## Facts

- Colonial Penn and Omaha entered a 1984 reinsurance agreement, executed by RAM on Omaha’s behalf, under which Omaha would indemnify Colonial Penn for 90% of losses on short-term auto rental policies.
- Omaha performed until September 1986, then stopped funding claims and asserted RAM lacked authority to bind Omaha.
- Colonial Penn sued Omaha, Mutual of Omaha, and RAM for breach of contract; Omaha and Mutual of Omaha impleaded NRU; Colonial Penn sought indemnification from NRU.
- The district court compelled arbitration between Colonial Penn and Omaha and stayed the remaining litigation.
- A three-member arbitration panel issued a unanimous “Final Award” requiring Omaha to pay Colonial Penn $10 million and to release any claims to reserves (including IBNR) “currently held” by Colonial Penn for the reinsured business.
- After the award, Colonial Penn informed the panel that it held no such reserves and Omaha was not claiming any reserves.
- The umpire stated he had assumed reserves existed and that the panel intended Colonial Penn to retain them.
- Omaha maintained the Final Award was clear and opposed any change; Colonial Penn requested an amended award reflecting the panel’s understanding.
- A two-arbitrator majority issued a “second and substitute award,” adding $8,988,783 (Omaha’s alleged share of necessary reserves) to the $10 million; the third arbitrator dissented.
- In district court, Colonial Penn moved to confirm the second award and Omaha moved to confirm the first; the court confirmed the second on the view that the first was impossible to satisfy if no reserves existed.

## Issues

1. Whether arbitrators exceed their authority under the Federal Arbitration Act by issuing a second, materially different award after issuing a unanimous final award.
2. Whether an arbitral award may be corrected due to the arbitrators’ erroneous factual assumption (here, the existence of reserves), and if so, under what limited circumstances.

## Decision

- The Third Circuit reversed the order confirming the second award and remanded with instructions to confirm the original Final Award.
- The panel became functus officio upon issuing the unanimous Final Award and therefore lacked power to issue a substitute award that materially increased Omaha’s liability.
- The second award did not fit within recognized exceptions permitting limited post-award action (clerical correction, clarification of genuine ambiguity, or completion of an award that failed to resolve a submitted issue).
- The district court erred in treating the second award as a permissible “clarification” necessary to effectuate the panel’s intent.

## Legal Principles

- Under the functus officio doctrine, arbitrators generally lose authority to reconsider or alter the merits once they issue a final award disposing of the submitted dispute.
- Narrow exceptions allow post-award action only to: (a) correct clerical/typographical/computational errors, (b) clarify a genuine ambiguity without revisiting merits, or (c) complete an award that omitted resolution of a submitted issue.
- A later-discovered mistaken assumption of fact is not, by itself, grounds for arbitrators to issue a new award after finality; converting a non-existent term into an additional money obligation is a substantive change.
- Party communications framed as “clarification” cannot authorize arbitrators to materially revise a final award, especially where the record shows no true joint request and the change increases the losing party’s liability.

## Conclusion

The court enforced arbitral finality by holding that, after a unanimous final award, arbitrators were functus officio and could not replace an in-kind reserves term (based on a mistaken factual assumption) with an additional cash payment; the proper remedy was confirmation of the original award.


Colonial Penn Ins. Co. v. Omaha Indem. Co., 943 F.2d 327 (3d Cir. 1991)