Rhode Island Supreme Court: Party-Appointed Arbitrator’s Failure To Disclose Ties To Insurer Justify Vacating Award

This is something you don’t see very often.  The Rhode Island Supreme Court affirmed a trial court that had vacated a three-member arbitration panel’s award in an underinsured motorist case on the ground that the insurer’s arbitrator failed to disclose his continuing attorney-client relationship with the insurer.  The case is McGinty v. Pawtucket Mutual Ins. Co., 899 A.2d 504 (June 13, 2006).

As you may know, arbitration is standard and mandated by law or in insurance contracts in underinsured or uninsured motorist cases, where an insured’s injuries are not fully covered by the negligent driver’s insurance.  The injured driver then brings a claim against his own auto carrier for the difference, potentially up to the limits of his own UIM/UM coverage.  It is also standard that a three-person arbitration panel is appointed, with each party picking one partisan arbitrator.  Those two  arbitrators then pick a third neutral arbitrator.   Most people expect the party-appointed arbitrator to advocate the position of the party, within the bounds of reason, fairness and the law.  No one claims this is a perfect model of decision-making for all elements of the legal system, but most of the time it works out OK in the UIM/UM context.  

In this case, however, the Rhode Island Supreme Court found that the arbitrator had a duty to disclose that he represented the insurer in other matters,  and the court was influenced in part by new disclosure rules in the state’s Code of Ethics for Arbitrators in Commercial Disputes.  Strangely enough, it appears everyone close to the case was aware of his attorney-client relationship to the insurer anyway, but the court said the standard needs to be disclosure, not actual knowledge.  Also influencing the court’s decision was the fact that the insurer’s arbitrator and the neutral arbitrator fixed the plaintiff’s damages at $45,000, while the plaintiff’s arbitrator wrote a minority report awarding $636,000.  This decision, however, covers only attorney-client relationships, and does not address disclosure of ties to parties by non-attorney arbitrators, which the dissent pointed out.

As an aside, I often have to check where a given court falls in the state’s appellate hierarchy, because the name of the court does not necessarily indicate this fact.  The Rhode Island Supreme Court is indeed the highest court in the state, but this terminology doesn’t hold up in every jurisdiction.  Here is a handy reference in case you need to check the judiciary rank of some other state. (The article reveals the amusing fact that the Connecticut Supreme Court was formerly known as the "Supreme Court of Errors," which, in a shrewd bit of marketing, was changed).  

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