Gulf Ins. Co. v. Neel-Schaffer, Inc.
| Docket Number: | 2003-CA-01367-SCT | |
| Oral Argument: | 11-15-2004 | |
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| Supreme Court: | Opinion Link Opinion Date: 12-09-2004 Opinion Author: Carlson, J. Holding: REVERSED AND REMANDED |
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| Additional Case Information: |
Topic: Contract - Validity of arbitration agreement - Approval of insurance policy forms - Section 83-2-11 - Scope of arbitration agreement Judge(s) Concurring: Smith, C.J., Waller and Cobb, P.JJ., Easley and Dickinson, JJ. Non Participating Judge(s): Diaz and Graves, JJ. Procedural History: Bench Trial Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 05-23-2003 Appealed from: Hinds County Chancery Court Judge: Denise Owens Disposition: Chancellor denied motion to compel arbitration. Case Number: G-2001-1863013 |
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| Party Name: | Attorney Name: | |||
| Appellant: | GULF INSURANCE COMPANY |
SHERYL BEY
DOUGLAS A. MANGEL
BRIAN A. COLEMAN |
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| Appellee: | NEEL-SCHAFFER, INC. | ROY H. LIDDELL ROBERT JAMISON BAREFIELD, JR. |
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| Topic: | Contract - Validity of arbitration agreement - Approval of insurance policy forms - Section 83-2-11 - Scope of arbitration agreement |
| Summary of the Facts: | Neel-Schaffer, Inc. entered into an insurance contract with Gulf Insurance Company, by which Gulf agreed to provide employment-related practices liability insurance coverage for claims made against Neel-Schaffer. Section VI of the Policy contained an arbitration clause. Notice of a settlement demand by one of Neel-Schaffer’s employees was received by Gulf’s agent, Rockwood Programs, Inc., from Neel-Schaffer’s insurance agent, Pittman Insurance & Bonding, Inc., d/b/a Pittman, Seay & Turner. Gulf agreed to treat the settlement demand as a “claim” under the policy, and further agreed to engage counsel and defend that claim subject to reservation of rights under the policy. Subsequently, the employee who had made the demand and Neel-Schaffer agreed to participate in private mediation. In anticipation of that mediation, and to avoid subsequent coverage litigation, Gulf and Neel-Schaffer attempted to negotiate an acceptable contribution agreement. Neel-Schaffer and its employee reached an agreement to settle her claim for $215,000. In accordance with the arbitration provision, Gulf filed a Demand for Arbitration against Neel-Schaffer with the American Arbitration Association. The Demand was filed in New York, and Neel-Schaffer moved to transfer the arbitration proceedings to Mississippi. The AAA determined that the arbitration should go forward in New York. Neel-Schaffer filed a Complaint for Declaratory Judgment and Injunctive and Other Relief in the Chancery Court of the First Judicial District of Hinds County, against Gulf as well as its insurance agent, Pittman, and Pittman’s successors, Bancorpsouth Bank and Bancorpsouth Insurance Services, Inc., alleging that its claims fell outside the scope of the arbitration provision. Neel-Schaffer applied for and received, ex parte, a temporary restraining order from the chancery court enjoining the arbitration. Gulf filed a Motion to Compel Arbitration, requesting that Neel- Schaffer’s claims be referred back to the then-stayed AAA arbitration and that the complaint be dismissed. The court denied Gulf’s request to compel arbitration, and granted Neel-Schaffer’s motion for preliminary injunction enjoining the arbitration proceedings. The chancery court granted Gulf’s motion to certify its order as final for appeal. |
| Summary of Opinion Analysis: | Issue 1: Validity of arbitration agreement The arguments regarding validity and enforceability of the arbitration provision revolve around the Mississippi Department of Insurance’s inadvertent approval of the policy form at issue. At the time the error in question occurred by the Department, it was the Department’s policy not to approve policy forms that contained a mandatory arbitration provision. Although Commissioner of Insurance George Dale sent a letter informing Gulf that he directed the Department’s legal staff to initiate the formal disapproval procedure pursuant to section 83-2-11(2), the record does not reveal whether the formal disapproval procedure was actually initiated. Gulf argues that the arbitration provision is enforceable under the Federal Arbitration Act. Neel-Schaffer argues that the arbitration provision is unenforceable based on the fact that it is contrary to state law as enacted by the State of Mississippi through the Mississippi Department of Insurance. Local federal district and circuit courts have rejected arguments that the Department’s policy is the legal equivalent to state law as discussed under the Act. Neel-Schaffer presents no compelling argument as to why the view held by the local federal courts should not be adopted. Therefore, the FAA is not reverse preempted by the Department’s policy. Even assuming arguendo that state department policy could reverse preempt the FAA, which it cannot, it is of no moment in today’s case because pursuant to the provisions of section 83-2-11, the policy form remained in effect until a hearing and order was entered disapproving the form. The Commissioner only indicated that he planned to initiate the disapproval process. Neel-Schaffer argues that Gulf should be equitably estopped from attempting to enforce an arbitration clause which it knew was contrary to the Department’s policy. The doctrine of equitable estoppel requires proof of a belief and reliance on some representation, a change of position as a result of the representation, and detriment or prejudice caused by the change of position. Neel-Schaffer does not address what misrepresentation Gulf made directly to it or how it acted on such misrepresentation. Issue 2: Scope of arbitration agreement The chancery court found that while there was a valid agreement between the parties to arbitrate, the punitive damage provision of the arbitration agreement was ambiguous, and Neel-Schaffer’s claim for punitive damages thus fell outside the scope of the provision. The specific part of the arbitration clause found to be ambiguous does not involve the scope. Instead, it involves whether Neel-Schaffer waived its right to seek punitive damages or, more specifically, the arbitrator’s authority to award punitive damages. The parties agreed that “[a]ny controversy arising out of or relating to this Policy or its breach,” would be subject to binding arbitration. Neel-Schaffer does not argue that its claims do not arise out of or relate to the policy. Neel-Schaffer argues that a remedial limitation necessarily limits the scope of arbitration. However, the scenario advanced by Neel-Schaffer would create a system where a party seeking punitive damages would prosecute an action in two different forums, and thus nullifying the effort under the FAA to reduce litigation costs. |
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