Originally from Dispute Resolution Journal

It is not difficult to provide for neutral party-appointed arbitrators in the arbitration agreement. Robert Taichert tells parties why they should want an unbiased decision by the entire panel.

A commonly used procedure to constitute an arbitral panel is for each party to appoint its own arbitrator. Then, the party-appointed arbitrators select the third arbitrator, who serves as the chair. Often, the parties expect “their” arbitrator to favor the side that appointed them and assist them during the arbitration, perhaps by coaching them during the proceedings, reporting on the panel’s deliberations, and trying to persuade the neutral chair to find for the appointing party’s side, without regard to the merits. Such party-appointed arbitrators are not neutral. In such cases, the only truly neutral arbitrator on the panel is the chairperson.

The use of non-neutral party-appointed arbitrators is often criticized because the relationship between the appointing party and its arbitrator creates an apparent, and often real, conflict of interest. Critics also ask why parties need an arbitrator to serve as an advocate when they have attorneys for that purpose.

The problem is not that parties generally appoint an individual who they believe is most likely to favor their side. It is that this individual knows who appointed him and may feel obligated to one degree or another to the appointing side. This problem is even more egregious in reinsurance arbitration, which has the additional problem of selecting a genuinely neutral chair (called an “umpire” in reinsurance circles) because the pool of umpires is very small and the members all come from the same industry. In this situation, each party arbitrator will jockey to pick an umpire most likely to favor its side, despite what the facts show.