Opinion
Case No. 01-CV-0238-B
October 24, 2001
ORDER
The Court has for decision John Hancock Life Insurance Company f/k/a John Hancock Mutual Life Insurance Company's Motion to Dismiss or Stay (Docket #10) in which Defendant urges this action should be submitted to arbitration pursuant to the agreement of the parties and should therefore be dismissed or alternatively stayed pending arbitration.
The background of the dispute is as follows: John Hancock Life Insurance Company f/k/a John Hancock Mutual Life Insurance Company ("Hancock") entered into a series of reinsurance agreements ("the contracts") with National Bankers Risk Insurance Company ("NBRIC") under which Hancock agreed to reimburse certain claims paid by NBRIC. NBRIC claims that Hancock has failed to reimburse certain amounts due under the contracts and filed this action against Hancock to recover the reimbursement amounts.
Hancock claims that the contracts between the parties require such disputes to be settled by an arbitration procedure before any court action is instigated. NBRIC asserts this Court has jurisdiction to adjudicate the matter.
Determining the appropriate forum requires review and analysis of the applicability of two provisions in the contracts: article 12, "the service of suit clause ," and, article 22, "the arbitration clause." These read as follows:
Five contracts were submitted as exhibits. The numbering of the Articles varies from contract to contract. The Court therefore references the provision by the number most commonly assigned to it in the contracts. The wording of the clauses is consistent.
Article 12: Service of Suit
"It is agreed that in the event of the failure of the reinsurers hereon to pay any amount to be claimed to be due hereunder, the reinsurers hereon, at the request of the reinsured, will submit to the jurisdiction of a court of competent jurisdiction within the United States."
Article 22: Arbitration Clause
"Disputes between the parties arising out of this reinsurance which cannot be resolved by compromise, including but not limited to any controversy as to the validity of this reinsurance, whether such disputes arise before or after termination of this reinsurance, shall be submitted to arbitration."
NBRIC claims that the service of suit clause is controlling in the event of a "failure to pay" dispute, providing NBRIC with a contractual right to bring suit against Hancock. Hancock urges that the arbitration clause requires all disputes, including "failure to pay" to be resolved by arbitration.
Only one Tenth Circuit case addresses similar contract provisions. In Hart v. Orion Ins. Co., 453 F.2d 1358 (10th Cir. 1971), plaintiff was an airline pilot who filed suit to recover under an occupational disability policy after an on-the-job injury caused him to fail a flight physical and lose his first class pilot's license. The policy contained a provision for the appointment of medical referees to determine disability as well as a provision for suit in the event of a failure to pay.
The court found the provisions were not inconsistent, holding that the purpose of the service of suit provision was to case possible burdens which the insured might have in obtaining jurisdiction over the insurer, an English corporation with its principal place of business in London. This would only be triggered in the event the medical referees determined disability and the company then refused to pay. The court granted a motion to stay and following a decision adverse to Hart, entered summary judgment in favor of the insurer. Although the facts of Hart are not on point, Hart is instructive as to the court's direction in resolving otherwise facially-conflicting provisions within a contract.
A harmonious relationship between similar arbitration and service of suit clauses has been found in a number of cases from other jurisdictions. See eg Continental Casualty Co. v. Lloyds, 1993 WL 299232 (N.D.Cal.); General Credit Life Ins. v. John Hancock, Case No. 1:99-CV-02690 2000 U.S. Dist. LEXIS 9009 (N.D. Ohio May 30 2000); Security Lfe Ins. v. Hanover Life Reassurance, 2001 WL 392412 (D. Minn. 2001). These cases generally hold that a service of suit clause applies only after a failure to pay amounts due arising from an arbitration award, not to pre-arbitration payment disputes. This conclusion echoes the strong public policy in favor of arbitration when any doubt as to the scope of an arbitration clause is raised. Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S.1 (1983). In Cone, the United States Supreme Court stated:
"Questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration. We agree. The Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability."
The Court notes the wording of the arbitration provision in the case at bar contains mandatory language as follows: "disputes between the parties which cannot be resolved by compromise shall be submitted to arbitration," evidencing an intent to stress the significance of this provision. (Emphasis added) The same language is not used in the service of suit provision.
NBRIC urges Thiokol Corp. v. Certain Underwriters at Lloyds, London, Case No. Civil No. 1:96-CV-028 B, 1997 U.S. Dist. LEXIS 8264 (D.C. Utah, 1997) is better reasoned authority which this Court should apply in this case. In Thiokol, EER Systems ("EER") purchased an insurance policy from Lloyds naming Thiokol as the beneficiary. The contract between Lloyds and EER contained arbitration and suit of service clauses similar to those now before the Court. When a payment dispute arose, the court allowed Thiokol to sue Lloyds for non-payment without first entering into arbitration.
The Court finds Thiokol is distinguishable from the case at bar. The Thiokol decision clearly separated the rights of the assured (Thiokol) from those of the parties to the contract (Lloyds and EER), stating that the arbitration clause applied only to the contract parties while the service of suit clause applied only to the assured. In the case at bar, both the service of suit clause and the arbitration clause apply to the contract parties.
NBRIC also submits Transit Casualty Co. v. Lloyds of London, 963 S.W.2d 392 (Mo.Ct.App. 1998), in which the court came to a result similar to that in Thiokol. However, Transit Casualty is distinguishable in that the contract at issue was not governed by the FAA, due to a Missouri state law "excluding arbitration agreements in `contracts of insurance' from the enforcement provisions of the [FAA]." Id at 394.
By comparison, Oklahoma state law, while excluding insurance contracts in general from the provisions of its Uniform Arbitration Act, 15 O.S. § 802[ 15-802], specifically includes "contracts between insurance companies." 15 O.S. § 802[ 15-802](A). The provisions of the Oklahoma law are substantively identical to those of the FAA; once an arbitration agreement has been found to exist, "the court shall order the parties to proceed with arbitration." 15 O.S. § 803[ 15-803](A). Further, the statute provides: "Any action or proceeding involving an issue subject to arbitration shall be stayed if an order for arbitration or application therefore has been made under this act." 15 O.S § 803(D) Neither party referenced the Oklahoma law.
NBRIC also seeks to distinguish the case at bar based upon the fact that the arbitration provision does not begin with the modifier "all" or "any" preceding the word "disputes." NBRIC contends that the failure of Hancock to add all-inclusive language such as "all disputes"or "any disputes" limits the scope of the arbitration agreement. The Court does not agree. The phrase as written leaves no category of dispute outside of the clause, and addition of the words "any" or "all," while adding emphasis, cannot further expand an already completely inclusive clause.
Emphasis added.
The Court finds the arbitration clauses in the contracts between the parties are enforceable pursuant to the Federal Arbitration Act and Hancock's Motion to Dismiss or Stay (Docket #10) should be granted as follows: The case is stayed pending arbitration. The parties shall file joint status report with the Court within 20 days of the conclusion of the arbitration proceedings.
IT IS SO ORDERED