FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES LIFE INSURANCE
CO.,
Petitioner-Appellant,
v. No. 07-55938
D.C. No.
SUPERIOR NATIONAL INSURANCE CO.,
SUPERIOR PACIFIC CASUALTY CO., CV-07-00850-VBF
CALIFORNIA COMPENSATION (JTL)
INSURANCE CO., COMMERCIAL OPINION
COMPENSATION INSURANCE CO., and
COMBINED BENEFITS INSURANCE CO.,
Respondents-Appellees.
Appeal from the United States District Court
for the Central District of California
Valerie Baker Fairbank, District Judge, Presiding
Argued and Submitted
November 19, 2008—Pasadena, California
Filed January 4, 2010
Before: Susan P. Graber and Richard R. Clifton,
Circuit Judges, and Edward F. Shea,* District Judge.
Opinion by Judge Shea
*The Honorable Edward F. Shea, United States District Judge for the
Eastern District of Washington, sitting by designation.
83
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 87
COUNSEL
Andrew S. Amer and Deborah Lynn Stein, Simpson, Thatcher
& Bartlett LLP. Kathleen M. Sullivan (argued), Quinn Eman-
uel Urquhart Oliver & Hedges LLP, Redwood Shores, Cali-
fornia, for the petitioner-appellant.
Margaret M. Grignon (argued), Reed Smith LLP, Los Ange-
les, California; and Joseph K. Hegedus, Lewis Brisbois Bis-
gaard & Smith LLP, Los Angeles, California, for the
respondents-appellees.
OPINION
E. SHEA, District Judge:
We are asked to determine whether an arbitration panel
violated the Federal Arbitration Act (FAA), 9 U.S.C. §§ 2-16.
The process employed by the arbitration panel, which
included an ex parte meeting with panel-retained workers’
compensation experts, was unusual; however, after deferen-
tially reviewing the panel’s award, we determine that the arbi-
tration process provided the parties with a fundamentally fair
arbitration and that the arbitration award rested on a plausible
interpretation of the governing arbitration documents.
Accordingly, we affirm the arbitration award in favor of
Superior National Insurance Companies in Liquidation (SNI-
CIL).
BACKGROUND
U.S. Life contractually agreed to reinsure the workers’
compensation risks insured by five California insurers
between May 1, 1998, and January 1, 2003. This reinsurance
contract contained an arbitration provision. These California
insurers later declared bankruptcy and will be referred to as
88 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
SNICIL. The California Insurance Commissioner became
SNICIL’s statutory liquidator.
Ten years ago, on November 29, 1999, U.S. Life requested
arbitration, seeking: 1) rescission or reformation of the rein-
surance contract because SNICIL misrepresented the reserves
during the underwriting process and 2) damages for SNICIL’s
bad-faith performance. SNICIL agreed to arbitrate, seeking a
declaration that the reinsurance contract was valid, a ruling
that U.S. Life was to perform its contractual obligations, and
damages. The panel, which consisted of an arbitrator
appointed by each party and a neutral arbitrator selected by
the parties’ arbitrators, bifurcated the arbitration proceeding
into two phases.1
Phase I addressed rescission and reformation claims. After
holding extensive hearings, the panel entered a Final Interim
Award that found no basis for rescission. The panel, however,
reformed the reinsurance contract so that U.S. Life became
liable for only 90% of the risks insured by SNICIL’s underly-
ing policies because of SNICIL’s failure to be forthright dur-
ing the contract formation period. The panel awarded SNICIL
interest on this 90% amount “at a rate equal to the average of
the 2 and 5 Year Treasury Notes as posted in the Wall Street
Journal.”
U.S. Life sought vacatur of the Final Interim Award. The
1
At oral argument, the parties acknowledged that, before the submission
of the parties’ pre-hearing briefs on February 21, 2006, each party had ex
parte contact with its party arbitrator. This is customary in tripartite arbi-
tration panels. See American Arbitration Association, Commercial Arbi-
tration Rules and Mediation Procedures, Rule 18, available at http://
www.adr.org/sp.asp?id=22440&printable=true#18 (last checked on Dec.
21, 2009); JAMS, Arbitrators Ethics Guidelines, art. X, available at http://
www.jamsadr.com/arbitration-ethics/ (last checked on Dec. 21, 2009);
American Bar Association, The Code of Ethics for Arbitrators in Commer-
cial Disputes, canons III(B) & X(c), available at http://www.abanet.org/
dispute/commercial_disputes.pdf (last checked on Dec. 21, 2009).
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 89
district court denied U.S. Life’s petition; this court affirmed
the district court’s decision. U.S. Life Ins. Co. v. Ins. Comm’r,
160 Fed. App’x 559 (9th Cir. 2005).
Phase II proceeded to determine whether SNICIL engaged
in improper claims handling that resulted in bills to U.S. Life
in excess of the amounts due under the reinsurance agree-
ment. A Phase II organizational meeting was held on April
14, 2005. Rather than review each of the 98,901 June 30,
2004 claims, U.S. Life’s expert selected 500 of the 12,604
contested claims files for an audit. SNICIL’s expert used this
same sample to conduct its audit.
Prior to Phase II’s evidentiary hearings, SNICIL’s party
arbitrator advised the parties that he had terminal cancer, but
that he wished to continue as an arbitrator. The parties elected
to continue with the arbitration proceeding with SNICIL
appointing an alternate arbitrator to observe and potentially
replace SNICIL’s party arbitrator. The parties agreed that
Phase II would be governed by Protocols Governing the Pre-
sentation of Evidence (“the protocols”). The panel approved
the protocols.
In March 2005, the panel listened to the parties’ Phase II
evidence and arguments for approximately thirteen days.2
After the hearings, the panel advised the parties that it was
unable to reach a decision regarding the quality of SNICIL’s
claims handling and, more pointedly, U.S. Life’s reinsurance
contract obligations given the parties’ divergent expert opin-
ions. To rectify this “stalemate,” the panel advised that it
would retain two workers’ compensation claims-handling
experts (“the reviewers”) to review the submitted bills.
The panel and the parties exchanged correspondence dis-
2
On March 21, 2006, during the Phase II hearings, the health condition
of SNICIL’s party arbitrator forced him to resign. He was replaced by the
designated alternate SNICIL party arbitrator.
90 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
cussing what review process to use. Ultimately, the panel3
determined that the following review process would be used:
1) the reviewers would review 162 of the 500-claim sample
of the June 30, 2004 claims; 2) the reviewers would meet with
the panel for three days (hereinafter, “the ex parte meeting”)
and no transcript would be prepared of the ex parte meeting;
3) the reviewers would provide their conclusions in writing to
the panel and the parties; 4) the parties could submit briefs
responding to the reviewers’ conclusions; 5) a two-day hear-
ing would be held during which the parties could question the
reviewers, under oath, for five hours each as to their qualifica-
tions and the reasons for their conclusions, but not as to the
ex parte meeting; and 6) the parties could submit post-hearing
briefs to the panel. This procedure was used.
On December 6, 2006, the panel issued its Phase II Interim
Award, finding that all amounts billed prior to June 30, 2004,
were properly due.4 The panel determined, in addition to the
Phase I Final Interim Award interest requirement, that U.S.
Life was to disgorge its actual investment earnings on all
monies due under the reinsurance agreement as of June 30,
2004. The panel also required U.S. Life to pay post-June 30,
2004 bills within thirty days of billing.
On February 1, 2007, the panel issued its Phase II Interim
Final Award, which clarified that the panel’s December 6,
2006 ruling
[did] not change the interest awarded in its Final
Interim Award of December 30, 2004, as amended
and clarified. Any and all monetary awards for [SNI-
CIL] of the excess investment earnings as set forth
in this PHASE II INTERIM FINAL AWARD and in
3
It is undisputed that all three arbitrators agreed upon this process.
4
U.S. Life’s party arbitrator disagreed with this interim ruling, along
with the subsequent February 2007 interim and final awards; however, he
did not issue a separate written decision.
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 91
the Phase II Interim Award shall be deemed to be
interest or other monetary remedy for US Life’s dis-
gorgement of unjust enrichment.
On February 18, 2007, the panel issued its Final Arbitration
Award, requiring U.S. Life to pay all bills submitted before
December 6, 2006, along with Phase I interest and Phase II
disgorgement. Furthermore, U.S. Life was required to pay all
post-December 6, 2006 bills within thirty days of receipt.
U.S. Life filed an action in district court to vacate this
award. SNICIL answered and also filed a separate action to
confirm the award. After consolidating the two actions, the
district court upheld the arbitration award. U.S. Life now
seeks review.
ANALYSIS
A. Standard of Review
When reviewing the district court’s confirmation of an arbi-
tration award, the appellate court must accept the district
court’s findings of fact unless clearly erroneous but decide
questions of law de novo. First Options of Chi., Inc. v.
Kaplan, 514 U.S. 938, 947-48 (1995); Schoenduve Corp. v.
Lucent Techs., Inc., 442 F.3d 727, 730 (9th Cir. 2006);
Employers Ins. of Wausau v. Nat’l Union Fire Ins. Co. of
Pittsburgh, 933 F.2d 1481, 1485 (9th Cir. 1991). The issues
before us involve questions of law.
During this de novo review, we were cognizant that arbitra-
tion is an encouraged method of dispute resolution and that
our review of the arbitration panel’s decision is greatly lim-
ited. See United Paperworkers Int’l Union v. Misco, Inc., 484
U.S. 29, 36-37 (1987); Schoenduve Corp., 442 F.3d at 730.
B. Federal Arbitration Act
[1] The FAA, which governs arbitration proceedings, “re-
place[d] judicial indisposition to arbitration with a ‘national
92 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
policy favoring [it] and plac[ing] arbitration agreements on
equal footing with all other contracts.’ ” Hall St. Assocs.,
L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 1402
(2008) (quoting Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 443 (2006) (alterations in original)). Case law
recognizes that, in order to provide a relatively expeditious
and inexpensive dispute resolution, arbitration is not governed
by the federal courts’ strict procedural and evidentiary
requirements. Mitsubishi Motors Corp. v. Soler Chrysler-
Plymouth, Inc., 473 U.S. 614, 628 (1985); Kyocera Corp. v.
Prudential-Bache Trade Servs., Inc., 341 F.3d 987, 998 (9th
Cir. 2003) (en banc). Therefore, when interpreting and apply-
ing the FAA, we are mindful not to impose the federal courts’
procedural and evidentiary requirements on the arbitration
proceeding; rather, our responsibility is to ensure that the
FAA’s due process protections were afforded.
[2] Section 10 of the FAA sets forth grounds to vacate an
arbitration award. In March 2008, the Supreme Court resolved
a circuit conflict and ruled that § 10 lists the exclusive
grounds for vacating an arbitration award. Hall St. Assocs.,
128 S. Ct. at 1403. Section 10(a) provides:
In any of the following cases the United States court
in and for the district wherein the award was made
may make an order vacating the award upon the
application of any party to the arbitration—
(1) where the award was procured by cor-
ruption, fraud, or undue means;
(2) where there was evident partiality or
corruption in the arbitrators, or either of
them;
(3) where the arbitrators were guilty of mis-
conduct in refusing to postpone the hearing,
upon sufficient cause shown, or in refusing
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 93
to hear evidence pertinent and material to
the controversy; or of any other misbehav-
ior by which the rights of any party have
been prejudiced; or
(4) where the arbitrators exceeded their
powers, or so imperfectly executed them
that a mutual, final, and definite award
upon the subject matter submitted was not
made.
9 U.S.C. § 10(a). Section 10(a)’s limited grounds are “de-
signed to preserve due process but not to permit unnecessary
public intrusion into private arbitration procedures.” Kyocera
Corp., 341 F.3d at 998. The burden of establishing grounds
for vacating an arbitration award is on the party seeking it.
See Employers Ins. of Wausau, 933 F.2d at 1489.
C. 9 U.S.C. § 10(a)(3) Misconduct
U.S. Life contends that, by closing the meeting of the panel
with the reviewers, the panel refused to hear pertinent and
material evidence regarding the appropriateness of SNICIL’s
claims handling.5 Although an ex parte meeting between an
arbitrator and a neutral expert is not a routine arbitration prac-
tice,6 the panel had authority to adopt its own rules of proce-
5
SNICIL contends that U.S. Life waived the ability to object to the
panel’s procedure, but U.S. Life’s spring 2006 emails sufficiently articu-
lated its objection. See Avis Rent A Car Sys., Inc. v. Garage Employees
Union, 791 F.2d 22, 26 (2d Cir. 1986); cf. Fidelity Fed. Bank, FSB v.
Durga Ma Corp., 386 F.3d 1306, 1313 (9th Cir. 2004) (ruling that failure
to raise issue with arbitrator results in waiver of objection).
6
We deem it non-routine because the arbitration ethical codes promul-
gated by the American Bar Association, the American Arbitration Associ-
ation, the National Academy of Arbitrators, and JAMS do not set forth
procedures for ex parte contacts with a neutral expert. See sources cited
supra n.1; National Academy of Arbitrators, Code of Professional
Responsibility for Arbitrators of Labor-Management Disputes, available
at http://www.naarb.org/code.html.
94 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
dure and it did.7 Our review of the record leads us to conclude
that the panel did not “refus[e] to hear evidence pertinent and
material to the controversy.” 9 U.S.C. § 10(a)(3). Before
explaining the basis for this conclusion, we note that the par-
ties disagree as to whether § 10(a)(3) requires U.S. Life to
show prejudice as a result of the panel’s alleged refusal to
hear “evidence pertinent and material to the controversy.”
[3] Our prior FAA cases have not directly interpreted the
text of § 10(a)(3). In Employers Insurance of Wausau, 933
F.2d at 1490, an FAA case, though we did not explicitly refer-
ence § 10(a)(3), we addressed the argument that a panel’s
refusal to admit certain evidence was misconduct necessitat-
ing vacatur. There we said:
National has neither argued nor demonstrated that
this evidentiary ruling influenced the outcome of the
arbitration. Yet a showing of prejudice is a prerequi-
site to relief based on an arbitration panel’s evidenti-
ary rulings. See, e.g., Burchell v. Marsh, 58 U.S. (17
How.) 344, 350, 15 L.Ed. 96 (1854) (to warrant
reversal because of an arbitrator’s mistake in the
conduct of the hearing, party must show that “if it
had not happened, [the arbitrator] should have made
a different award”); [Mut. Fire, Marine & Inland
Ins. Co. v. Norad Resins. Co.], 868 F.2d [52, 57 (3d
Cir. 1989)]; Hoteles Condado [Beach, La Concha &
Convention Ctr. v. Union de Tronquistas Local 901],
763 F.2d [34, 40 (1st Cir. 1985)]; accord Misco, 484
U.S. at 40, 108 S.Ct. at 371 (vacatur appropriate only
if refusal to hear evidence amounted to affirmative
misconduct). Consequently, even were the excluded
evidence relevant, National still is not entitled to
7
See, e.g., Employers Ins. of Wausau, 933 F.2d at 1485 (holding that a
panel with authority could adopt rules of procedure permitting contact
between a party and its chosen arbitrator until the hearing concluded and
the deliberation began).
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 95
vacatur because of its lack of evidence of prejudicial
impact.
Id.8
[4] Section 10(a)(3) provides:
[An arbitration award may be vacated:]
where the arbitrators were guilty [(1)] of misconduct
[(a)] in refusing to postpone the hearing, upon suffi-
cient cause shown, or [(b)] in refusing to hear evi-
dence pertinent and material to the controversy; or
[(2)] of any other misbehavior by which the rights of
any party have been prejudiced[.]
While an argument can be made that this text is ambiguous
given its language and punctuation, we need not resolve this
textual ambiguity, if any, for two reasons. First, we conclude
that the phrase “refusing to hear evidence pertinent and mate-
rial to the controversy” necessarily implies prejudice to the
rights of a party, without regard to the final catch-all phrase.9
Second, we hold that U.S. Life failed to establish that the
panel’s refusal to let the parties participate in or question the
neutral experts about the ex parte meeting discussion consti-
tutes a refusal to hear pertinent and material evidence. It was
only after the panel listened to, and considered, the parties’
experts’ opinions and other evidence that the panel deter-
mined it needed additional information to resolve the Phase II
dispute: U.S. Life’s obligations under the reinsurance con-
tract. The panel advised the parties of its dilemma and deter-
8
The broad principle of Burchell cited is limited by Hall Street Asso-
ciates, which held “that the FAA confines its expedited judicial review to
the grounds listed in 9 U.S.C. §§ 10 and 11.” 128 S. Ct. at 1408.
9
We previously held “a showing of prejudice is a prerequisite to relief
based on an arbitration panel’s evidentiary rulings.” Employers Ins. of
Wausau, 933 F.2d at 1490.
96 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
mined what process to use only after receiving input from
counsel through extensive and detailed correspondence. The
process employed ensured due process by allowing the parties
to present their respective arguments regarding the reviewers’
conclusions by 1) reviewing the written conclusions, 2) sub-
mitting briefing addressing these conclusions, 3) questioning
the reviewers about their qualifications and conclusions, and
4) submitting post-hearing briefing.10 Although the parties
were not privy to what occurred during the ex parte meeting,
the panel gave the parties ample opportunity to discover and
critique the reviewers’ conclusions.
[5] Contrary to U.S. Life’s assertion, this process allowed
the parties to present material evidence because the parties
were allowed to address why the reviewers’ conclusions were
incorrect. Accordingly, the panel gave each of the parties to
the dispute an “adequate opportunity to present its evidence
and arguments.” Sunshine Moving Co. v. United Steelworkers
of Am., 823 F.2d 1289, 1295 (9th Cir. 1987). Arbitrators enjoy
“wide discretion to require the exchange of evidence, and to
admit or exclude evidence, how and when they see fit.” Indus.
Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d
1434, 1444 (11th Cir. 1998). The panel appropriately exer-
cised this wide discretion; there was no panel misconduct.
This case is not similar to the arbitral misconduct in Gulf
10
The employed process is consistent with that suggested by one
scholar:
Should expert testimony be needed, the arbitrators might call
such witness on their own initiative. . . . [I]f outside investigation,
consultation, and conscious use of an arbitrator’s expert knowl-
edge is permitted, the arbitrators could be required to so inform
the parties of the information so acquired before the award is
made, thus enabling answer, cross-examination, rebuttal, or the
submission of additional evidence as the situation may require.
William R. Berkman, Comment, Arbitrators’ Ex Parte Consultations and
Investigations, 44 Cal. L. Rev. 899, 908 (1956).
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 97
Coast Industrial Workers Union v. Exxon Co., USA, 70 F.3d
847 (5th Cir. 1995), where the arbitrator misled a party into
believing that evidence was admitted, but then ruled against
the party because it failed to present evidence on the very
point to which the excluded evidence was central. Nor is this
case similar to the arbitral misconduct in Teamsters, Chauf-
feurs, Warehousemen and Helpers, Local Union No. 506 v.
E.D. Clapp Corp., 551 F. Supp. 570, 578 (N.D.N.Y. 1982),
where the party was not given an opportunity to complete its
presentation of proof prior to the arbitration decision. Here,
the panel allowed each party the opportunity to complete its
presentation by submitting a brief and participating in the
hearing.
We acknowledge that the panel clearly discussed pertinent
Phase II issues with the reviewers. Therefore, this case is
unlike Lefkovitz v. Wagner, where the Seventh Circuit deter-
mined it was unclear whether the arbitrator and an accounting
firm discussed ex parte a pertinent overpayment issue. 395
F.3d 773, 779 (7th Cir. 2005). Yet, the impact of the panel’s
ex parte meeting with the reviewers was mitigated by the
notice, extensive correspondence, and more inclusive proce-
dures. The extensive correspondence reflects that the panel’s
intent was to accord due process—and it did. The panel did
not engage in misconduct.
[6] We recognize that “[e]x parte evidence to an arbitration
panel that disadvantages any of the parties in their rights to
submit and rebut evidence violates the parties’ rights and is
grounds for vacation of an arbitration award.” Pac. Reins.
Mgmt. Corp. v. Ohio Reins. Corp., 935 F.2d 1019, 1025 (9th
Cir. 1991). However, as set forth above, U.S. Life failed to
establish that the panel refused to hear material evidence.
Accordingly, U.S. Life’s request to vacate under § 10(a)(3)’s
second prong is denied.
D. 9 U.S.C. § 10(a)(3) Prejudicial Misbehavior
U.S. Life alternatively argues it was unable to respond to
evidence presented against it by the reviewers and therefore
98 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
the panel’s ex parte meeting and cross-examination limitation
constituted § 10(a)(3) misbehavior prejudicing U.S. Life.
[7] As noted above, an arbitration award may be vacated
“where the arbitrators were guilty . . . of any other misbehav-
ior by which the rights of any party have been prejudiced.” 9
U.S.C. § 10(a)(3). U.S. Life relies on the Fifth Circuit’s ruling
that “ ‘[a]rbitrators cannot conduct ex parte hearings or
receive evidence except in the presence of each other and of
the parties, unless otherwise stipulated.’ ” Totem Marine Tug
& Barge, Inc. v. N. Am. Towing, Inc., 607 F.2d 649, 653 (5th
Cir. 1979) (quoting In re Katz, 187 N.Y.S.2d 511, 518 (N.Y.
Spec. Term 1959)). The Fifth Circuit’s prohibition is too
broad, especially in light of the Supreme Court’s pro-
arbitration stance in Hall Street Associates, because the FAA
does not expressly prohibit ex parte contact. Ex parte conduct
by an arbitration panel requires vacatur of an award only if the
ex parte contact constitutes misbehavior that prejudices the
rights of a party. See Glass, Molders, Pottery, Plastics &
Allied Workers Int’l Union AFL-CIO, CLC, Local 182B v.
Excelsior Foundry Co., 56 F.3d 844, 846 (7th Cir. 1995) (“An
ex parte conduct is not an automatic ground for invalidating”
an arbitration award.).
[8] U.S. Life relies upon Totem Marine. 607 F.2d at 651.
Totem Marine is distinguishable. There, the arbitrators con-
tacted a party to obtain a critical damages figure and then did
not allow the other party to respond to this damages figure.
Here, the ex parte contact was not with a party, but with neu-
tral experts. Further, both parties were aware of the ex parte
contact, submitted suggestions as to the process to be used,
and had the opportunity to contest the reviewers’ conclusions.
Unlike arbitration by one person, the parties each chose an
arbitrator; those two then chose the umpire. Therefore, the
panel presented far less risk of prejudicial misbehavior than
if one arbitrator was used, particularly given the extensive
evidence of its efforts to provide due process to both parties
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 99
to this protracted and expensive dispute resolution. The par-
ties did not specifically stipulate to the ex parte meeting, but
the parties did agree to allow the panel to “adopt such other
processes and procedures as it deems fair and expedient to
resolve issues before it to the extent that the issues are not
expressly or implicitly addressed by these Protocols.” The
protocols did not expressly or implicitly address what proce-
dure or process was to be used if the panel was unable to
reach a decision as to U.S. Life’s reinsurance contract obliga-
tions. The parties were informed of the “stalemate”; after dis-
cussions with counsel, the panel unanimously determined that
it would hold an ex parte meeting with the reviewers, the
reviewers’ written conclusions would be shared, pre- and
post-hearing briefing would be allowed, and questions regard-
ing the reviewers’ qualifications and conclusions would be
permitted. Because of the broad authority granted by the pro-
tocols to the panel, we hold that this process does not consti-
tute misbehavior. The correspondence between the panel and
the parties reflects that the panel’s goal was to resolve the dis-
pute in a relatively efficient manner while ensuring that the
parties received due process. It is noteworthy that U.S. Life’s
party arbitrator agreed to this process and that he did not men-
tion arbitral misconduct or misbehavior in his dissent.
Indeed, the parties were not prejudiced by the process.
While the Phase II arbitration decision was not in U.S. Life’s
favor, U.S. Life failed to establish that it was denied an oppor-
tunity to present its case or to contest SNICIL’s evidence or
the reviewers’ conclusions. See Mut. Fire, 868 F.2d at 57
(“[M]ere assertion by appellants that the arbitrators used
information obtained ex parte in order to render their decision
. . . and to assess the credibility . . . is not enough, in our view,
to establish the requisite prejudice necessary for this court to
vacate the arbitrator’s award.”).
[9] “In short, perhaps [U.S. Life] did not enjoy a perfect
hearing; but it did receive a fair hearing. It had notice, it had
the opportunity to be heard and to present relevant and mate-
100 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
rial evidence, and the decisionmakers were not infected with
bias.” Employers Ins. of Wausau, 933 F.2d at 1491. For the
above reasons, U.S. Life failed to establish that the ex parte
meeting and subsequent process constituted misbehavior to its
prejudice as required by § 10(a)(3)’s last prong.
E. Arbitration Award
[10] Section 10(a)(4) allows a court to vacate an arbitration
decision if the “arbitrators exceeded their powers.” 9 U.S.C.
§ 10(a)(4). “ ‘[A]rbitrators exceed their powers . . . not when
they merely interpret or apply the governing law incorrectly,
but when the award is completely irrational, or exhibits a
manifest disregard of law.’ ” Schoenduve Corp., 442 F.3d at
731 (quoting Kyocera Corp., 341 F.3d at 997). An arbitrator
does not exceed its authority if the decision is a “plausible
interpretation” of the arbitration contract. Employers Ins. of
Wausau, 933 F.2d at 1486 (quoting Pac. Motor Trucking Co.
v. Auto. Machinists Union, 702 F.2d 176, 177 (9th Cir. 1983))
(per curiam). Accordingly, the court must defer to the arbitra-
tor’s decision “as long as the arbitrator . . . even arguably con-
stru[ed] or appl[ied] the contract.” Misco, 484 U.S. at 38; see
also Teamsters Local Union 58 v. BOC Gases, 249 F.3d 1089,
1093 (9th Cir. 2001); New Meiji Market v. United Food &
Commercial Workers Local Union # 905, 789 F.2d 1334,
1335-36 (9th Cir. 1986).
U.S. Life argues that the panel exceeded its authority by
requiring U.S. Life to pay “interest” in excess of the Phase I
award, pay all tendered bills, and pay all future bills within
thirty days.11 For the reasons given below, the panel’s deci-
11
U.S. Life also argues that the district court erred in declining to find
the February 18, 2007 award void under the functus officio doctrine. The
functus officio doctrine provides that an arbitration panel is without
authority to reconsider an issue once the panel issued a final decision on
that issue. See McClatchy Newspapers v. Cent. Valley Typographical
Union No. 46, 686 F.2d 731, 734 (9th Cir. 1982). The title of the February
1, 2007 Phase II Interim Final Award belies the argument that the Febru-
ary 1, 2007 award was final. (Emphasis added.) Accordingly, the February
18, 2007 award is not void under the functus officio doctrine.
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 101
sions were plausible interpretations of its authority under the
reinsurance contract’s arbitration agreement, the arbitration
demand submissions, and the protocols; accordingly, the
panel did not exceed its authority.
1. Disgorgement of investment income
[11] The panel’s authority extends to issues raised both
explicitly and implicitly by the reinsurance contract and the
arbitration demand submissions. See Schoenduve Corp., 442
F.3d at 732-33; see also Am. Postal Workers Union AFL-CIO,
Milwaukee Local v. Runyon, 185 F.3d 832, 835 (7th Cir.
1999). The arbitrator’s interpretation of the scope of the issue
must be upheld so long as it is rationally derived from the par-
ties’ submission. Schoenduve Corp., 442 F.3d at 733. The
panel’s understanding of its scope of authority is entitled to
the “same level of [great] deference as [its] determination on
the merits.” Schoenduve, 442 F.3d at 733; see also Am. Postal
Workers Union, 185 F.3d at 835.
U.S. Life invoked its right to arbitrate under the reinsurance
contract’s12 broad arbitration provision: “As a condition pre-
cedent to any right of action hereunder, in the event of any
dispute or difference of opinion hereafter arising with respect
to this Contract, it is hereby mutually agreed that such dispute
or difference of opinion shall be submitted to arbitration.”
SNICIL in its answer asked the panel to “direct [U.S.] Life to
perform fully all of its obligations thereunder.” U.S. Life did
not object to SNICIL’s request and itself asked the panel to
award “such other and further relief as the [p]anel shall deem
just and proper.”
[12] U.S. Life argues that the panel’s broad arbitration
12
The reinsurance contract’s arbitration section required the arbiters to
“consider this Contract as an honorable engagement rather than merely as
a legal obligation,” relieved them “of all judicial formalities,” and permit-
ted them to “abstain from following the strict rules of law.”
102 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
authority was limited by the Phase II protocols. We agree.
The panel’s authority is determined not only by the reinsur-
ance contract and the arbitration demand submissions, but
also by the stipulated-and-panel-approved protocols. These
protocols stated, “Phase II shall be governed by ‘law of the
case,’ meaning that no issue decided by the Panel, as pres-
ently constituted, will be revisited if the Panel is reconstituted
. . . . [T]he ‘law of the case’ means that all prior deliberations
and decisions are binding on the alternate arbitrator.”13
[13] U.S. Life contends that the Phase II award deviated
from the Phase I interest award and, therefore, the panel
exceeded its Phase II authority. We disagree. The Phase I
Final Interim Award stated:
Accrued Interest shall be paid on overdue balances.
A balance properly due shall be considered overdue
if not paid within sixty (60) days of the end of the
month for which the account giving rise to the bal-
ance was rendered. Interest on the overdue balances
shall be payable at a rate equal to the average of the
2 and 5 Year Treasury Notes as posted in the Wall
Street Journal.
The December 6, 2006 Phase II Interim Award not only
required U.S. Life to pay SNICIL the Phase I above-
calculated interest, but also required U.S. Life to disgorge
investment income in excess of the calculated interest.14 At
first glance, this Phase II “interest” award appears at odds
with the Phase I interest award, but it is not. The Phase I inter-
13
“Law of the case” has a specific meaning in our case law. See Milgard
Tempering, Inc. v. Selas Corp. of Am., 902 F.2d 703, 715 (9th Cir. 1990).
But the parties put that phrase into quotation marks and then defined it.
In these circumstances, the arbitration panel plausibly used the protocols’
special definition, rather than a case-law definition.
14
“Disgorgement” means “[t]he act of giving up something (such as
profits illegally obtained) on demand or by legal compulsion.” Black’s
Law Dictionary 501 (8th ed. 2004).
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 103
est award provided interest to SNICIL for its contractual right
of recovery. Phase II addressed different issues—the parties’
claims-handling arguments; therefore, the Phase II “interest”
award is a disgorgement award for U.S. Life’s delayed pay-
ment. The panel’s February 18, 2007 decision emphasized
that its disgorgement award was imposed to prevent unjust
enrichment and did not affect the Phase I interest calculation.
Therefore, the disgorgement award plausibly does not conflict
with the protocols’ “law of the case.”
[14] The panel’s determination that disgorgement was an
appropriate remedy for U.S. Life’s delay in payment is also
a plausible interpretation of its scope of authority and its
broad power to fashion appropriate remedies. See Yasuda Fire
& Marine Ins. Co. of Europe v. Cont’l Cas. Co., 37 F.3d 345,
351 (7th Cir. 1994). The arbitration demand submissions
granted the panel the authority to award any relief it deemed
just and proper. The panel plausibly determined the disgorge-
ment of investment income in excess of calculated interest
was necessary to ensure that U.S. Life fully performed its
obligations under the reinsurance contract. Accordingly, U.S.
Life failed to establish that vacatur is appropriate on this basis
under § 10(a)(4).
2. Amounts awarded on bills tendered between June 30,
2004, and December 6, 2006
[15] On February 18, 2007, in addition to requiring U.S.
Life to pay all June 30, 2004 bills, the panel awarded amounts
due on bills tendered between June 30, 2004, and December
6, 2006. U.S. Life contends that these bills were not included
in the issues submitted to the panel for arbitration. We dis-
agree. As previously mentioned, U.S. Life did not object to
SNICIL’s request that the panel “direct U.S. Life to perform
fully all of its obligations” under the reinsurance contract. It
was a plausible interpretation of the reinsurance contract,
arbitration demand submissions, and protocols that the panel
could issue a decision addressing U.S. Life’s obligations
104 UNITED STATES LIFE v. SUPERIOR NAT’L INS.
under the reinsurance contract after June 30, 2004. The panel
plausibly understood that the June 30, 2004 bills were used
for discovery purposes to allow the parties to present their
“global” claims-handling arguments and to assist the panel in
resolving these global issues; the panel then plausibly applied
their global rulings to post-June 30, 2004 bills. Accordingly,
U.S. Life failed to establish that the panel exceeded its author-
ity by requiring U.S. Life to pay the tendered bills; vacatur is
not appropriate under § 10(a)(4).
3. Future Bills
Lastly, U.S. Life asserts that the panel exceeded its author-
ity by requiring U.S. Life to pay future bills within thirty days
of submission, arguing that this requirement is impractical
and violates Article XV.B. of the reinsurance contract, which
gives U.S. Life the right to verify the accuracy of SNICIL’s
claim. SNICIL acknowledges that U.S. Life has a verification
right, but argues this is a separate and distinct right from its
audit right.
The two reinsurance contract provisions at issue are Article
XV and Article XVIII. Article XV.B, titled “Reports and
Remittances,” states:
Within 45 days after the end of each month, [SNI-
CIL] shall report to [U.S. Life]:
1. Ceded gross premiums for the month,
including disbursement of the divi-
dends and return premiums, if any;
2. Ceding commission thereon;
3. Ceded losses and loss adjustment
expense paid during the month;
4. Ceded unearned premium and ceded
outstanding loss reserves as of the end
of the month.
UNITED STATES LIFE v. SUPERIOR NAT’L INS. 105
The positive balance of (1) less (2) less (3) shall
be remitted by [SNICIL] with its report. Any balance
shown to be due [SNICIL] shall be remitted by [U.S.
Life] as promptly as possible after receipt and verifi-
cation of [SNICIL]’s report. It is understood that
premium hereunder is payable as received by [SNI-
CIL] on monthly billed policies.
(Emphasis added.) Article XVIII provides U.S. Life with
access to SNICIL’s records and allows U.S. Life to inspect
“all books, records and papers of [SNICIL] in connection with
any reinsurance hereunder.”
[16] We hold that the panel did not exceed its authority by
requiring U.S. Life to pay a tendered bill within thirty days of
receipt because a conclusion that U.S. Life’s Article XVIII
audit right is independent of its Article XV obligation to pay
a bill “as promptly as possible after receipt and verification”
is a plausible interpretation of the reinsurance contract. The
panel plausibly interpreted Article XV’s verification right as
not being a right to verify claims but as being a right to verify
the arithmetic done by SNICIL in its bill report. Having expe-
rience in the insurance field, the panel could have determined
that it was practical for U.S. Life to receive and verify SNI-
CIL’s Article XV.B report within thirty days. The panel’s
reading of the reinsurance contract need not be correct; rather,
it must “ ‘draw[ ] its essence’ ” from the terms of the contract.
Misco, 484 U.S. at 36 (quoting United Steelworkers of Am. v.
Enter. Wheel & Car Corp., 363 U.S. 593, 597 (1960)). The
panel’s decision did so. For this reason, vacatur under
§ 10(a)(4) is inappropriate.
CONCLUSION
[17] We affirm the district court’s decision confirming the
panel’s Phase II arbitration award in favor of SNICIL.
AFFIRMED.