Last year the U.S. Supreme Court denied certiorari to the Second Circuit’s decision inBakoss v. Certain Underwriters at Lloyds of London Issuing Certificate No. 0510135, 707 F.3d 140 (2d Cir.), cert. denied, 134 S. Ct. 155 (2013), leaving unresolved two important legal issues concerning alternative dispute resolution (ADR) on which the circuits are deeply split. The first is whether state law or federal common law provides the definition of “arbitration” under the Federal Arbitration Act (FAA).1 Secondly, if the latter, what types of ADR proceedings meet the definition of “arbitration” under federal common law? The current unsettled state of the law has significant implications for both lawyers who draft ADR clauses and those who litigate about them.

‘Bakoss’ and the Splits in the Circuits

Bakoss arose out of a dispute between the plaintiff, Bakoss, and Lloyds regarding Bakoss’ entitlement to disability insurance benefits pursuant to a policy that provided benefits in the event the insured became permanently totally disabled. The insurance certificate contained a third physician provision, which gave each party the right to appoint a physician to examine the insured to determine whether he was totally disabled. The provision further stated that, should the two physicians disagree, they would jointly “name a third Physician to make a decision on the matter which shall be final and binding.”2

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