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Am. Int’l Spec. Lines Ins. Co. v. Allied Capital Corp., No. 23 (N.Y. Apr. 30, 2020) [click for opinion]

Allied Capital Corporation and its affiliate Ciena Capital LLC (collectively, the “insureds”) reached a settlement with the federal government resolving their alleged participation in loan origination fraud. The insureds subsequently sought payment of their defense costs and indemnification for the settlement from their insurer American International Specialty Lines Insurance Company (“AISLIC”). The insureds initiated arbitration after AISLIC denied coverage under the applicable insurance policies.

Both sides moved for summary disposition of the arbitration proceeding. The insureds suggested that determination of the costs payable by AISLIC could be left to a separate evidentiary hearing after the panel first determined that AISLIC was liable to pay such costs. In the parties’ submissions and oral argument, there was some ambiguity but no agreement that the partial summary disposition would constitute a final award on the issues submitted. Nonetheless, the panel issued a Partial Final Award, determining that the insureds’ settlement did not constitute a covered loss under the applicable policy, but that insured Allied Capital was entitled to costs of defense, in an amount to be decided following an evidentiary hearing.

Before that hearing, the insureds requested reconsideration of the Partial Final Award. The insurer opposed reconsideration, arguing the panel was “functus officio”—that it had performed its office and was thus without power to take additional actions with respect to the Partial Final Award. The panel disagreed, reconsidered the Partial Final Award, and issued a Corrected Partial Final Award that reached the opposite conclusion than before: the settlement did constitute a covered loss under the policy. An evidentiary hearing was held on the costs of defense, and the panel issued a Final Award granting recovery to the insureds for both the settlement amount and defense costs.

The insurer moved to vacate the Corrected Partial Final Award and Final Award, but was not successful. However, on appeal, the Appellate Division found that the parties had agreed to an immediate, final determination solely on liability, and that thereafter the panel was functus officio and powerless to reconsider its Partial Final Award.

On further appeal, the New York Court of Appeals determined that, despite its nomenclature, the Partial Final Award was not, in fact, final. The Court of Appeals explained that the parties had not agreed to the issuance of a partial decision that would have the effect of a final award, and held that the tribunal thus acted within its authority to reconsider what was merely a partial award.

Under New York law, final awards are coextensive with the issues submitted to arbitration and, as a general matter, a final award resolves the entire arbitration. The court did not reach the question whether parties to an arbitration may agree to the issuance of a partial determination that constitutes a final award, but noted that the parties here had not reached such an agreement in any case. The insurer never consented to bifurcate the proceeding and to have the panel’s partial determination constitute a final award.

This case was thus distinguishable from a Second Circuit case in which both parties expressly requested that the panel issue a partial award on liability and neither objected when the arbitrators advised that a partial final award would be rendered in the bifurcated proceeding. There, the arbitrators were unable to reconsider their partial final award, which was in fact final. But here, there was no express, mutual agreement between the parties to the issuance of a partial and final award. Because the partial award was not final, the functus officio doctrine was inapplicable and the Court of Appeals rejected the insurer’s argument that the panel exceeded its authority when reconsidering the Partial Final Award.


David Zaslowsky has been practicing international litigation and international arbitration for more than 35 years. He has been Chambers ranked in international arbitration and also sits as an arbitrator. He specializes in technology cases and is the editor of the firm's Blockchain blog and its International Litigation & Arbitration Newsletter.


Eugenie Rogers is an associate in the Dispute Resolution group at Baker McKenzie in Dallas. Ms. Rogers focuses her practice on complex commercial litigation and arbitration in the areas of medical device distribution, commercial contracts, and business torts. Ms. Rogers' experience also includes broker-dealer disputes, foreign judgment recognition actions, agency enforcement actions, and litigation of other statutory and common law claims. Her litigation experience includes briefing and argument of complex motions in pre-trial and trial proceedings, as well as briefing appeals in Texas and federal appellate courts. Eugenie Rogers can be reached at [email protected] and +1 214 978 3074.