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Can non-signatories to an insurance enforce its arbitration clause? | Property Insurance Coverage Right Blog



The Texas law is currently silent on the issue of insurance companies being able to sell insurance that requires policyholders to take coverage disputes to an arbitrator rather than the courts. Texas has no current law or regulation that prohibits or restricts mandatory arbitration. 1

There is only one section of the Texas Insurance Code for real estate insurance that even refers to arbitration. Section 2210.554: "Voluntary Arbitration for Some Coverage and Claims Dispute" applies only to Texas Windstorm and Garden Insurance issued by the Texas Windstorm Insurance Association ("TWIA"). This provision states in part that an “insured person under this chapter may choose to purchase a binding arbitration document in a form prescribed by the Commissioner. A person who chooses to purchase an approval under this section must arbitrate a dispute involving an action, decision or decision of the association regarding payment of, amount or denial of a claim. "

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6, Texas policyholders barely escaped a mandatory, binding, arbitration clause before dispute after the Texas Farm Bureau granted such approval – a change to general homeowners' insurance – to the Texas Department of Insurance for approval. 2 Fortunately, the Texas Farm Bureau withdrew its proposal without commenting on its reason for doing so. However, it should be noted that the proposal came under a significant fire from consumer groups and plaintiffs' attorneys. Despite this narrow escape, as insurance companies have been forced into costly litigation as a result of the ever-increasing number of natural disasters such as hurricanes, hailstorms and wildfires, there is little doubt that similar proposals will return in the future.

Accordingly, it is relevant before the next operator infringement of filed mandatory arbitration laws will take a look at how Texas State and federal courts currently interpret arbitration provisions in insurance policies, and in particular whether non-policy signatories can enforce arbitration provision. Three court cases will be reviewed to illustrate the federal courts in Texas and state courts.

In the first case, Bhandara Family Living Trust v. Underwriters at Lloyd & # 39; s London f / a Some Underwriters at Lloyd & # 39; s et al No. 19-968, (S.D. Tex. February 20, 2020), the federal trial issued a Memorandum and Order Compelling Arbitration . There, the complainant Trust owned four commercial properties in Houston that were damaged by Hurricane Harvey. The plaintiff filed an application and when denied, the complainant filed a state court judgment alleging breach of contract, violation of the Texas Insurance Code and bad faith against the several carriers who insured the property. The plaintiff also alleged that two insurance brokers, ("Broker Defendant") violated the Texas Insurance Code when they failed to disclose the police's unconditional arbitration clause during the procurement.

Lloyd & # 39; s immediately invoked the policy arbitration clause – New York courts and New York law – and dismissed the lawsuit to federal court on various grounds based on the carrier's foreign citizenship. All defendants, including brokers who were not parties to politics, joined Lloyds and moved to force arbitration. The plaintiff argued that the arbitration clause was unenforceable because the broker's defendant was not a signatory to the policy, therefore the clause did not apply them and they could not force its application. The complainant further contended, unlike the defendants, that fair estoppel did not apply because the claims against the brokers' defendants differed from its claims against Lloyd & # 39; s. The Fifth Circuit Court of Appeal had previously identified the circumstances under which fair estoppel permitted a non-signature of the insurance that contained an arbitration clause could compel arbitration: (1) when the insured had invoked the terms of the insurance to assert claims against non-signatories; and (2) when the non-signing and insurer's claims were intertwined and there was concerted misconduct by both.

The Court of First Instance granted defendant's motion for compulsory work based on equitable estoppel. The Court found that the complainant's claims against the defendants were intertwined because the plaintiff had filed all the claims in one case. In addition, the only harm the plaintiff alleged as a result of the broker's respondent's illegal act of introducing a mandatory arbitration clause that was not disclosed to them was that the clause damaged the plaintiff's ability to recover under the policy and in the absence of the arbitration clause and policy, the plaintiff would not have some claims against Broker defendant. The court concluded that the plaintiff's claims against the brokers' prosecutors relied on and assumed the existence of the policy and the claims were intertwined, which is why the arbitration was mandated by the doctrine of fair estoppel. The non-signatories prevailed.

In the second case, Jody James Farms JV v Altman Group, Inc. 547 SW3d 624 (Tex. 2018), the Texas Supreme Court considered that a party to an insurance contract requiring arbitration is not required to enter into arbitration in a dispute against another party that has not signed the policy unless the parties between them have a specific arbitration agreement, or they are bound by agency or contract law principles to do so. The Texas Supreme Court made this decision in a case involving a dispute over a crop insurance obtained by the insured through an independent insurance agency (“Agency”). The agency was not the signing of the policy.

The dispute arose because the plaintiff, Jody James Farms, had suffered a loss of his cereal sorghum harvest. The plaintiff contacted the agency on time to report the loss. However, the agency dropped the ball and failed to report the claim in due time to the insurer. The insurer denied the claim. The police had a mandatory arbitration clause which the insurer invoked. Carrying arbitration with the insurer but losing the arbitration. The plaintiff then sued the Office for misleading trading practices and breach of supervisory duty because the agency's improper filing of its claim resulted in a denial of coverage and a financial loss of $ 68,000. Although the agency was not signing the insurance, it moved to compel according to the insurance policy and the case went to arbitration over the complainant's protests. The arbitrator decided the case in favor of the agency and issued a ruling on arbitration that was not included.

The appellant appealed to the Supreme Court and the court granted the plaintiff's request for review because of whether the arbitrator had the authority to decide whether one who did not sign a policy could compel a signer to arbitrate. On this issue, the Supreme Court held that questions relating to the existence of a non-signing arbitration agreement were for the Court not to decide an arbitrator.

The Court then discussed six different scenarios where courts have previously found that arbitration may be required with non-signatories. The six bases are: (1) incorporation by reference, (2) assumption, (3) agency, (4) alter ego, (5) equitable estoppel and its constituents of direct distributions estoppel and alternative estoppel theory, and (6) third party beneficiaries. This opinion is well-written and thoroughly discusses each of the six reasons with an analysis of each ground as it relates to the facts in that case. Time and space here do not allow a review of each of these theories, but one should have this view in mind as a good future reference for this issue of a non-signing invoking an arbitration clause. The Court considered that forced arbitration between the agency and the plaintiff was wrong because the agency was not signing the policy which required arbitration in disputes between the insurer and the insured. As stated at the beginning of this section of the note, the court concluded:

No party may be forced to arbitrate unless they have consented to arbitration or are bound by the principles of agency or contract law to do so. Jody James and the agency did not agree to arbitration anything – not the issue of arbitrariness and not the benefits of this dispute. Also, Jody James may not be forced to arbitrate according to agency, third party recipients or estoppel theories. We therefore turn over the court in the judgment of the appeal, vacate the arbitration [take nothing] and are arrested in the trial for further proceedings.

The Texas Supreme Court held that in this case, an insurance policy's arbitration clause was not valid in a dispute with a non-signing party.

The third and most recent case, Living Steward Properties, Ltd. against some underwriters in Lloyd & # 39; s London No. 2: 20-CV-001 (SD Tex. May 18, 2020), addressed two issues. First, if the arbitration agreement can be enforced in favor of a third party's merger, a public adjustment granted to the insured's claim and one that has not signed the insurance. Second, if enforcement was granted, whether the arbitration agreement could be extended to include a decision on the extra-contractual claims brought against the merger.

As in the Bhandara Family decision, the insurer's trial found on the basis of equal estoppel, which prevents a party from avoiding an arbitration agreement with respect to claims against a non-party to the agreement under two scenarios.

First, it is when the insured complainant relies on the existence of contracts to make his claims against non-party or non-signatory.

Second, the claims against the party to the agreement and non-party or non-signing involve behaviors that are clearly intertwined.

the court found both reasons applied and ordered the complainant / insured and the pooled party to file the claims between them for arbitration together with the claims against the insurer so that they could be settled effectively in an arbitration.

Conclusion

Currently, these three recent cases and a review by other state and federal case law agencies show that Texas federal courts are more likely than Texas state courts to hold the non-signatories to an insurance policy can enforce an arbitration clause that is included in that insurance policy.

At least, Texas policyholders can at least still obtain insurance that does not have mandatory arbitration clauses because there is no law or legislation that requires the same. In this regard, Texas is among a plurality of 24 states that have no law or mandatory insurance arbitration law, while sixteen states currently have statutes that prohibit the use of arbitration agreements in insurance. 3 The absence of a Texas statute prohibiting the use of arbitration provisions in insurance or a statute granting it, Texas policyholders will continue to use mediation, evaluation, and the court system to resolve their insurance disputes rather than arbitration. Some things just should not be changed.
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1 State laws regulating arbitration in insurance contracts, PUB. CITIZEN, https://www.citizen.org/article/state-laws-regulating-arbitration-insurance-contracts-0. Chapter19659024 ?? 2.0219659026 ?? See Chapter19459006] Jim Malewitz, Texas Insurer Drops Push to Let Homeowners Waive the Right to Suit TEX. TRIB. (Nov 3, 2016, 5:00 pm).
3 See PUB. CITIZEN on n. 1. [19659029]
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