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The Rogak Report: 03 Apr 2007 ** Loss Transfer - Errors in Awards **

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  • Lawrence Rogak
    ARBITRATION FORUMS MAY VOID ITS OWN AWARD AND HOLD A SECOND HEARING DUE TO CLERICAL ERRORS Hudson Insurance Co. a/s/o All Island Truck Leasing v. Geico
    Message 1 of 1 , Apr 3, 2007
      ARBITRATION FORUMS MAY VOID ITS OWN AWARD AND HOLD A SECOND HEARING
      DUE TO CLERICAL ERRORS

      Hudson Insurance Co. a/s/o All Island Truck Leasing v. Geico
      Indemnity Co. a/s/o Duncan Findlayter (Supreme Court, New York County)
      (Index no. 113397/2006) (Lewis Bart Stone, j)

      This was a petition to vacate an intercompany loss transfer
      arbitration award dated June 2006, which was in favor of Geico. The
      June 2006 award came out of the second arbitration held on the same
      claim. The first arbitration resulted in an award dated October 2004.

      After the 2004 award, which was also in favor of Geico, Geico moved
      to confirm the award (pursuant to CPLR 7510) but that application was
      denied because Arbitration Forums made a clerical error on the award
      as to the names of the parties. Geico complained to Arb Forums
      about the problem with the award, but AF, after finding that it no
      longer had the documentation, decided to simply void the first award
      and conduct a second arbitration before a different arbitrator in
      2006.

      Both insurers appeared at the June 2006 arbitration, Geico won again,
      this time for a higher amount. Then Hudson brought this proceeding
      to vacate the June 2006 award on the ground that the 2004 award was
      res judicata.

      The Court held, first, that AF had the power to void its prior award
      because no prior application to the court had been made to void the
      2004 award, nor to stay the 2006 arbitration, and therefore all
      disputed issues of fact and law were before the arbitrator.

      "The question of whether Forums could appropriately 'void' the 2004
      award under the circumstances or the effect of such action is a mixed
      question of law and fact itself. Such issues were known to the
      parties and could have been addressed at the second arbitration.
      They may only be withdrawn from the arbitrator where a party has made
      a timely application to stay arbitration under CPLR 7503(c). This
      rule is not only the law but sensible in the arbitration context as
      it prevents a party from taking a second bite at an issue lost before
      the arbitrator."

      Geico's cross-motion to confirm the 2006 award was granted.

      Comment: While not cited in this decision, the Court of Appeals held
      a few years ago in Commerce & Industry Ins. Co. v. Nester that once
      an insurer goes ahead and participates in an arbitration, it loses
      almost all of its grounds to protest the award -- including
      coverage. As the statute and case law on vacating arbitration awards
      makes clear, only corruption or partiality of the arbitrator, an
      imperfection in the award that makes it impossible to enforce,
      or "manifest disregard for the law" are valid grounds for vacating an
      award. Simple errors of law or fact are waived. The lesson of the
      day is that insurers should bring a petition to stay an arbitration
      before participating, if they have a problem that is evident before
      the arbitration hearing takes place.

      Larry Rogak
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