Being Wrongfully Forced To Arbitrate Is Not Irreparable Harm

Posted on March 2, 2011 by Michael Rigney

TRUSTMARK INSURANCE CO. v. JOHN HANCOCK LIFE INSURANCE CO. (U. S. A.) (January 31, 2011)

Trustmark Insurance Company agreed to reinsure certain risks underwritten by John Hancock Life Insurance Company. Their agreement contained a broad arbitration clause. When a dispute arose regarding one of the agreement's exclusions, the companies submitted it to arbitration. The arbitration panel consisted of one person selected by each company and a third person selected by the first two. The panel's award, which was affirmed by district court, supported Hancock. The parties entered into a confidentiality agreement that precluded them from discussing the proceedings or the award. When Trustmark refused to pay, Hancock instituted a second arbitration. Hancock named as its arbitrator the same person who had arbitrated the earlier dispute. The other two arbitrators were not involved in the earlier dispute. After the panel decided that it could consider the evidence and result from the first arbitration, but before it addressed the merits, Trustmark brought suit. It sought to enjoin any further arbitration while Hancock's chosen arbitrator remained on the panel. Its position was that the arbitration clause required "disinterested" arbitrators and that Hancock's arbitrator was not disinterested because of his knowledge of and participation in the first arbitration. Trustmark also argued that the panel could not interpret the confidentiality agreement from the first arbitration because that agreement did not contain its own arbitration clause. Judge Zagel (N.D. Ill.) issued the injunction. Hancock appeals.

In their opinion, Chief Judge Easterbrook and Judges Cudahy and Rovner reversed. The Court concluded that there was no support for the district court's finding of irreparable injury. Going forward with arbitration, even if one has not agreed to it, is not irreparable harm. A party that believes arbitrators have exceeded their authority may seek to deny enforcement of the award under the Federal Arbitration Act. The only injury, therefore, is delay and cost – and those are not irreparable injuries. Although that conclusion would have been enough to reverse the district court, the Court also expressed its disagreement with the district court on the merits with respect to both the confidentiality agreement and the "disinterested" arbitrator. In the arbitration context, "disinterested" is defined as lacking a personal stake in the outcome. It does not mean lacking knowledge about the dispute. The Hancock arbitrator has no personal stake and is therefore is disinterested and entitled to participate on the arbitration panel. With respect to the confidentiality agreement, the Court concluded that the panel was entitled to resolve the dispute about its effect. The parties agreed to arbitrator disputes arising from the contract. The arbitrators are entitled to consider and resolve procedural and ancillary issues like the effect of the confidentiality agreement.
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