Allstate Ins. Co. v. Nodak Mut. Ins. Co.

• Decision Date: 30 November 1995
• Docket Number: No. 950082,950082
• Parties: ALLSTATE INSURANCE COMPANY, Plaintiff and Appellee, v. NODAK MUTUAL INSURANCE COMPANY, Defendant and Appellant. Civ.
• Court: North Dakota Supreme Court

Page 614

540 N.W.2d 614

ALLSTATE INSURANCE COMPANY, Plaintiff and Appellee, v. NODAK MUTUAL INSURANCE COMPANY, Defendant and Appellant.

Civ. No. 950082.

Supreme Court of North Dakota.

Nov. 30, 1995.

Michael J. Morley (argued) of Morley, Morley & Light, Ltd., Grand Forks, for plaintiff and appellee.

Douglas W. Gigler (argued) of Nilles, Hansen & Davies, Ltd., Fargo, for defendant and appellant.

LEVINE, Justice.

Nodak Mutual Insurance Company (Nodak) appeals from a summary judgment declaring that the six-year statute of limitations in N.D.C.C. § 28-01-16 governs its no-fault insurance subrogation dispute with Allstate Insurance Company (Allstate), and ordering that "arbitrators hear and decide Allstate's claim for binding intercompany arbitration" under N.D.C.C. § 26.1-41-17. We affirm that part of the trial court's decision ordering the arbitrators to "hear and decide" Allstate's claim. However, because the arbitrators, rather than the district court, have subject matter jurisdiction under N.D.C.C. § 26.1-41-17 to decide the statute of limitations issue, we vacate that part of the trial court's decision that concludes the six-year statute of limitations is applicable.

On September 2, 1987, Allstate's insured, Colleen Carlson, died when her vehicle collided with a vehicle driven by Nodak's insured, Margo Brusegaard. Allstate paid survivor benefits to Carlson's husband. In 1992, Allstate requested subrogation from Nodak for $24,750.07 in benefits it had paid to Carlson's husband. Nodak refused, asserting that because the claim arose from a wrongful death, the two-year statute of limitations under N.D.C.C. § 28-01-18(4) barred Allstate's claim. Allstate responded that its claim was based on a "liability, express or implied," or a "liability created by statute," making the six- year statute of limitations under N.D.C.C. § 28-01-16(1) or (2) applicable.

On August 30, 1993, Allstate submitted its subrogation claim to binding intercompany arbitration as required by the equitable allocation provisions of N.D.C.C. § 26.1-41-17. ¹ Although Nodak requested the arbitrators to decide the statute of limitations issue, the arbitration panel determined that it "lack[ed] jurisdiction," explaining: "We believe this case is inappropriate for Arbitration as it deals with NDCC statu[ ]tory language governing the issues presented, but would be more appropriately addressed in a court of law."

Allstate then sued Nodak seeking a declaratory judgment for equitable allocation from Nodak. After a default judgment was entered against Nodak, Nodak moved under N.D.R.Civ.P. 60(b) to vacate that judgment. As one of the bases for vacating the default judgment, Nodak argued it was "void" under N.D.R.Civ.P. 60(b)(iv) because the court lacked subject matter jurisdiction under N.D.C.C. § 26.1-41-17. Nodak argued that although the arbitration panel refused to hear the claim, the panel's action "does not confer jurisdiction upon a court that does not otherwise exist." Allstate argued that Nodak's assertion to the arbitration panel of "a question of law, depriv[ed] the arbitrators of jurisdiction." The trial court determined it had "jurisdiction in this matter" and granted Nodak's Rule 60(b) motion based on "mistake, inadvertence and excusable neglect."

In its decision on the merits, the trial court noted that although Allstate styled the action as one for declaratory judgment under N.D.C.C. Chapter 32-23, "[i]t appears that this action could also be considered a proceeding to compel arbitration, giving the Court jurisdiction" under the Uniform Arbitration Act, N.D.C.C. Chapter 32-29.2. The trial court ruled that Allstate's right of subrogation is governed by the six-year statute of limitations for actions upon liability created by statute, rather than the two-year statute of limitations, and that Allstate's demand for intercompany arbitration within the six-year limitation period was the "commence[ment]" of the action. The trial court ordered that Allstate and Nodak "proceed with arbitration" and that "the arbitrators hear and decide Allstate's claim for binding intercompany arbitration" under N.D.C.C. § 26.1-41-17. Nodak appealed.

I

Although the parties do not address on appeal the trial court's authority to rule on the statute of limitations question, we may review issues involving subject matter jurisdiction on our own initiative. Erickson v. Director, N.D.D.O.T., 507 N.W.2d 537, 540 (N.D.1993). The issue here involves which entity, a trial court or an arbitration panel, has authority to decide questions of law in cases of statutorily compelled arbitration. Because this case was originally submitted to arbitration but was rejected by the arbitrators, and because the issue was raised before the trial court, we now decide the issue left open in American Family Mut. v. Farmers Ins., 504 N.W.2d 307, 308 n. 2 (N.D.1993).

Allstate's suggestion that arbitration panels have no jurisdiction to decide legal issues, as opposed to factual issues, is, in major part, incorrect.

At common law, arbitrators were the sole judges of law and fact. In Burchell v. Marsh, 58 U.S. 344, 349, 17 How. 344, 349, 15 L.Ed. 96 (1854), the Supreme Court explained:

"Arbitrators are judges chosen by the parties to decide the matters submitted to them, finally and without appeal. As a mode of settling disputes, it should receive every encouragement from courts of equity. If the award is within the submission, and contains the honest decision of the arbitrators, after a full and fair hearing of the parties, a court of equity will not set it aside for error, either in law or fact. A contrary course would be a substitution of the judgment of the chancellor in place of the judges chosen by the parties, and would make an award the commencement, not the end, of litigation."

Although the Federal Arbitration Act, 9 U.S.C. §§ 1-16, somewhat altered this general common law principle by authorizing the vacation of an arbitration award on specified grounds, arbitrators under the Act continued to have jurisdiction to decide both legal and factual issues. See, e.g., Newark Stereotypers' Union No. 18 v. Newark Morning Ledger Co., 397 F.2d 594, 598 (3d Cir.), cert. denied, 393 U.S. 954, 89 S.Ct. 378, 21 L.Ed.2d 365 (1968); Saxis Steamship Co. v. Multifacs International Traders, Inc., 375 F.2d 577, 581-582 (2d Cir.1967). Likewise, the Uniform Arbitration Act, which similarly permits vacation of an award on specified grounds, did not deprive arbitrators of the authority to decide questions of both law and fact. See, e.g., Intern. Ass'n of Firefighters v. St. Louis, 213 Ill.App.3d 91, 157 Ill.Dec. 179, 183, 571 N.E.2d 1198, 1202 (1991); Layne-Minnesota Co. v. Regents of Univ. of Minn., 266 Minn. 284, 123 N.W.2d 371, 377 (1963).

This backdrop has led to the currently recognized general rule that arbitrators, acting under the authority granted them by a contract or statute, unless expressly limited by the terms of the contract or statute, are the judges of both the law and the facts. See, e.g., O & G/O'Connell Jt. V. v. Chase Fam. Ltd. PTP., 203 Conn. 133, 523 A.2d 1271, 1281 (1987); Coronet Ins. Co. v. Booker, 158 Ill.App.3d 466, 110 Ill.Dec. 616, 619, 511 N.E.2d 793, 796 (1987); David Co. v. Jim W. Miller Const., Inc., 444 N.W.2d 836, 840 (Minn.1989); Guthrie v. Firefighters Local 2145, 814 P.2d 161, 162 (Okl.App.1991); Harold Schnitzer Prop. v. Tradewell Group, 104 Or.App. 19, 799 P.2d 180, 182 (1990); Brennan v. General Acc. Fire & Life, 524 Pa. 542, 574 A.2d 580, 583 (1990); Kennewick Educ. Ass'n v. Kennewick Sch. Dist., 35 Wash.App. 280, 666 P.2d 928, 930 (1983). Nevertheless, courts in some jurisdictions, although seemingly in agreement with the concept that an arbitrator's authority is defined by the contract or statute compelling arbitration, have carved out exceptions to this rule.

Following the general rule, many courts have held that procedural questions, such as the legal effect of statutes of limitations, unless expressly excluded from arbitrability, should be left to the arbitrators once it has been established that the subject matter of the dispute is arbitrable. See, e.g., John Wiley & Sons, Inc. v. Livingston, 376 U.S. 543, 556, 84 S.Ct. 909, 918, 11 L.Ed.2d 898 (1964); FSC Securities Corp. v. Freel, 14 F.3d 1310, 1312 n. 2 (8th Cir.1994); O'Neel v. National Ass'n of Securities Dealers, 667 F.2d 804, 807 (9th Cir.1982); Conticommodity Services v. Philipp & Lion, 613 F.2d 1222, 1226 (2nd Cir.1980); Boys Club v. Fidelity and Deposit Co., 6 Cal.App.4th 1266, 8 Cal.Rptr.2d 587, 593 (1992); Skidmore, Owings & Merrill v. Connecticut G.L. Ins. Co., 25 Conn.Sup. 76, 197 A.2d 83, 88 (1963); Marschel v. Dean Witter Reynolds, Inc., 609 So.2d 718, 721 (Fla.Ct.App.1992); Fenton Area Pub. Sch. v. Sorensen-Gross Const., 124 Mich.App. 631, 335 N.W.2d 221, 225 (1983); Messa v. State Farm Ins. Co., 433 Pa.Super. 594, 641 A.2d 1167, 1170 (1994). However, New York courts hold that statutory time limitation questions, as opposed to contractual time limitation questions, are for the courts and not the arbitrators. See Smith Barney, Harris Upham & Co. v. Luckie, 85 N.Y.2d 193, 623 N.Y.S.2d 800, 805, 647 N.E.2d 1308, 1313 (1995).

In insurance claim arbitration, some courts have also limited the arbitrator's authority. In 2 R. Long, The Law of Liability Insurance § 14A.04, at pp. 14A-13--14A-17 (1995) (footnotes omitted), the author explains:

"Two main theories predominate. Under the first, the arbitrator has limited jurisdiction, based on a literal interpretation of the language of the arbitration clause. The rationale behind this approach, which was initially formulated in New York, is based on contract principles. Pursuant to this approach, the arbitrator may only look to the tort liability of the offending motorist and the extent of any possible damages. 'Coverage' issues, such as whether the claimant was insured, whether the vehicles involved in the accident were insured or...