This case presents the question whether a panel of arbitrators exceeded its authority when, after issuing a partial award finding no loss under an insurance policy, the panel later revisited that decision and issued a final award finding a loss under the policy.
In this case, an insured and its insurer agreed to arbitrate their dispute about whether the insurer was required (i) to indemnify the insured for a settlement it reached in litigation with a third party and (ii) to pay the insured’s defense costs in that litigation. An arbitration panel issued a partial final award (PFA) finding that the insured was entitled to defense costs but that the settlement payment did not constitute a loss under the relevant policy. The insured then sought reconsideration of the PFA, and the arbitration panel issued a corrected PFA that reversed course, finding both that the panel had authority to revisit its earlier decision and that a loss had occurred under the policy. The panel later issued a final award setting the amount of defense costs owed by the insurer.
The insurer filed a proceeding in Supreme Court seeking to confirm the PFA and to vacate the corrected PFA and final arbitration award. Supreme Court, New York County (Jaffe, J.) denied the petition, but the First Department reversed. The court held that the panel exceeded its authority when it revisited the PFA under the common-law doctrine of functus officio, which generally prohibits an arbitrator from changing a final award except in limited circumstances. The court concluded that the parties agreed, in effect, to bifurcate their arbitration and that, once the arbitration panel issued a partial decision on the question of loss, it was without authority to revisit that question. One judge dissented and would have affirmed Supreme Court’s decision to deny the petition on the ground that the arbitration panel’s decision about the scope of its authority should be afforded deference and was correct in any event. The First Department granted leave.
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