The Holding

In Fisher v. USAA Casualty Insurance Company, 2018 WL 3804114 (Ariz. App. Aug. 7, 2018), a case arising from an underinsured motorist (“UIM”) arbitration, the Arizona Court of Appeals affirmed the trial court’s refusal to vacate an arbitration award because of an arbitrator’s alleged partiality. The Insureds knew about the Arbitrator’s alleged relationship with the Insurer’s counsel before the arbitration, but did not object either before or during the arbitration. Instead, the Insureds waited until they received an unfavorable award. Thus, the Court of Appeals held the objection was untimely, and the Insureds waived their claim of partiality.

The Takeaways

• If an insured has concerns about an arbitrator’s partiality before an uninsured motorist (“UM”) or UIM arbitration, then the insured waives those concerns unless the insured objects before or during the arbitration.
• An arbitrator’s “mere service” in other matters involving an insurer’s counsel is insufficient to trigger a presumption of partiality.

The Facts

The Insureds were involved in two low-impact car accidents within one week. One Insured eventually had spinal fusion surgery. The Insureds made UIM claims, and the parties agreed to resolve the value of the UIM claims in arbitration. One day before the arbitration, the Insureds’ counsel raised concerns about the partiality of the Arbitrator to the Insureds because the Insurer’s counsel often retained the arbitrator. Nonetheless, the Insureds proceeded with the arbitration. The Arbitrator concluded the low-impact accidents did not cause the Insureds’ damages, and the Arbitrator awarded the Insureds nothing. The Insureds filed several Motions to Reconsider with the Arbitrator and eventually filed a Motion to Vacate the arbitration award with the trial court based on the Arbitrator’s failure to disclose the alleged relationship with the Insurer’s counsel. The trial court denied the Insureds’ Motion to Vacate the arbitration award and found the Insureds presented no evidence of partiality. 

The Rationale

The Arizona Court of Appeals reasoned as follows:

• Judicial review of arbitration awards is limited because Arizona public policy favors arbitration to achieve a speedy and inexpensive disposition of disputes.
• A party challenging an arbitration award bears the burden of proving a statutory ground to vacate the award.
• The trial court affirms arbitration awards absent an abuse of discretion.
• Arbitrators must disclose existing or past relationships with parties or their counsel if a reasonable person would consider those relationships likely to affect the arbitrator’s impartiality. ARS § 12-3012(A)(2).
• A neutral arbitrator who does not disclose a known, existing, and substantial relationship with a party is presumed to act with evident partiality under ARS § 12-3023(A)(2). ARS § 12-3012(E).
• If a party makes a timely objection, then the trial court may vacate an arbitration award based on an arbitrator’s failure to disclose a substantial relationship with a party or counsel. ARS § 12-3012(D).
• Although Arizona has not interpreted what constitutes a “timely objection” under its arbitration statutes, commentary to the Revised Uniform Arbitration Act (“RUAA”) indicates, and other courts interpreting the RUAA have held, a party must object to an arbitrator’s partiality before or during an arbitration.
• A party cannot wait to see whether an arbitration award is favorable before objecting to an arbitrator’s partiality.
• The Ninth Circuit has adopted an even broader and widely followed approach: “waiver is appropriate where a party to an arbitration has constructive knowledge of a potential conflict but fails to timely object.” Fidelity Fed. Bank, FSB v. Durga Ma Corp., 386 F.3d 1306, 1313 (9th Cir. 2004).
• Thus, the Arizona Court of Appeals agreed: “parties who know or have reason to know of possible partiality must raise an objection with the arbitrator during the course of the arbitration proceeding.”
• Holding otherwise would defeat the primary purpose of arbitration (an inexpensive and speedy alternative to litigation) because it would allow parties to withhold such objections until after an unfavorable award.
• In Fisher, the Insureds presented no evidence that the arbitrator had a substantial or “non-trivial relationship” with the Insurer or the Insurer’s counsel.
• In Fisher, the Insureds also presented no evidence supporting a presumption of partiality.

o   An arbitrator is presumed to act with evident partiality if she fails to disclose a “known, direct, and material interest in the outcome of the arbitration...or a known, existing, and substantial relationship with a party.” ARS 12-3012(E).

o   Although the Insureds alleged the Arbitrator often worked with the Insurer’s counsel, “the cases cited by the [Insureds did] not support the proposition that mere service as an arbitrator in other matters involving a party’s counsel is sufficient to trigger a presumption of partiality.”

Read the entire Fisher decision here.