The U.S. Court of Appeals for the Second Circuit fell in line with five other circuits in recognizing an exception to the functus officio doctrine that allows arbitration panels to review final awards that generate conflict between the parties over some ambiguity.

The panel of Circuit Judges Rosemary Pooler, Richard Wesley and Denny Chin noted that the exception put it in line with Third, Fifth, Sixth, Seventh and Ninth circuit recognition of the issue.

The decision in question, General Re Life v. Lincoln National Life Insurance, focused on a dispute over how to interpret an arbitration award related to insurance policy arrangements. A re-insurance agreement between General Re Life Corp. and Lincoln National Life Insurance provided the ability for the issuer, Lincoln, to recall its life insurance policies if re-insurer General Re raised premium prices.

In 2014 General Re did just that and the two sides entered arbitration. The result was language about the unwinding of certain payments after a certain date. The parties had differing readings of the language that unsurprisingly favored their financial interests. Lincoln asked the arbitration panel to review, which was opposed by General Re.

The panel agreed, and found both sides were misreading the language. It issued a clarification that favored Lincoln. General Re petitioned the U.S. District Court for the Southern District of Connecticut to settle the dispute, which it did, confirming the clarification provided by the arbitration panel.

In upholding the trial court's decision, the appellate panel said that adopting the exception to functus officio was an extension of well-settled circuit court precedent that found the district court should seek clarification from arbitrators when parties seek confirmation of an ambiguous award.

The panel went on to outline three conditions arbitrators have to meet to steer clear of becoming functus officio. First, the final award must be ambiguous. Second, the clarification does just that, rather than “substantively modifying” the final award. Last, the clarification jibes with the parties' original intent.

All three qualifications were met in the case before them, the panel stated.

Locke Lord partner Hugh Balsam represented General Re on appeal. Saul Ewing Arnstein & Lehr partner Paul Hummer led Lincoln's legal team. Neither attorney responded to a request for comment on the decision.

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