Seventh Circuit Rejects Third-Party Administrator's Attempt to Avoid Multimillion-Dollar Arbitration Award

Standard Security Life Insurance Company of New York and Madison National Life Insurance Co. entered into an administrative services agreement with FCE Benefit Administrators Inc. under which FCE administered insurance policies underwritten by the insurers. After several years, the insurers terminated the agreement and invoked its arbitration clause. Phase I of the arbitration ended with the panel issuing a partial final award to the insurers of more than $5 million. The panel denied all the parties' remaining claims at the conclusion of phase II. A federal district court in Illinois later confirmed both awards.

On appeal, FCE claimed the phase I award should not have been confirmed for three reasons, each of which was rejected. First, it argued that the phase II award superseded the phase I award and that the phase I award was therefore not confirmable. The Seventh Circuit disagreed, explaining that the panel deliberately bifurcated the arbitration to decide discrete claims in each phase, thus plainly intending the phase I award to be final and confirmable as to all phase I claims. Second, FCE argued that the panel exceeded its authority by deciding the insurers' indemnification claims, which FCE claimed were expressly carved out of the arbitration process. While the court disagreed with FCE's reading of the relevant contract provisions, it also held that FCE waived the objection in any event, having only asserted it after the panel issued the phase I award. Finally, the court rejected the contention that the panel exceeded its authority by awarding amounts labeled on the phase I award as "embezzlement." "Despite the dramatic label," the court ruled, the claim itself was no more than a "garden-variety assertion that FCE took excessive and unearned administrative fees from the Insurers." Because FCE had notice of and attempted to defend against the assertion during phase I of the arbitration, the court found the argument to be meritless. As such, the district court order confirming the phase I and II awards was affirmed.

Standard Security Life Insurance Company of New York v. FCE Benefit Administrators, Inc., No. 19-2336 (7th Cir. July 28, 2020).