An insured and its insurer were fighting over whether the insured's settlement payment in separate litigation was a covered loss and whether there was a duty to defend in the separate litigation. During arbitration, the parties agreed the panel would issue an immediate decision on the insurer's liability under the policies and subsequently determine the amount of defense costs. The panel issued a "partial final award" finding the insured was entitled to defense and indemnification on the claims at issue in the separate litigation, but also finding the settlement payment itself was not a covered loss; thus, the panel ordered an evidentiary hearing on the calculation of defense costs. The insured requested reconsideration of the partial final award and the panel issued a "corrected partial final award." The insurer sought relief in court to vacate the corrected award and confirm the original award, and while that proceeding was pending the panel issued a "final" award calculating the appropriate defense costs. The court denied the insurer's motion to vacate.
On appeal of the lower court's denial of the motion to vacate, the appellate court vacated the corrected and purported final awards and confirmed the original award because the panel exceeded its authority in reconsidering the "partial final award." Specifically, the court relied upon the common law doctrine of functus officio that prevents arbitrators from changing a previously-rendered, final award except in limited technical circumstances. During the arbitration, the parties agreed the panel would make an immediate and final determination as to liability before proceeding to a second evidentiary hearing on the calculation of defense costs. Once the panel exercised its authority to make a final decision on liability and issued the "partial final award," its authority ended and it could not revisit the issue of liability. The court dismissed the panel's statement in the corrected awards that the "partial final award" was not in fact "final" because that would eviscerate the purpose of functus officio to allow a panel to regain authority by stating its prior award was not final. Am. Int'l Specialty Lines Ins. Co. v. Allied Capital Corp., Case No. 656341/16 (N.Y. App. Div. Oct. 25, 2018).
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