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ReliaStar Life Insurance Company of New York v. EMC National Life Co.

April 9, 2009

RELIASTAR LIFE INSURANCE COMPANY OF NEW YORK, PETITIONER-APPELLANT,
v.
EMC NATIONAL LIFE COMPANY, ALSO KNOWN AS NATIONAL TRAVELERS LIFE COMPANY, RESPONDENT-APPELLEE.



SYLLABUS BY THE COURT

Appeal from a judgment of the United States District Court for the Southern District of New York (Kaplan, J.), vacating a portion of an arbitration award on the ground that the arbitration panel exceeded its authority in awarding attorney's and arbitrator's fees as a sanction for a party's failure to arbitrate in good faith in light of a clause in the arbitration agreement requiring each party to bear its own attorney's and arbitrator's fees.

REVERSED IN PART AND REMANDED.

The opinion of the court was delivered by: Reena Raggi, Circuit Judge

Argued: July 7, 2008

Before: POOLER, RAGGI, Circuit Judges, and TRAGER*fn1, District Judge.

Judge Pooler dissents in a separate opinion.

On this appeal, we consider whether parties' inclusion in an arbitration agreement of a general statement that each will bear the expenses of its own arbitrator and its own attorneys deprives the arbitration panel of authority to award such expenses as a sanction against a party whom the panel determines failed to arbitrate in good faith. We conclude that it does not and, accordingly, reverse the judgment of the United States District Court for the Southern District of New York (Lewis A. Kaplan, Judge), entered on February 14, 2007, insofar as it vacated that part of an arbitration award requiring respondent EMC National Life Company ("EMC"), successor in interest to National Travelers Life Company ("National Travelers"), to pay such fees to petitioner ReliaStar Life Insurance Co. of New York ("ReliaStar"). We remand the case so that the district court may enter a new judgment confirming the arbitration award in all respects.

I. Factual Background

A. The Agreement to Arbitrate

In December 1997, National Travelers and ReliaStar entered into two separate but related coinsurance agreements, one pertaining to certain ReliaStar insurance policies in force as of January 1, 1998, and the other pertaining to certain ReliaStar policies to be issued on or after that date. Because the agreements have identical terms and conditions, for purposes of this appeal we refer to them collectively as the "Coinsurance Agreements."

Article X of the Coinsurance Agreements governed the parties' agreement to arbitrate. It reads in relevant part as follows:

10.1 Appointment of Arbitrators. In the event of any disputes or differences arising hereafter between the parties with reference to any transaction under or relating in any way to this Agreement as to which agreement between the parties hereto cannot be reached, the same shall be decided by arbitration. Three arbitrators shall decide any dispute or difference . . . .

10.2 Decision. The arbitrators shall consider customary and standard practices in the life or health reinsurance business, as applicable to the dispute. They shall decide by a majority vote of the arbitrators. There shall be no appeal from their written decision. Judgment may be entered on the decision of the arbitrators by any court having jurisdiction.

10.3 Expenses of Arbitration. Each party shall bear the expense of its own arbitrator (whether selected by that party, or by the other party pursuant to the procedures set out in Section 10.1) and related outside attorneys' fees, and shall jointly and equally bear with the other party the expenses of the third arbitrator.

10.4 Applicable Law. Any arbitration instituted pursuant to this Article shall be held in New York, New York, or another site mutually agreed upon by the parties and the laws of the State of New York and to the extent applicable, the Federal Arbitration Act, shall govern the interpretation and application of this Agreement.

The particular focus of this appeal is section 10.3.

B. The Arbitration Award

When various disputes arose between the co-insurers, National Travelers initiated arbitration proceedings seeking (1) a declaration that the Coinsurance Agreements had been terminated and (2) approval for a proposed terminal accounting. ReliaStar opposed both National Travelers' claim of termination and its proposed method for conducting a terminal accounting.

Following discovery, in May 2006, an arbitration panel conducted a two-week hearing. On August 4, 2006, the panel entered an interim award, finding that the Coinsurance Agreements remained in force between the parties and directing National Travelers to pay Reliastar more than $21 million past due under that agreement. The panel directed the parties to meet to resolve issues related to the resumption of their relationship under the Coinsurance Agreements. Further, in paragraph 6 of the award, a majority of the panel, without explanation, awarded ReliaStar attorney's and arbitrator's fees and costs.

The parties complied with all aspects of the award, except for that part granting ReliaStar fees and costs, which they agreed National Travelers could submit for reconsideration to the panel and, if necessary, challenge in court. After further briefing on the issue of fees and costs, the arbitration panel entered a final award on October 20, 2006. A majority of the panel awarded ReliaStar fees for its attorneys and arbitrator in the amount of $3,169,496, costs of $691,903.75, ...


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