## Facts

- Sphere Drake Insurance Ltd., a reinsurer, and All American Life Insurance Co., a ceding insurer, disputed liability under multiple reinsurance contracts.
- At All American’s insistence, six disputed contracts were submitted to arbitration administered under AIDA/ARIAS–U.S.
- The arbitration used a tripartite panel: each party appointed an arbitrator and those two selected a neutral umpire.
- All American appointed Robert M. Mangino; Sphere Drake appointed Ronald A. Jacks; Mangino and Jacks selected Robert M. Huggins as umpire.
- A majority (the umpire and Sphere Drake’s party-appointed arbitrator) issued an award for Sphere Drake; All American’s arbitrator dissented.
- All American moved to vacate the award, asserting “evident partiality” under 9 U.S.C. § 10(a)(2) based on alleged nondisclosure of Sphere Drake’s arbitrator’s prior work and relationships in the reinsurance community.
- The district court vacated the award for evident partiality, and Sphere Drake appealed.

## Issues

1. Whether the district court properly vacated the arbitration award for “evident partiality” under 9 U.S.C. § 10(a)(2).
2. What level of impartiality and disclosure is required of party-appointed arbitrators on a tripartite reinsurance panel, as distinguished from the neutral umpire.

## Decision

- The Seventh Circuit reversed the district court’s vacatur and reinstated the arbitration award.
- The court held that the challenged relationships and alleged nondisclosures did not establish “evident partiality” under § 10(a)(2) in the context of tripartite reinsurance arbitration.
- The court emphasized that party-appointed arbitrators in this setting are not expected to meet the same neutrality and disclosure standard as the neutral umpire or as federal judges.
- The court found no showing of a material, outcome-affecting conflict (such as a hidden financial stake or similarly direct disqualifying interest) sufficient to justify vacatur.

## Legal Principles

- Under the Federal Arbitration Act, vacatur for “evident partiality” requires a materially compromising conflict or bias; ordinary professional relationships, standing alone, are insufficient.
- In tripartite arbitration common in reinsurance, party-appointed arbitrators may be chosen for industry experience and may be expected to be somewhat predisposed; the neutral umpire is held to a stricter impartiality expectation.
- The adequacy of disclosure is assessed against what parties reasonably contemplate when selecting a specialized arbitral forum; FAA review is limited and does not import judicial recusal standards.

## Conclusion

The Seventh Circuit reinstated the award because the record did not show a clear, material conflict or bias by Sphere Drake’s party-appointed arbitrator that would constitute “evident partiality” under the FAA, particularly given customary expectations in tripartite reinsurance arbitration.


Sphere Drake Ins. Ltd. v. All Am. Life Ins. Co., 307 F.3d 617 (7th Cir. 2002)