## Facts

- Dr. Zev Lagstein, a cardiologist, bought a Lloyd’s disability policy in 1999 providing $15,000 per month for up to 60 months if he became unable to practice medicine due to disability.
- In 2001, Lagstein developed heart disease and severe migraines and other neurological problems; multiple physicians concluded he was permanently disabled from practicing medicine.
- Lagstein submitted a claim but, by early 2002, had received neither benefits nor a coverage decision and returned to work against medical advice.
- In September 2003, with no decision issued, Lagstein sued Lloyd’s in federal court alleging breach of contract, breach of the covenant of good faith and fair dealing, and unfair trade practices.
- The district court compelled binding arbitration and stayed the action.
- A three-member arbitration panel (by majority) awarded Lagstein full policy benefits, emotional distress damages, and punitive damages, totaling more than $6 million.
- Lloyd’s moved to vacate under the Federal Arbitration Act (FAA). The district court vacated the entire award as “excessive” and separately vacated the punitive portion on the ground the panel lacked jurisdiction to issue it after a compensatory award; the court rejected Lloyd’s “evident partiality” challenge.
- Lagstein appealed the vacatur; Lloyd’s defended it and renewed the partiality argument as an alternative ground to affirm.

## Issues

1. Whether an arbitration award may be vacated under the FAA because the district court views it as “excessive.”
2. Whether the arbitrators exceeded their powers or lost authority by issuing punitive damages in a later order after an initial compensatory award.
3. Whether the award should be vacated for “evident partiality” of two arbitrators.

## Decision

- Reversed the district court’s vacatur based on “excessiveness,” holding the size of the award and disagreement with damages are not independent FAA grounds for vacatur.
- Reversed the ruling that the arbitrators lacked authority to issue a later punitive-damages award, concluding the panel acted within the scope of the parties’ submission and governing rules.
- Affirmed the district court’s rejection of vacatur for evident partiality because Lloyd’s did not meet the required showing.
- Remanded with instructions to confirm the arbitration award.

## Legal Principles

- Judicial review of arbitration awards under the FAA is extremely limited; courts may vacate only on the statute’s specified grounds (including evident partiality or arbitrators exceeding their powers).
- A court may not vacate an award merely because it disagrees with the arbitrators’ damages assessment or believes the arbitrators misapplied state law; merits review is generally barred where arbitrators were at least arguably applying the contract and law within their authority.
- Arbitrators do not exceed their powers by issuing a punitive-damages award in a subsequent order when the parties agreed to arbitrate punitive issues and the initial award did not clearly and finally dispose of all claims.
- “Evident partiality” requires a concrete showing creating a reasonable impression of bias based on meaningful, typically undisclosed relationships or conduct; speculative or attenuated allegations are insufficient.

## Conclusion

The Ninth Circuit held that the FAA does not permit vacatur of an arbitration award simply because it is large or viewed as excessive, upheld arbitrators’ authority to structure awards in stages including later punitive damages, rejected a claimed bias challenge for lack of evident partiality, and ordered confirmation of the award.


Lagstein v. Certain Underwriters at Lloyd’s, London, 607 F.3d 634 (9th Cir. 2010)