Arbitrator ignored contract terms

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An entire award to a farmer who argued that his insurance company breached a contract was vacated because the arbitrator exceeded her authority by awarding extra-contractual damages, which can only be awarded by a court; and although her decision included contractual damages, which were allowed under the policy, it did not distinguish between amounts awarded for contract and non-contract claims.

Background

Williamson Farm challenges the district court’s decision to vacate an arbitration award that appellant won against Diversified Crop Insurance, a private insurance company that sold federal crop insurance policies to appellant.

Extra-contractual damages

The district court vacated the arbitration award after determining the arbitrator exceeded her powers by awarding prohibited extra-contractual damages and attorneys’ fees. Appellant asserts that the arbitrator acted within her authority in rendering the award because the arbitrator concluded that appellee breached the policy, and it was within her power to award extra-contractual damages.

We turn first to whether the policy unambiguously prohibits the arbitrator from awarding extra-contractual damages. In arguing that it does, appellee relies primarily on sections 20(h) and 20(i) of the policy. Appellee argues that these provisions unambiguously state that the arbitrator cannot award extra-contractual damages, and such damages may only be awarded by a court upon judicial review and after obtaining a determination from the Federal Crop Insurance Corporation that the agent or loss adjuster failed to comply with the terms of the policy.

As the policy makes clear, the arbitrator was required to obtain and apply the FCIC’s interpretation of any ambiguous policy provision, and the arbitrator could not substitute her own interpretation for that of the FCIC. By not obtaining an FCIC interpretation to resolve the issue but instead interpreting the provisions herself, which was not in her authority to do, the arbitrator exceeded her powers.

Binding FCIC authority

The arbitrator was obligated to follow any final agency determinations previously issued by the FCIC. And the FCIC has addressed whether arbitrators may award extra-contractual damages more than once already. Each time, the FCIC has made clear that arbitrators do not have the authority to award such damages. Rather, extra-contractual damages and attorneys’ fees may only be awarded by the court reviewing an arbitrator’s decision. These previously issued final agency determinations — and the conclusion that arbitrators cannot award extra-contractual damages pursuant to Section 20(i) — were binding upon the arbitrator in this case.

Accordingly, the arbitrator exceeded her powers by both (1) interpreting the policy herself without obtaining an FCIC interpretation for the disputed policy provisions; and (2) awarding extra-contractual damages, which the FCIC has conclusively stated in multiple final agency determinations cannot be awarded in arbitration and can only be sought through judicial review. Thus, appellee met “the heavy burden” to vacate an arbitration award pursuant to the Federal Arbitration Act.

Contractual damages

In the alternative, appellant argues that even if the arbitrator exceeded her powers by awarding extra-contractual damages and attorneys’ fees, we should nevertheless confirm the arbitration award in part based on contract damages, which were within the arbitrator’s authority to award pursuant to section 20 of the policy.

Assuming that the arbitrator also awarded contractual damages, it is impossible to tell from the arbitration award what amount may have stemmed from contractual damages and what amount was extra-contractual. Although the arbitrator concluded that appellee breached the contract, the arbitrator also found appellee liable for extra-contractual damages, including negligence and breach of fiduciary duty. Since the arbitrator only provided a single amount of damages rather than a breakdown of the award by contract and noncontract claims, we have no way to distinguish what amount the arbitrator may have awarded for contractual damages (which were within the arbitrator’s authority to award) and what amount the arbitrator awarded for extra-contractual damages (which, for the reasons explained above, the arbitrator exceeded her authority in awarding).

Accordingly, even to the extent the arbitrator awarded damages for breach of contract on either policy (as opposed to extra-contractual damages), the entire award must be vacated.

Affirmed.

Williamson Farm v. Diversified Crop Insurance Services, Appeal No. 18-1463, Feb. 27, 2019. 4th Cir. (Thacker), from EDNC at Raleigh (Dever). Matthew William Buckmiller for Appellant, Roy Jefferson Allen Appellee. VLW No. 019-2-070, 23 pp.