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In Galilea, LLC v. AGCS Marine Ins. Co., No. 19-CV-05768 (VEC) (S.D.N.Y. Dec. 16, 2019), Petitioners, Galilea, LLC and Christopher Kittler, owners of a 60-foot yacht, sought to vacate an arbitration award entered in favor of Respondents/Cross-Petitioners, AGCS Marine Insurance Company, Liberty Mutual Insurance Company, and Starstone National Insurance Company. The arbitration was the result of the grounding of Petitioners’ yacht in Panamanian waters. After Respondents denied Petitioners’ request for insurance coverage, Respondents initiated an arbitration proceeding seated in New York before the American Arbitration Association (“AAA”) seeking a declaration that the vessel was not covered under the insurance policy and seeking compensation costs associated with the arbitration. Both were granted.

A three-day arbitration took place and the panel issued a final award in favor of Respondents. The panel consisted of three arbitrators appointed by the AAA after soliciting input from the parties through the “strike and rank” method. The arbitration panel held that: (1) Petitioners’ counterclaims for payment for the insurance policy were denied; (2) all remaining counterclaims contained in Petitioners’ objections were denied; (3) the insurance policy was void ab initio because Petitioners failed to disclose prior water damage to the yacht and that there was a five-day lapse in insurance coverage; and (4) Petitioners failed to show that they notified Respondents of their specific insurance requirements.

Petitioners sought to vacate the arbitration award claiming that: (1) the arbitrators exceeded their power by proceeding in New York rather than in Montana (where Petitioners had previously filed a lawsuit), by conducting the arbitration through the International Center for Dispute Resolution (“ICDR”) division of the AAA, and by exercising jurisdiction over the twelve counterclaims; (2) the arbitrators exhibited manifest disregard for the law by admitting the insurance application into the proceeding; and (3) there was evident partiality on the part of two of the arbitrators.

The district court disagreed with all three arguments and denied Petitioners’ request to vacate the arbitration award. First, the district court held that the arbitration panel did not exceed its authority. The court noted that the forum selection clause in the insurance policy specified that the arbitration proceedings would “take place within New York County [] and [] be conducted pursuant to the Rules of the American Arbitration Association.” Thus, the arbitration panel did not exceed its authority by proceeding in New York. Nor did it exceed its authority by conducting the arbitration through the AAA’s ICDR, as the arbitration was still conducted in accordance with AAA rules. Finally, the district court emphasized the Federal Arbitration Act’s (the “FAA“) liberal federal policy favoring arbitration agreements and held that the insurance policy showed a clear intent to arbitrate any and all disputes arising from it, including the counterclaims pled by Petitioners.

The district court was similarly unconvinced by Petitioners’ argument that the arbitration panel exhibited a manifest disregard of the law by admitting the insurance application into evidence in violation of New York Insurance Law Section 3204(a)(2), which provides that applications for insurance policies are inadmissible “unless a true copy was attached to such policy or contract when issued.” The court first found that the panel explicitly relied on the arbitration policy, not the application, in reaching its substantive decision. The court also found that Petitioners had failed to show that the arbitrators knew that the New York Insurance Law applied to the proceeding and that the panel willfully flouted the governing law by refusing to apply it. Accordingly, the panel’s admission of the application was insufficient to show a manifest disregard of the law.

Lastly, the district court disagreed that two of the arbitrators were biased because they were offered additional appointments on separate arbitration panels involving Respondents. Specifically, the court explained that the AAA “strike and rank” method—by which each party receives an identical list of potential arbitrators and may strike certain names and rank the remaining names—ensures that no party can “appoint” an arbitrator. Thus, Petitioners’ claim that the arbitrators were biased due to a desire to be appointed by Respondents in other AAA arbitration proceedings was overstated and misguided, and Petitioners otherwise failed to show any objective evidence of corruption or partiality on the part of the panel.

The district court therefore denied Petitioners’ request to vacate the arbitration award, and granted Respondents’ Cross-Petition to confirm the arbitration award.

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