed a motion to dismiss the complaint, arguing
that the trial court lacked the authority to appoint an umpire
and that, at most, the trial court could order the parties to
proceed with arbitration in accordance with the terms of the
arbitration clauses. 
9
1091617
On April 13, the trial court set a hearing date of April
16 for SEH's motion for an expedited hearing and the
appointment of a third arbitrator.  On April 15, 2010,
Lexington filed a special appearance for the purpose of
alleging 
insufficiency 
of 
process, 
insufficiency 
of 
service 
of
process, and lack of due process.
At the hearing on April 16, 2010, the trial court offered
to settle the parties' dispute about naming an umpire, but
each party declined to name the nominee from the other party's
list from which the name of the umpire would be drawn.
Specifically, Lexington's counsel stated that he did not have
authority from Lexington to proceed at that time, and SEH
openly questioned the impartiality of one of Lexington's
nominees for umpire and stated that it needed more time to
investigate 
the 
backgrounds 
of 
Lexington's 
other 
nominees. 
The
trial court orally declined to rule upon SEH's motion and
ordered SEH to serve its complaint on Lexington.
On June 28, 2010, SEH filed a brief in support of its
motion and a response to Lexington's motion to dismiss.  In
its brief, SEH contended that two of Lexington's nominees for
umpire should not be allowed to serve in that role because,
10
1091617
SEH contended, they were biased.  SEH argued that by failing
to submit impartial nominees in a timely fashion Lexington had
caused a "breakdown in the arbitrator selection process" that
required the trial court to resolve the "impasse" by
appointing the umpire to the arbitration panel. For much of
its argument, SEH relied upon a written, but unsworn,
"declaration" from a professor of business law and dispute
resolution at Indiana University, Stephen L. Hayford. On
August 7, 2010, Lexington filed a motion to strike Hayford's
"declaration."  On August 9, 2010, SEH filed its response to
Lexington's motion to strike.
The trial court subsequently held a hearing on all
pending motions and thereafter entered an order providing, in
pertinent part:
"After reviewing the legal briefs submitted, all
evidentiary material submitted and hearing oral
argument of counsel regarding the matters at issue,
this Court hereby declares that an impasse has
occurred in the performance of the selection of the
neutral umpire under the arbitration agreement, of
which timing was of the essence, requiring this
court to exercise its appointment power under 9
U.S.C. § 5 of the FAA, and appoint an arbitrator
from the potential umpires provided by the parties,
of whom no inference or evidence of bias has been
brought before this court.
11
1091617
"Now, therefore, it is considered, ordered,
adjudged, and decreed that [Lexington's] motions to
dismiss are hereby denied and pursuant to 9 U.S.C.
§ 5, Gusty Yearout is hereby appointed to serve as
the neutral umpire in the arbitration proceedings
between the parties."3
Following receipt of this order, Lexington filed a
petition for a writ of mandamus in this Court and a motion to
stay proceedings in the trial court pending a ruling on the
petition.  In response to Lexington's petition, this Court
issued an order, providing, in part: 
"The petition for writ of mandamus to be directed to
the Honorable John Hodges Bentley, Judge of the
Circuit Court of Winston County, Alabama, having
been filed and it appearing to the Court that the
petition for writ of mandamus was filed from an
order which is appealable according to Rule 4(a)(1),
Alabama Rules of Appellate Procedure,
"IT IS ORDERED that the petition for writ of
mandamus is treated as a timely notice of appeal."
We also granted Lexington's motion to stay proceedings in the
trial court pending disposition of the appeal.
II.  Jurisdiction and Standard of Review
Although acknowledging this Court's order providing that
Lexington's petition for the writ of mandamus would be treated
as an appeal, SEH asks this Court to revisit the question
Yearout was one of the nominees on the list Sullivan had
3
provided to Gaynor.  
12
1091617
whether Lexington has properly invoked our jurisdiction.  SEH
maintains that the interlocutory order of the trial court
appointing an umpire is not appealable under the FAA or under
Rule 4(a)(1) or 4(d), Ala. R. App. P.  Specifically regarding
Rule 4, SEH contends that the order appealed from does not
fall within any of the categories of orders listed in Rule
4(a)(1) and that it is not an order granting or denying a
motion to compel arbitration as contemplated by Rule 4(d). 
In Okay v. Murray, 51 So. 3d 285 (Ala. 2010), we
considered an appeal from a similar order. Specifically, as we
do in the present case, we considered in that case an order of
a trial court "compelling [one party] to arbitrate [its]
dispute with [the other party] before an arbitrator appointed
by the trial court, in contravention, [the first party] says,
of the manner agreed to by the parties for selecting an
arbitrator."  51 So. 3d at 288.  Consistent with the treatment
in Okay of the trial court's order as an appealable order and
with our previously issued order in this case, we treat the
trial court's order here as appealable and apply a de novo
standard of review.
13
1091617
III.  Analysis
The trial court based its authority to appoint the umpire
for the arbitration proceedings 
between 
Lexington and SEH upon
§ 5 of the FAA, which provides:
"If in the agreement provision be made for a method
of naming or appointing an arbitrator or arbitrators
or an umpire, such method shall be followed; but if
no method be provided therein, or if a method be
provided and any party thereto shall fail to avail
himself of such method, or if for any other reason
there shall be a lapse in the naming of an
arbitrator or arbitrators or umpire, or in filling
a vacancy, then upon the application of either party
to the controversy the court shall designate and
appoint an arbitrator or arbitrators or umpire, as
the case may require, who shall act under the said
agreement with the same force and effect as if he or
they had been specifically named therein; and unless
otherwise provided in the agreement the arbitration
shall be by a single arbitrator."
9 U.S.C. § 5 (emphasis added).  
The first observation to be made regarding § 5 -— and one
that ultimately is dispositive of the issues presented in this
case —- is the following: Although § 5 provides for the
contingency of judicial intervention in the event of a "lapse
in the naming of an arbitrator," it does so only in the
context of a "mandate[] that the method set forth in the
arbitration agreement [for appointing an arbitrator] be
14
1091617
followed."  Ex parte Cappaert Manufactured Homes, 822 So. 2d
385, 387 (Ala. 2001).  As this Court has observed:
"'Arbitration is a matter of contract.
AT&T Tech., Inc. v. Communications Workers
of America, 475 U.S. 643, 648 ... (1986).
... Parties to an arbitration agreement may
determine by contract the method for
appointment 
of 
arbitrators. 
The 
FAA
expressly provides that where a method for
appointment is set out in the arbitration
agreement, the agreed upon method of
appointment "shall be followed." 9 U.S.C.
§ 5.
"'....'
"Brook v. Peak Int'l, Ltd., 294 F.3d 668, 672-73
(5th Cir. 2002).
"This Court has recognized the right of a party
to an arbitration agreement to require that the
method for selecting the arbitrator or arbitrators
set forth in the arbitration agreement be followed
and has reversed trial court orders that changed the
contractually prescribed method of selecting the
arbitrator. Ex parte Cappaert Manufactured Homes,
822 So. 2d 385 (Ala. 2001); BankAmerica Housing
Servs. v. Lee, 833 So. 2d 609 (Ala. 2002); Ex parte
Southern United Fire Ins. Co., 843 So. 2d 151 (Ala.
2002); Northcom, Ltd. v. James, 848 So. 2d 242 (Ala.
2002); and McDonald v. H & S Homes, LLC, 853 So. 2d
920 (Ala. 2003)."
Bowater Inc. v. Zager, 901 So. 2d 658, 668 (Ala. 2004)
(emphasis added).  This Court recently reversed a trial
court's order "appoint[ing] an arbitrator to preside over the
proceedings resolving a dispute" because the arbitrator was
15
1091617
appointed "in contravention of the method for selecting that
arbitrator agreed to by the parties."  Okay, 51 So. 3d at 291. 
Consistent with the foregoing observation, Lexington
argues that the arbitration clauses in the CGL policies and
the SIR endorsement prescribe certain procedures for the
selection of arbitrators, that it acted in compliance with
those procedures, and, accordingly, that the trial court had
no basis under § 5 of the FAA for intervening in the selection
process.
SEH responds by arguing that the trial court correctly
concluded that Lexington, or Gaynor on its behalf,  had not
4
followed 
the 
contractually 
agreed-upon 
procedures 
for
selecting an arbitrator and that, therefore, there had been a
"lapse in the naming of [the] arbitrator" that necessitated
the trial court's exercise of the appointment power under § 5
of the FAA.  According to SEH, Lexington failed to act in
accordance with the contractually agreed-upon selection
procedures in two respects.  First, SEH contends that
The parties assume for the purpose of analyzing the
4
issues presented in this case that the actions of the first
two arbitrators, Gaynor and Sullivan, may be imputed to
Lexington and SEH, respectively.  For purposes of our
analysis, we do likewise.
16
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Lexington was tardy in nominating its three candidates for the
position of umpire.  SEH also alleges bad faith on Lexington's
part in connection with its nomination of umpire candidates.
A.  The Timing Issue
SEH's first argument bears some similarity to the
argument offered by the petitioners in Ex parte Cappaert
Manufactured Homes, supra.  Instead of a delay in the
appointment process, the petitioners in Cappaert contended
that there was an "impasse" in the selection of an arbitrator
based on asserted inability of the parties to reach agreement
on an arbitrator as required by their contract.  The
petitioners argued that  this purported impasse amounted to a
"lapse in the naming of an arbitrator" that justified
"judicial intervention and appointment."  822 So. 2d at 387.
This Court rejected the petitioners' argument, explaining:
"We need not consider whether, or under what
circumstances, an 'impasse in the selection of an
arbitrator' amounts to a 'lapse in the naming of an
arbitrator [for purposes of § 5],' because, at the
time the trial court made its appointment in this
case, there was no evidence indicating an 'impasse.'
"Indeed, as of November 22, 2000, when the
Buyers filed their 'Motion for Court to Choose [an]
Arbitrator,' there was no factual basis for the
allegation that, 'despite their best efforts,' the
parties had 'not been able to agree on an
17
1091617
arbitrator.' On the contrary, the correspondence
between the parties as of that date revealed that
the selection process was proceeding apace. To be
sure, the Buyers had rejected the first proposed
arbitrator. However, they did so summarily; they
gave no reason for their rejection. Thus, there was
no evidence from which to conclude that the parties
had reached a deadlock.  ...
"Thus, we hold, as a matter of law, that the
unexplained rejection by the Buyers of the first
arbitrator proposed by the manufacturer, under a
provision requiring the concurrence of the Buyers in
the manufacturer's selection, does not constitute a
lapse within the meaning of § 5 of the FAA."
822 So. 2d at 387.
Similar to the situation in Cappaert, at the time SEH
filed its declaratory-judgment action seeking appointment of
the third arbitrator by the trial court, the parties were in
the midst of nominating their candidates for this post.
Correspondence reveals that Sullivan had provided his list of
nominees to Gaynor only three days earlier and that Gaynor
provided his list of nominees to Sullivan just four days later
(i.e., four days after Sullivan had done so and the day after
the action was filed in the trial court and before Gaynor or
Lexington was aware of that action).  The only steps remaining
in the process described in the arbitration clauses were the
selection by Sullivan and Gaynor of one nominee from the other
18
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arbitrator's nomination list and the drawing of one of the two
resulting names to serve as the umpire.  Perhaps more
important than the temporal relationship of these events to
the filing of the complaint itself, however, is the fact, as
discussed below, that, at most, they were unfolding only a few
days outside the allegedly applicable 30-day time frame.
SEH argues that Gaynor's failure to provide his list of
nominees within 30 days of Gaynor's appointment by Lexington
created a "lapse in the naming of an umpire" that empowered
the trial court to make the appointment under § 5.  Assessment
of this argument requires that we first examine the
contractual language used by the parties to describe the
process for appointing a third arbitrator.  As noted, that
language is as follows:
"The party desiring arbitration of the dispute
shall notify the other party, said notice shall
include the name, address, and occupation of the
Arbitrator nominated by the demanding party.  The
other party shall within 30 days following receipt
of the demand, notify in writing the demanding party
of the name, address, and occupation of the
Arbitrator nominated by it.  The two (2) Arbitrators
so selected shall within 30 days of the appointment
of the second Arbitrator, select an umpire.  If the
Arbitrators are unable to agree upon an umpire, each
Arbitrator shall submit to the other Arbitrator a
list of three (3) proposed individuals from which
list 
each 
Arbitrator 
shall 
choose 
one 
(1)
19
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individual.  The names of the two individuals chosen
shall be subject to a draw, whereby the individual
drawn shall serve as umpire."
(Emphasis added.)
Both parties contend that this language is plain and
unambiguous, but, predictably, each contends that it plainly
and unambiguously means something different than the other
party asserts.  SEH contends that this language means the
entire process of selecting the third arbitrator is to be
accomplished within 30 days from the selection of the second
arbitrator.  It contends that the last two sentences are meant
simply to describe the process the first two arbitrators are
to use in order to accomplish this task if they are unable to
accomplish it by mutual agreement.  In contrast, Lexington
contends that the last two sentences describe the next phase
in the process in the event there has not been a selection of
an umpire by mutual agreement within the designated 30-day
period.  
For purposes of deciding this particular case, we need
not decide which interpretation of this language is correct or
whether that interpretation is or is not a function of plain
and unambiguous contractual language.  Even if SEH's
20
1091617
interpretation is correct, Lexington would be due to prevail
in light of the minimal nature of any delay on its part in
nominating candidates to serve as umpire.  
This Court has quoted with approval the decision of the
United States Court of Appeals for the Fifth Circuit in Brook
v. Peak International, Ltd., 294 F.3d 668, 672-73 (5th Cir.
2002).
"'("[I]n order to enforce an arbitration award, the
arbitrator must be chosen in conformance with the
procedure specified in the parties' agreement to
arbitrate."). However, "a 'trivial departure' from
the parties' agreement [] may not bar enforcement of
an award."'" 
Bowater Inc., 901 So. 2d at 668 (quoting Brook v. Peak Int'l,
Ltd., 294 F.3d at 673, quoting in turn R.J. O'Brien & Assocs.,
Inc. v. Pipkin, 64 F.3d 257, 263 (7th Cir. 1995)).  Consistent
with the decision of the Fifth Circuit Court of Appeals in
Brook, we are clear to the conclusion that Lexington's alleged
delay under SEH's interpretation of the contract was minimal
under the circumstances and did not warrant judicial
intervention that preempted the umpire-selection process
agreed to by the parties. 
Our conclusion that SEH was not justified in so quickly
seeking 
judicial 
intervention 
based 
on 
a 
strict 
interpretation
21
1091617
of the applicable 30-day provision is bolstered in this
particular case by (though not dependent upon) the fact that,
if Lexington was tardy in nominating its three candidates for
umpire, so apparently was SEH.  Lexington appointed Gaynor on
March 4, 2010.  For all that appears from the terms of the
parties' contract, the prescribed 30-day period therefore
ended on April 3, 2010.  Sullivan submitted his list of umpire
nominees on behalf of SEH on April 5 -- 2 days after that
30-day mark.  Gaynor submitted his list of umpire nominees
4 days later -— on April 9 -- or 6 days after the deadline.  
5
SEH insists, however, that Sullivan submitted his list
5
of umpire nominees in a timely fashion because April 3, 2010,
was a Saturday, and Sullivan submitted his list on the next
business day, Monday, April 5, 2010.  SEH claims that
arbitration 
agreements 
ordinarily 
follow 
the 
same 
rule 
applied
in the Federal Rules of Civil Procedure, i.e., that weekends
and holidays are not counted in filing deadlines.  SEH's only
authority for this argument, however, is the unsworn
"declaration" of business law professor Stephen Hayford, in
which he states, without citation to any authority, that "[b]y
long-standing, consistent custom and practice in commercial
arbitration, contractual time periods are never 
deemed 
to toll
on a Saturday, Sunday, or a holiday."
We note that SEH's claim is contrary to the rules of
contract construction.  "It is black-letter law that
arbitration agreements must be enforced according to general
standards of contract law."  Cook's Pest Control, Inc. v.
Boykin, 807 So. 2d 524, 526 (Ala. 2001). 
 
"Where there is no indication that the terms of the
22
1091617
Our conclusion in this case would be less certain if, in
fact, as the trial court found, "time was of the essence" in
regard 
to 
the 
arbitrator-selection 
deadlines 
in 
the
arbitration clauses in the policies Lexington issued to SEH.
"'It is an axiom of equity that as a
general rule time is not of the essence of
a contract. Gay v. Tompkins, 385 So. 2d 973
(Ala. 1980).  However, the parties might
contract are used in a special or technical sense,
they will be given their ordinary, plain, and
natural meaning. See Ex parte Dan Tucker Auto Sales,
Inc., 718 So. 2d 33, 36 (Ala. 1998). If the court
determines 
that 
the 
terms 
are 
unambiguous
(susceptible of only one reasonable meaning), then
the court will presume that the parties intended
what they stated and will enforce the contract as
written."
Homes of Legend, Inc. v. McCollough, 776 So. 2d 741, 746 (Ala.
2000).  In other words, in a contract -- and therefore in an
arbitration agreement -- 30 days means 30 days unless the
contract provides some other indication.  Particularly in an
agreement between sophisticated business entities, if a
deadline did not include weekends and holidays it is
reasonable to assume that that would be stated.  See, e.g.,
Certain Underwriters at Lloyd's London v. Argonaut Ins., 500
F.3d 571, 581 (7th Cir. 2007) (concluding that the "parties
are to be bound to the explicit language of arbitration
clauses, with no state-specific exceptions that would extend
otherwise 
clear 
contractual 
deadlines. 
 
Of 
course,
sophisticated commercial parties such as these may provide by
contract that thirty days does not include Sundays and
holidays, or that a contract with a terminus for performance
on a Sunday or holiday (as recognized by some identifiable
body -- state, federal or otherwise) may be timely performed
on the next business day.").
23
1091617
make 
time 
essential 
by 
"clear 
manifestation
of the intent of the parties in the
contract itself, by subsequent notice from
one party to the other, by laches in the
party seeking to enforce it, or by change
in the value of the land or other
circumstances which would make a decree for
the 
specific 
performance 
inequitable." 
Isom
v. Johnson, 205 Ala. 157, 158, 87 So. 543,
544 (192[0]) (quoting Barnard v. Lee, 97
Mass. 92 (1867)).'"
Joseph v. MTS Inv. Corp., 964 So. 2d 642, 648-49 (Ala. 2006)
(quoting Moore v. Lovelace, 413 So. 2d 1100, 1102 (Ala.
1982)).  No language in the arbitration clauses provides a
manifestation of intent to make time of the essence.
SEH contends that the mere existence of a 30-day deadline
for the appointment of an umpire demonstrates that time was of
the essence in the arbitration clauses.  This argument is
contradicted, however, by the decision in Compania Portorafti
Commerciale, S.A. v. Kaiser Int'l Corp., 616 F. Supp. 236
(S.D. N.Y. 1985) -- the very case SEH cites for support of the
proposition that "a party loses its right of appointment under
an arbitration agreement, even where the delay is minimal,
where time is of the essence."  In Compania, the court
explained:
"The worst that can be said of respondent is
that it sought to appoint its arbitrator, Mr. Berg,
24
1091617
three calendar days and one business day after the
May 9 deadline contained in the supplemental
agreement of the parties evidenced by the telex of
April 19. It further appears that the failure to
make a timely appointment was inadvertent, and not
for the purpose of delay or harassment. Respondent
says that this is so, and there is no evidence upon
which I could base a contrary inference.
"There 
is 
substantial 
authority 
for 
the
proposition that so minor a delay, uncomplicated by
indications of bad faith, does not in equity deprive
a 
party 
to 
an 
arbitration 
clause 
of 
its
contracted-for right to appoint an arbitrator of its
choosing. Texas Eastern Transmission Corp. v. R.L.
Barnard, 285 F.2d 536 (6th Cir. 1960); Lobo & Co. v.
Plymouth Navigation Co. of Monrovia, 187 F. Supp.
859 (S.D. N.Y.1960); In re Utility Oil Corp., 10
F.Supp. 678 (S.D. N.Y.1934). These cases hold that
minimal delays in appointing an arbitrator do not
deprive the defaulting party of its right of
appointment unless the contract makes time of the
essence. The simple recitation of the time within
which 
the 
appointment 
must 
be 
made 
is 
not
sufficient, under these cases, to achieve that
characterization."
25
1091617
616 F. Supp. at 238 (emphasis added).   Even assuming that the
6
arbitration clauses in the present case imposed a 30-day
deadline for the appointment of an umpire, we cannot conclude
that this fact in itself provides a sufficient basis on which
to conclude that "time was of the essence." 
In several of the above-cited cases, a delay of only a
few days in the appointment of an arbitrator was not
sufficient to warrant a conclusion that there had been a lapse
in 
the 
selection 
process 
that 
justified 
a 
judicial
appointment.  See also, e.g., Global Reinsurance Corp.-U.S.
Branch v. Certain Underwriters at Lloyd's, London, 465 F.
Supp. 2d 308, 311 (S.D. N.Y. 2006) (concluding that "[t]he
See also New England Reinsurance Corp. v. Tennessee Ins.
6
Co., 780 F. Supp. 73 (D. Mass. 1991), in which the court
stated: 
"Counsel for the plaintiff has stated in an
affidavit that the eight day (six business day)
delay in appointing the plaintiff's arbitrator was
not due to bad faith. The plaintiff's counsel's lack
of 
diligence 
in 
transmitting 
his 
letter 
of
appointment does not rise to a level sufficient to
deprive the plaintiff of its right to appoint an
arbitrator, especially considering the lack of
prejudice to the defendant. ... Moreover, nothing
indicates that the parties intended time to be of
the essence."
780 F. Supp. at 77 (footnote omitted).
26
1091617
mere six days between the time Global notified London
Reinsurers of its objections to [an umpire nominee of London
Reinsurers] and the time [Global] filed the instant Petition
[requesting that the trial court appoint the umpire] cannot be
characterized properly as a 'lapse' that justifies judicial
intervention").  Likewise, under the circumstances presented
in this case, we cannot conclude that the alleged delay by
Lexington in nominating candidates for the position of umpire
was anything other than a minimal delay that did not justify
judicial intervention at the time and of the nature achieved
by SEH.  
B. The Allegations of Bad Faith
We also have before us the issue whether the trial court
could have concluded that a "lapse" in the naming of an umpire
occurred as a result of Lexington's alleged failure to have
acted in good faith in the performance of its contractual
obligations in relation to the selection of the umpire.  SEH
argues that Lexington committed "bad faith" in the umpire-
selection process in two ways.  
First, SEH argues that Gaynor's statements in his
correspondence with Sullivan 
that the dispute about 
the proper
27
1091617
venue for the arbitration proceedings should be 
settled 
before
the selection of the umpire constituted a bad-faith attempt by
Lexington 
to 
delay 
the 
appointment 
process. 
 
The
correspondence between Gaynor and Sullivan shows, however,
that both of them discussed the venue issue and that Gaynor
provided his list of umpire nominees despite his misgivings
about the fact that the venue issue had not been settled.  The
correspondence also indicates that overall Gaynor was prompt
in his responses to Sullivan's communications.  No evidence of
bad faith by Lexington in this aspect exists in the record,
and the trial court did not conclude otherwise.
Second, SEH alleges that Lexington committed bad faith in
the umpire-selection process by nominating two individuals --
Frank Puccio and Robert Curley -- who SEH claims should be
removed because they are biased.  SEH cites one lower federal
court decision in support of its position that, where bias is
shown, a trial court may intervene in a contractually agreed-
upon process for selecting an arbitrator.  In Third National
Bank in Nashville v. WEDGE Group, Inc., 749 F. Supp. 851 (M.D.
Tenn. 1990), the court determined that a trial court may
appoint a substitute arbitrator when "the potential bias of a
28
1091617
named arbitrator makes arbitration proceedings a prelude to
later 
judicial 
proceedings 
challenging 
the 
arbitration 
award." 
749 F. Supp. at 855.   
7
SEH also cites Gayley Mill Corp. v. Princeton Rayon
7
Corp., 17 Misc. 2d 594, 185 N.Y.S.2d 899 (N.Y. Sup. 1959).  In
Gayley Mill Corp., the trial court appointed an arbitrator for
a party only after that party had twice designated arbitrators
who failed to qualify under the impartiality requirements
expressed in the resettlement judgment entered by the trial
court two years earlier.  The resettlement judgment required
each party to designate an arbitrator who would not have "'any
connection or association with either party or 
their 
attorneys
which would disqualify a person from being a juror.'"  17
Misc. 2d at 595, 185 N.Y.S. 2d at 901.  The trial court
refused to allow Princeton Rayon Corp. ("Princeton") to
designate a third arbitrator because 
"[w]hen the extended litigation over the
arbitrability of the controversy was brought to an
end by the resettled judgment of December 26, 1956,
the court unquestionably intended that the parties
should proceed with dispatch before the arbitrators
so that the dispute could be determined without
further delay in the spirit of a true arbitration.
The 
qualifications 
of 
the 
arbitrators 
were
prescribed in terms too clear to admit of mistake or
misunderstanding. Yet, Princeton[,] by designating
successively two arbitrators, neither of whom met
these qualifications, has completely frustrated the
court's purpose. Since the facts constituting the
disqualification 
were 
necessarily 
known 
to
Princeton, its course cannot be regarded as other
than a willful obstruction of the arbitration. Two
years have gone by and because of Princeton's two
abortive designations the parties are today no
nearer the determination of the controversy by the
arbitrators than they were when the resettled
judgment was entered on December 26, 1956. If effect
is to be given to the judgment, the court must
29
1091617
Lexington concedes that a party may challenge an
arbitration award on the ground of "evident partiality" on the
part of the arbitrator who entered it.  Title 9 U.S.C.
§ 10(a)(2) provides, in pertinent part, that a federal
district court "may make an order vacating the award upon the
application of any party to the arbitration ... where there
was evident partiality or corruption in the arbitrators, or
either of them."  In tension with the authority cited by SEH,
however, there is some authority for the view that challenges
concerning allegations of bias on the part of an arbitrator
are limited to the circumstance described in the statute
(challenges to an actual award), though none of these cases
appear to expressly address whether a party's nomination or
selection of an allegedly biased arbitrator can rise to a
itself now designate the arbitrator whom Princeton,
despite full opportunity, has failed to designate.
Unless this course is taken, as Gayley prays, there
may never be a proper designation. By making the
designation the way will be cleared for the
arbitration to proceed in accordance with the terms
and intent of the resettled judgment."
17 Misc. 2d at 596-97, 185 N.Y.S. 2d at 902-03.  Thus, the
trial court in Gayley Mill Corp. appointed an arbitrator to
ensure the intended execution of its own earlier judgment. The
court did not invoke or rely upon § 5 of the FAA in doing so. 
  
30
1091617
level that would constitute a breach of an implied covenant of
good faith in the fulfillment of contractual obligations
regarding the appointment process.  See, e.g., Gulf Guar. Life
Ins. Co. v. Connecticut Gen. Life Ins. Co., 304 F.3d 476, 490
(5th Cir. 2002) (explaining that "the FAA does not expressly
endorse court inquiry into the capacity of any arbitrator to
serve prior to issuance of an arbitral award"); Florasynth,
Inc. v. Pickholz, 750 F.2d 171, 174 (2d Cir. 1984) (observing
that "[t]he Arbitration Act does not provide for judicial
scrutiny of an arbitrator's qualifications to serve, other
than in a proceeding to confirm or vacate an award, which
necessarily occurs after the arbitrator has rendered his
service"); Marc Rich & Co., A.G. v. Transmarine Seaways Corp.
of Monrovia, 443 F. Supp. 386, 388 n.3 (D.C. N.Y. 1978)
(stating that "[n]o section of the [FAA] ... provides for
judicial scrutiny of an arbitrator's qualifications in any
proceeding other than an action to confirm or vacate an award.
If Congress had wished to authorize such review before
arbitration proceedings commence, it could easily have so
provided.").
31
1091617
For purposes of this case, we assume that a court may
intervene to appoint an arbitrator before an award is made
when "evident partiality" on the part of a named arbitrator as
contemplated by 9 U.S.C. § 10(a)(2) is shown.  This
assumption, however, does little to advance SEH's cause.  SEH
makes no argument regarding "evident partiality" on the part
of a named arbitrator because, as of yet, there is no named
arbitrator in this case.  Instead, SEH's argument is that the
selection process itself "lapsed" because Lexington acted in
"bad faith" with respect to the contractually agreed-upon
process for nominating a third arbitrator.
Assuming for the sake of argument that a contractually
agreed-upon process for selecting an arbitrator may be
considered to have "lapsed" as a result of a party's bad-faith
efforts to comply with that process, we cannot conclude that
such bad faith has been demonstrated in the present case.
Among other things, SEH has cited no authority in either the
trial court or in this Court for a legal standard to be
applied in determining whether a party has acted either in
"good faith" or in "bad faith" in nominating a candidate to
serve as an arbitrator.  The only case cited by SEH in its
32
1091617
discussion of the merits of this issue is Waverlee Homes, Inc.
v. McMichael, 855 So. 2d 493 (Ala. 2003).  Waverlee Homes,
however, differs from the present case in several ways.
First, Waverlee Homes differs from the present case
factually.  The facts indicating bias in Waverlee Homes
involved a secret deal between plaintiff's counsel and a
settling defendant as to the selection of the arbitrator.
Furthermore, there was evidence that the arbitrator had acted
as cocounsel with the purchaser's attorney on a similar case
and that the arbitrator had made very similar rulings in other
cases brought against mobile-home manufacturers by the same
attorney.  Finally, the purchasers did not submit any evidence
to contradict the assertions.
The claims against Curley and Puccio in the present case
differ markedly from those leveled against the arbitrator in
Waverlee Homes.  SEH claims that Curley is biased because his 
"resumé reads like a 'Who's Who Among Insurance
Defense Lawyers.' Curley was the Massachusetts
'Defense Lawyer of the Year in 2004'; a Member of
the Massachusetts Defense Lawyers Association; a
Member and state representative for the Defense
Research Institute; a Member and one-time Director
(2003) and Vice President of the Insurance Coverage
Committee of the International Association of
Defense Counsel; an Associate Member of the Defense
33
1091617
Counsel of Trial Lawyers of America; and a Member of
the Insurance Law Library."
SEH claims that Puccio is biased because his law firm had
engaged in some representation of Lexington insureds in the
past, because he once represented an insured in a case in
which AIG Insurance, Lexington's parent company, was the
excess carrier, and because his firm biography states that he
excels in obtaining "defense verdicts."  
Most of, though not all, the unsworn assertions against
Curley are undisputed.  Be that as it may, we find noteworthy
the observation of the United States Court of Appeals for the
Second Circuit in Morelite Construction Corp. v. New York City
District Council Carpenters Benefit Funds, 748 F.2d 79 (2d
Cir. 1984):
"On the one hand, parties agree to arbitrate
precisely because they prefer a tribunal with
expertise regarding the particular subject matter of
their dispute. ... Familiarity with a discipline
often comes at the expense of complete impartiality.
Some commercial fields are quite narrow, and a given
expert may be expected to have formed strong views
on certain topics, published articles in the field
and so forth. Moreover, specific areas tend to breed
tightly knit professional communities. Key members
are known to one another, and in fact may work with,
or for, one another, from time to time. As this
Court has noted, '[e]xpertise in an industry is
accompanied by exposure, in ways large and small, to
those engaged in it....' Andros Compania Maritima,
34
1091617
S.A. v. Marc Rich & Co., 579 F.2d 691, 701 (2d Cir.
1978)."
748 F.2d at 83.   Comparing the different contexts in which
arbitrators and judges serve and the resulting importance of
the role of disclosure relative to that of recusal in the
selection of arbitrators, the court in Schmitz v. Zilveti, 20
F.3d 1043 (9th Cir. 1994), observed that "[e]xpert arbitrators
will nearly always, of necessity, have numerous contacts
within their field of expertise."  20 F.3d at 1046 (citing
Commonwealth Coatings Corp. v. Continental Cas. Co., 393 U.S.
145, 150 (1968) (White, J., concurring) ("It is often because
they are men of affairs, not apart from but of the
marketplace, that [arbitrators] are effective in their
adjudicatory function.")).  
8
Counsel for SEH also would have this Court conclude that
8
Curley is biased because he represents General Electric
Company.  Counsel for SEH asserts in the brief filed in this
Court that General Electric "is owned by Lexington's parent,
AIG [Insurance]."  Counsel cites this Court to no evidence
indicating that General Electric is a subsidiary of AIG, nor
has this Court been able to locate any evidence to support
this claim, either within or without the record. (Although we
do not imply that, had we located such "evidence" outside the
record, we could rely upon it, Lexington asks us to take
judicial notice of the fact that counsel's assertion is simply
untrue 
and 
that 
certain 
publications 
identify 
General 
Electric
as the world's 13th largest corporation in 2010 and AIG
Insurance as the world's 41st largest corporation.)  The claim
that General Electric "is owned by AIG" merits no further
35
1091617
As to SEH's allegations regarding Puccio, the trial court
apparently received into evidence without objection a letter
from Lexington's counsel to SEH's counsel explaining 
that, 
"on
rare occasions," Puccio's law firm had represented an insured
of Lexington, but that "Mr. Puccio himself has never
represented a primary insured of Lexington or AIG."  Neither
side in this case is more specific with their allegations as
to this representation.  Lexington also confirmed that
"[t]here was one matter that Mr. Puccio handled where AIG was
the excess carrier for the client he represented," but that,
"[i]n that case, AIG eventually utilized other 
counsel, 
chosen
and paid for by AIG, in relation to the excess coverage."
Lexington explained that Puccio has never represented
Lexington or its holding company Chartis, Inc., as an entity
in an insurance-coverage dispute or otherwise.  Finally, it is
noteworthy (and undisputed) that, in response to SEH's
complaints regarding the nomination of Puccio, Lexington
offered to submit a fourth nominee to give SEH an additional
choice for umpire; SEH, however, refused this offer.
discussion.  
36
1091617
Waverlee Homes also differs from the present case with
respect to the legal issue presented.  Waverlee Homes involved
a challenge to an actual award by a named arbitrator.  It was
not a case of alleged bad-faith performance by a party of its
contractual obligations with respect to a nominating process,
and it did not set forth a standard that governs the
evaluation of such claims, nor for that matter did it address
the more general question of whether and under what
circumstances a court may intervene in the arbitrator-
selection process. 
In Waverlee Homes, this Court surveyed federal cases
brought after the arbitrator had been named and after the
arbitrator had made an actual award.  855 So. 2d at 503-08. In
most, if not all, of these federal cases, the issue was
whether the arbitrator had failed to make a pre-selection
disclosure of facts that might have demonstrated bias or a
conflict 
of 
interest 
on 
his 
part 
and 
whether 
this
nondisclosure itself demonstrated an "evident partiality" on
the part of the arbitrator under 9 U.S.C. § 10(a)(2) so as to
justify the vacatur of the resulting arbitration award.  The
opinion in one of these cases, Schmitz v. Zilveti, supra,
37
1091617
provides a helpful explanation of the distinction 
between 
what
have become known as "nondisclosure" cases and "actual bias"
cases:
"Appellants argue that Commonwealth Coatings
Corp. v. Continental Cas. Co., 393 U.S. 145, 89
S.Ct. 337, 21 L.Ed.2d 301 (1968), requires us to
reverse 
the 
district 
court. 
In 
Commonwealth
Coatings, one arbitrator on a panel of three failed
to disclose that he had engaged in periodic and
significant business relations with one of the
parties to the arbitration over the previous five or
six years. Id. at 146, 89 S.Ct. at 338. ... The
party that lost the arbitration then challenged the
award, asserting that the failure of this arbitrator
to disclose his significant business relationship
resulted in 'evident partiality' under 9 U.S.C. §
10[(a)(2)], warranting vacatur of the award.
"The district court held that 'the arbitrator
... was entirely fair and impartial,' id. at 151 n.
*, 89 S.Ct. at 340 n. *, and refused to vacate the
award. Without disturbing the finding that the
arbitrator was not biased, id. at 147–50 & 151 n. *,
89 S.Ct. at 338–40 & 340 n. *, the Supreme Court
reversed and vacated the award. The Court held that
an arbitrator's nondisclosure of facts showing a
potential conflict of interest creates evident
partiality warranting vacatur even when no actual
bias is present. The Court tried to articulate a
standard 
indicating 
what 
facts 
show 
evident
partiality when not disclosed by an arbitrator. The
Court described facts that must be disclosed as
those that 'might create an impression of possible
bias,' id. at 149, 89 S.Ct. at 339, those that show
the 'appearance of bias,' id. at 150, 89 S.Ct. at
340, and those that indicate that arbitrators 'might
reasonably be thought biased against one litigant
and favorable to another,' id."
38
1091617
20 F.3d at 1045 (emphasis added). 
After noting that two of its previous decisions had
"involved allegations of actual bias rather than a failure to
disclose," 20 F.3d at 1046, the Schmitz court additionally
explained:
"How 
to 
apply 
Commonwealth 
Coatings 
in 
a
nondisclosure case is an issue of first impression
in the Ninth Circuit. Other courts facing the same
issue have held that 'evident partiality' is present
when undisclosed facts show 'a reasonable impression
of partiality.' [Middlesex Mut. Ins. Co. v.] Levine,
675 F.2d [1197] at 1201 [(11th Cir.)]; see Sanko
S.S. Co. v. Cook Indus., Inc., 495 F.2d 1260,
1263–64 (2d Cir. 1973). ... Consistent with
Commonwealth 
Coatings, 
courts 
examining
nondisclosure cases have not required proof of
actual bias in showing 'evident partiality.' See
Levine, 675 F.2d at 1200–02; Sanko S.S. Co., 495
F.2d at 1263–64.
"....
"Though Toyota of Berkeley [v. Automobile
Salesman's Union, Local 1095, 834 F.2d 751 (9th Cir.
1987),] and [Sheet Metal Workers International Ass'n
v.] Kinney Air[, 756 F.2d 742 (9th Cir. 1985),]
provide some support for the proposition that
Commonwealth 
Coatings 
establishes 
'reasonable
impression of partiality' as a legal standard, both
the facts and factual analyses of those cases are
inapposite to the instant nondisclosure case. Both
involve allegations of actual bias rather than
evident partiality from failure to disclose. Toyota
of Berkeley, 834 F.2d at 756–57; Kinney Air, 756
F.2d at 746. Moreover, both opinions distinguish
their facts from those of nondisclosure cases,
39
1091617
including Commonwealth Coatings. Toyota of Berkeley,
834 F.2d at 756; Kinney Air, 756 F.2d at 746.
"Notwithstanding the factual dissimilarity of
Toyota of Berkeley and Kinney Air with nondisclosure
cases, both Toyota of Berkeley and Kinney Air employ
the 'reasonable impression of partiality' standard
taken from Commonwealth Coatings, a nondisclosure
case. Toyota of Berkeley, 834 F.2d at 756–57; Kinney
Air, 756 F.2d at 746; see also Employers Ins. [of
Wausau 
v. 
National 
Union 
Fire 
Ins. 
Co. 
of
Pittsburgh], 933 F.2d [1481,] at 1481 [(9th Cir.
1991)]; [Sheet Metal Workers Int'l Ass'n, Local No.
162 v.] Jason Mfg.[, Inc.], 900 F.2d [1392] at 1392
[(9th Cir. 1990)].  That these actual bias cases
apply 
the 
Commonwealth 
Coatings 
standard 
to
allegations of actual bias is confusing. In an
actual bias case, a court must find actual bias.
Finding a 'reasonable impression' of partiality is
not equivalent to, nor does it imply, a finding of
actual bias. Otherwise, the Commonwealth Coatings
court could not have held that a reasonable
impression of partiality was present when no actual
bias was shown.
"The policies of 9 U.S.C. § 10 also support the
notion that the standard for nondisclosure cases
should differ from that used in actual bias cases. In
a nondisclosure case, the integrity of the process by
which arbitrators are chosen is at issue. Showing a
'reasonable impression of partiality' is sufficient
in a nondisclosure case because the policy of section
10(a)(2) instructs that the parties should choose
their 
arbitrators 
intelligently. 
Commonwealth
Coatings, 393 U.S. at 151, 89 S.Ct. at 340 (White,
J., concurring). The parties can choose their
arbitrators intelligently only when facts showing
potential partiality are disclosed. Whether the
arbitrators' decision itself is faulty is not
necessarily 
relevant. 
But 
in 
an 
actual 
bias
determination, the integrity of the arbitrators'
decision is directly at issue. That a reasonable
40
1091617
impression of partiality is present does not mean the
arbitration award was the product of impropriety."
20 F.3d at 1046-47 (emphasis added).
It is not clear whether Waverlee Homes, itself, was a
"nondisclosure" case or an "actual bias" case.  Although the
facts as described in the opinion suggest an "actual bias"
case, the Court concluded its opinion with an endorsement of
the "reasonable impression" standard articulated in the
federal "nondisclosure" cases it had surveyed.9
The Court concluded its analysis in Waverlee Homes as
9
follows:
"[T]he 
weight 
of 
authority 
developed 
after
Commonwealth Coatings [Corp. v. Continental Casualty
Co., 393 U.S. 145 (1968),] requires a review of the
offered 
evidence 
pursuant 
to 
the 
'reasonable
impression 
of 
partiality' 
standard 
.... 
The
appropriate approach for the trial court to take in
assessing 
Waverlee's 
allegations 
that 
[the
arbitrator] was biased or partial in his arbitration
of the underlying dispute is to consider whether
Waverlee makes a showing through admissible evidence
that the court finds to be credible, that gives rise
to an impression of bias that is direct, definite,
and capable of demonstration, as distinct from a
'mere appearance' of bias that is remote, uncertain,
and speculative."
855 So. 2d at 508.
41
1091617
What Waverlee Homes clearly was not, however, was a "bad-
faith" case.  That is, unlike the present case, Waverlee Homes
was not a case in which a party to an arbitration agreement
claimed a § 5 "lapse" in the contractually agreed-upon process
for selecting an arbitrator on the ground that the other party
to the contract had breached an implied covenant of good faith
in the performance of its contractual obligations with respect
to that selection process.  Accordingly, Waverlee Homes is of
limited value to this Court insofar as articulating a guiding
legal standard in what may be referred to as a "bad-faith"
case. 
It is safe to say, however, that, in a case in which a
party to an arbitration agreement complains that the facts
concerning a candidate for arbitrator are so bad that the very
act of nominating that candidate rises to the level of bad
faith, something more must be proven than merely facts, the
conscious nondisclosure of which by the selected arbitrator
ultimately is determined to demonstrate "evident partiality"
on the part of that arbitrator.  Nor in such a case would it
be enough merely to prove facts that, in the final analysis,
are deemed to provide a basis for finding that the arbitrator
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was actually biased.  The ultimate determination of partiality
on the part of the arbitrator, if partiality exists, is not
the issue in such a case.  The issue is whether the party
nominating that candidate was acting in bad faith even to
nominate that candidate.  Accordingly, the "something more"
that must be provided in order to establish such bad faith
logically would have to include, at a minimum, proof that the
nominating party, when making or pursuing the nomination, was
actually aware of the underlying facts and also knew to some
degree of certainty (exactly how much being an issue not
necessary to this decision) that such facts were disqualifying
in nature, yet proceeded to make the nomination anyway.  In a
case based solely on nondisclosure, this logically would mean
that the nominating party must have been aware at the time of
the nomination that such nondisclosure would occur. 
In the present case, however, one may question whether,
in all fairness, we can say that the arbitrator nominees
failed to make required disclosures under circumstances from
which a negative inference should be drawn.  None of the
candidates had yet been named as the third arbitrator, much
less begun service, without making  disclosures of the
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affiliations at issue.  In point of fact, there was little or
no chance for the candidates nominated by Lexington to
disclose anything before SEH filed an action claiming that the
nomination process had lapsed and put the parties in an
adversarial posture with respect to that process.  
10
Furthermore, Curley and Puccio do not appear to have made
any effort to conceal the information in question.  To the
contrary, most, if not all, of it was made known to SEH by
virtue of its publication for public consumption on Web sites
sponsored by Curley and Puccio and their respective law firms. 
Even if it could be said that Curley or Puccio failed to
make some more specific disclosure at a time he should have
done so, that it not the question here.  The question is
whether Lexington acted in bad faith even to nominate such
SEH filed its original complaint alleging lapse on
10
related grounds on April 8, 2010, the day before Gaynor,
unaware of the pending action, submitted his list of nominees.
In addition, the facts pertaining to Curley and Puccio, in
stark contrast to the facts concerning the arbitrator in
Waverlee Homes, were publicly available information.  Indeed,
SEH found out this information in a  matter of days following
the filing of its complaint, during a period that saw a rapid
exchange of correspondence and court filings by which the
dispute between the parties erupted.  It was in the midst of
these 
exchanges that SEH acquired information about 
Curley and
Puccio from publicly accessible Web sites published by Curley
and Puccio themselves and by their respective law firms.  
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person.  To that end, there simply has been no showing that
Lexington made or pursued the nomination of either candidate
with an awareness that the candidate would fail to disclose
material information relevant to his ability to be fair in the
event he was selected to serve.  Likewise, if the underlying
issue is actual bias on the part of Curley or Puccio, there
has been no showing that Gaynor made these nominations on
behalf of Lexington with an awareness of facts he knew would
disqualify 
either 
of 
them 
from 
service 
if 
selected.
Additionally, when SEH contended that disqualification was
appropriate, Lexington offered to nominate an additional
candidate from which SEH could select.
For purposes of deciding this particular case, we find it
appropriate to consider the totality of the factual and
procedural circumstances presented, including the timing of
and the procedural circumstances within which SEH chose to
raise its bad-faith claims, the underlying facts concerning
Curley and Puccio, and the offer Lexington made before the
selection process had been completed to provide SEH with an
additional choice for umpire.  Under these circumstances, and
in the absence of any legal standard requiring a different
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conclusion, we simply cannot find in this case adequate
support for a conclusion that Lexington was guilty of bad
faith that caused the contracted-for selection process to
lapse.  At the time and under the circumstances that the trial
court acted, judicial intervention to appoint the umpire was
not warranted.
IV.  Conclusion
For all the foregoing reasons, we conclude that the order
from which Lexington appeals in this case was entered in
error.  That order is hereby reversed and the cause remanded.
REVERSED AND REMANDED.
Malone, C.J., and Stuart, Main, and Wise, JJ., concur.
Woodall, Bolin, Parker, and Shaw, JJ., concur in the
result.
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