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The United States District Court for the Southern District of New York held that an arbitration panel did not manifestly disregard the law when it found in favor of an insurance company, despite arguments from the insurer that the applicable contract language was ambiguous and should have been construed in favor of providing coverage.
In Sempra Energy v. National Union Fire Insurance Company of Pittsburgh, Pennsylvania, No. 06 Civ. 6107(HB), 2006 WL 3147155 (S.D.N.Y. Oct. 31, 2006), Sempra held an insurance policy through National Union. The policy covered “expropriatory acts” by the Government, but contained an exclusion for loss caused by “currency fluctuation or devaluation” by the Government.
When the Argentinian Government passed an Act that affected Sempra negatively, Sempra attempted to recover under the policy. National Union refused to provide coverage, and the dispute was taken to arbitration. The arbitrator found in National Union’s favor, and Sempra petitioned the Court to vacate the award, arguing that the arbitrators manifestly disregarded the law.
However, the Court found that the arbitration panel did not manifestly disregard the law and confirmed the award in National Union’s favor. To prove manifest disregard of the law, the movant must show that the there is a well-defined legal principle applicable to the case; that the principle was improperly applied to the case leading to an erroneous outcome; and that arbitrator knew the applicable legal principle and intentionally refused to apply it. Robert Lewis Rosen v. Webb, No. 03 Civ. 6338 HB, 2003 WL 22801698 (S.D.N.Y. Nov. 24, 2003).
Sempra argued that the arbitrators manifestly disregarded the law by ignoring the legal principle that ambiguous contract provisions in an insurance policy should be resolved in favor of the insured. However, the Court held that the arbitration panel did not err in their findings because the contract provisions at issue were not clearly ambiguous. Therefore, the Court confirmed the arbitration award.
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