Adventure Motorsports Reinsurance, Ltd. v. Interstate Nat'l Dealer Servs.

Citation867 S.E.2d 115,313 Ga. 19
Decision Date14 December 2021
Docket NumberS21G0008, S21G0015
Parties ADVENTURE MOTORSPORTS REINSURANCE, LTD. et al. v. INTERSTATE NATIONAL DEALER SERVICES.
CourtSupreme Court of Georgia

Kenton Jones Coppage, Fox Rothschild LLP, 1180 West Peachtree Street, Ste 2300, Atlanta, Georgia 30309, Jeffrey L. Kingsley, Goldberg Segalla LLP, 665 Main Street, Buffalo, New York 14203, for Appellee in S21G0008.

Jeffrey Thomas Holm, Withrow McQuade & Olsen LLP, 3379 Peachtree Road NE, Suite 970, Atlanta, Georgia 30326, Eric J. Morrison, Lipsey, Morrison, Waller & Lipsey, P.C., 1430 Island Home Avenue, Knoxville, Tennessee 37920, for Appellant in S21G0008, S21G0015.

Judson Herben Turner, Gilbert Harrell Sumerford & Martin, P.C., 777 Gloucester St, Ste 200, Brunswick, Georgia 31520, Mark David Johnson, Gilbert Harrell Sumerford & Martin, P.C., P.O. Box 190, Brunswick, Georgia 31521-0190, Glenn P. Hendrix, Rebecca Lunceford Kolb, Arnall Golden Gregory LLP, 171 17th Street, N.W., Suite 2100, Atlanta, Georgia 30363-1031, Andrew Jacob Tuck, Alston & Bird LLP, One Atlantic Center, 1201 West Peachtree Street, Ste 4900, Atlanta, Georgia 30309, Shelby Sanders Guilbert, Jr., King & Spalding LLP, 1180 Peachtree Street, Atlanta, Georgia 30309, Shelby R. Grubbs, Miller & Martin PLLC, Suite 2100, 1180 West Peachtree Street NW, Atlanta, Georgia 30303-3407, Douglas H. Yarn, Georgia State University, College of Law, PO Box 4037, Atlanta, Georgia 30302, for Amicus Appellant in S21G0015.

Kenton Jones Coppage, fox Rothschild LLP, 1180 West Peachtree Street, Ste 2300, Atlanta, Georgia 30309, Jeffrey L. Kingsley, Goldberg Segalla LLP, 665 Main Street, Buffalo, New York 14203, for Appellee, in S21G0015.

Erika Clarke Birg, Nelson Mullins Riley & Scarborough LLP, 201 17th Street NW., Suite 1700, Atlanta, Georgia 30363, Robert C. Khayat, Jr., The Khayat Law Firm, 75 14th Street, Suite 2750, Atlanta, Georgia 30309, for Amicus Appellee, in S21G0015.

Ellington, Justice.

We granted these petitions for a writ of certiorari to consider whether the Court of Appeals erred in reversing the trial court's order confirming an arbitration award against Interstate National Dealer Services, Inc. ("INDS"), in favor of Southern Mountain Adventures, LLC ("Dealer"), and Adventure Motorsports Reinsurance Ltd. ("Reinsurer"). See Adventure Motorsports Reinsurance, Ltd. et al. v. Interstate National Dealer Svcs., Inc. , 356 Ga. App. 236, 846 S.E.2d 115 (2021). The dispute arose from the parties’ contractual relationship pursuant to which Dealer sold motorsports vehicle service contracts, which were underwritten and administered by INDS, to Dealer's retail customers, and Reinsurer held funds in reserve to pay covered repair claims. We conclude that the Court of Appeals erred in reversing the confirmation of the award on the basis that the arbitrator manifestly disregarded the law in rendering the award. In Case No. S21G0015, we therefore reverse the Court of Appeals’ decision reversing the order confirming the arbitration award on that basis, and we remand for resolution of INDS's argument that the arbitrator overstepped his authority in making the award. In Case No. S21G0008, we vacate the Court of Appeals’ decision dismissing as moot Dealer and Reinsurer's appeal from the trial court's failure to enforce a delayed-payment penalty provided in the arbitration award, and we remand for reconsideration of that issue.

The record shows the following. Beginning in 2006, Mountain Adventures, LLC, a motorsports vehicle dealership owned by Ryan Hardwick, began selling INDS's after-market vehicle service contracts to the dealership's retail customers. Under its agreement with INDS (the "Program Agreement"), Mountain Adventures set the retail price paid by vehicle buyers for service contracts, remitted to INDS for each contract sold the "Contract Cost" listed in the "Dealer Net Price Schedule," which the parties called the "Rate Card," and retained the difference as its "commission."1

INDS served as the administrator of the contracts, and an INDS-affiliated company served as the reinsurer. As an INDS executive testified at the arbitration hearing, out of the Contract Cost, INDS allocated an amount determined by its underwriters as the claims reserves for each contract (about 20 percent of the Contract Cost in an example that was the subject of testimony during the hearing). INDS also allocated an amount to itself for "administration." The rest of the Contract Cost went to pay commissions to the independent insurance agent who acted as the liaison between INDS and Mountain Adventures; to "non-claims reserves," which were used to fund a sales incentive program for the dealership's employees and to cover a roadside-assistance program that was included in all of INDS's vehicle service contracts; and to other purposes. When the term of a service contract expired, INDS shared with Mountain Adventures a portion of the underwriting profit (the difference between the claims reserves and repair claims paid under each service contract).

In 2008, another motorsports vehicle dealership owned by Hardwick, Southern Mountain Adventures ("Dealer"), entered into a different type of contract with INDS. Under this new arrangement, instead of the claims reserves being held by the INDS-affiliated company as the reinsurer, Adventure Motorsports Reinsurance Ltd. ("Reinsurer"), a newly created entity also owned by Hardwick, would hold the claims reserves and would be entitled to all of the underwriting profit realized at the expiration of a service contract. The contract between Dealer and INDS (the "Producer Agreement") was like the previous arrangement between Mountain Adventures and INDS (the Program Agreement) in most respects: Dealer agreed to sell service contracts to its customers, setting the retail price at its discretion, and to remit to INDS the Contract Cost listed on the Rate Card for each contract sold, and INDS agreed to administer the contracts and pay vehicle repair claims.2 Under a related contract between INDS and Reinsurer (the "Reinsurance Agreement"), during the term of the service contracts sold by Dealer, Reinsurer would reimburse INDS for repair claims paid by INDS. The Reinsurance Agreement contained an arbitration clause, which provided, in part:

The arbitrators [chosen by the parties] and umpire [chosen by the two arbitrators] shall interpret this Agreement as an honorable engagement and not strictly as a legal obligation. They are relieved of all judicial formalities, may abstain from following the strict rules of law, and shall make their award with a view to affecting the general purpose of this Agreement in a reasonable manner rather than in accordance with its literal language.

After the parties operated under this arrangement for about five years, Hardwick learned that, contrary to his expectation, INDS was not remitting the entire Contract Cost listed on the Rate Card to Reinsurer as claims reserves for each service contract Dealer sold to a vehicle purchaser. INDS's position was that claims reserves, as determined by a third-party actuarial firm, constituted only a component of the Contract Cost of a service contract and that INDS was required under the Producer Agreement to remit only that component of the Contract Cost to Reinsurer. Dealer, Reinsurer, and INDS agreed to arbitrate their dispute. They executed an Arbitration Agreement, which reflected that Dealer and Reinsurer sought to recover from INDS damages "as a result of numerous disputes arising out of" the contracts among Dealer, Reinsurer, and INDS "regarding funds generated from sales of vehicle service contracts and subsequent administration of these funds and claims thereafter." The claimants, Dealer and Reinsurer, asserted claims for "breach of contract, fraudulent procurement of contract, and misrepresentation for unauthorized charges and fees, and misappropriated and unaccounted funds."

In the Arbitration Agreement, the parties agreed to a single arbitrator (rather than a panel of three, as agreed upon in the Reinsurance Agreement), and, in a subsequent consent case management order, they agreed "to proceed in accordance with the Commercial Arbitration Rules adopted by the American Arbitration Association and Supplementary Rules for the Resolution of Intra-Industry U.S. Reinsurance and Insurance Disputes." The parties also agreed that "[t]he Arbitrator may grant any remedy or relief that the Arbitrator deems just and equitable within the scope of the agreements of the Parties, including but not limited to monetary damages, statutory damages, and equitable, declaratory, or injunctive relief."

After an evidentiary hearing, the arbitrator found in favor of the claimants, Dealer and Reinsurer. The arbitrator considered the Producer Agreement (between Dealer and INDS) and the related Reinsurance Agreement (between Reinsurer and INDS) together as "the Reinsurance Arrangement Agreements." The arbitrator found that the Rate Card did not authorize INDS to recover or pay itself any charges and fees and that the only purpose of the Rate Card was to establish Dealer's cost for vehicle service contracts that Dealer sold to its retail customers. The arbitrator found that the only charges and fees expressly authorized in any of the parties’ agreements were "fees associated with contracts written"3 and "warranty claims and claim adjustment expenses"4 and that neither of these terms authorized INDS to recover and pay itself charges and fees for administration, agent's commissions, reserves for a sales incentive program for Dealer's personnel, reserves for roadside assistance claims, any claim adjustment expense in addition to those actually and reasonably incurred, or any premium tax in excess of the applicable state rate.

The arbitrator further found, based on testimony at the hearing, that a ceding fee is customarily paid to the administrator of a reinsurance program to cover costs and expenses anticipated to be incurred by the...

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