Prescott Architects, Inc. v. Lexington Ins. Co.
| Decision Date | 01 July 2009 |
| Docket Number | Case No.: 3:08cv532/MCR/EMT. |
| Citation | 638 F.Supp.2d 1317 |
| Parties | PRESCOTT ARCHITECTS, INC. and Jeffrey Prescott, Plaintiffs, v. LEXINGTON INSURANCE COMPANY, Defendant. |
| Court | U.S. District Court — Northern District of Florida |
Jonathan Thomas Holloway, Esq., Holloway Law Firm PA, Crestview, FL, for Plaintiffs.
Robert Scott Newman, Joel D. Adler, Marlow Connell Abrams et al., Coral Gables, FL, for Defendant.
Before the court are Defendant Lexington Insurance Company's ("Lexington") Motion to Compel Arbitration (doc. 14) and Plaintiffs Prescott Architects, Inc. and Jeffrey Prescott's ("Prescott") Motion to Stay Arbitration (doc. 18). The motions have been thoroughly briefed and supplemented by oral argument. After careful consideration of the issues presented, the court concludes the parties' dispute is subject to arbitration as per their agreement.
Defendant Jeffrey Prescott is the principal member of Prescott Architects, Inc., an architectural design firm in Destin, Florida. Lexington is an insurance company incorporated under Delaware law with administrative offices in Boston, Massachusetts. On October 3, 2006, Prescott was named as a third-party defendant in a suit filed in Walton County, Florida.1 Prescott was insured at the time under an "Architects & Engineers Professional Liability Policy" ("the policy") issued by Lexington on November 6, 2005. The policy extended coverage from that date until November 6, 2006. On December 19, 2006, Prescott submitted a claim to Lexington for coverage on the claims in the Walton county lawsuit. Lexington disputed coverage, maintaining Prescott had failed to file its claim within the policy's coverage period.2 On September 25, 2008, Lexington filed a demand for arbitration, seeking a determination of "whether, under a `claims-made' policy, the claim ... was `first made' during the policy period."3 . Lexington based its demand on an arbitration clause in the policy, which states:
[I]n the event of a disagreement as to the interpretation of this policy, it is mutually agreed that such dispute shall be submitted to binding arbitration before a panel of three (3) Arbitrators, consisting of two (2) party-nominated (non-impartial) Arbitrators and a third (impartial) arbitrator (hereinafter "umpire") as the sole and exclusive remedy.
....
The arbitration proceeding shall take place in or in the vicinity of Boston, Massachusetts. The procedural rules applicable to this arbitration shall, except as provided otherwise herein, be in accordance with the Commercial Rules of the American Arbitration Association. (Policy § V.O.)
After receiving the arbitration demand, Prescott filed suit against Lexington in Okaloosa County, Florida seeking, among other things, declaratory judgment to determine coverage under the policy. Lexington removed the case to this court on November 26, 2008, and filed its Motion to Compel Arbitration on January 13, 2009, pursuant to the Federal Arbitration Act ("FAA"). See 9 U.S.C. § 1 et seq. Prescott responded on January 26, 2009, with its Motion to Stay Arbitration.
The FAA provides that an arbitration clause in a contract involving "commerce ... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Id. at § 2. Congress enacted the FAA to counter the common law's hostility to arbitration and "to place arbitration agreements upon the same footing as other contracts." Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S.Ct. 1647, 114 L.Ed.2d 26 (1991). To that end, the statute involves Congress' broadest Commerce Clause power and requires only a transaction involving interstate commerce to enforce a valid arbitration provision. Citizens Bank v. Alafabco, Inc., 539 U.S. 52, 56, 123 S.Ct. 2037, 156 L.Ed.2d 46 (2003); Allied-Bruce Terminix Cos., Inc. v. Dobson, 513 U.S. 265, 281, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995) (quotation omitted). Insurers conducting business across state lines engage in interstate commerce. United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 552-53, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944).4
Lexington contends the FAA requires arbitration of the parties' coverage dispute in this case because federal law favors arbitration. See Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). The FAA gives arbitration agreements the same effect as other contracts, and courts apply the law of the state where the arbitration agreement was entered to determine the contract's validity. Caley v. Gulfstream Aerospace Corp., 428 F.3d 1359, 1367-68 (11th Cir.2005). Prescott executed the insurance policy in Florida, and under Florida law an arbitration clause is enforceable where (1) a valid written arbitration agreement exists, (2) an arbitrable issue is involved, and (3) the right to arbitrate has not been waived. Hospicecare of Southeast Fla., Inc. v. Major, 968 So.2d 117, 118 (Fla. 4th DCA 2007).
Prescott argues that arbitration is precluded in this case by (1) Florida common law prohibiting the arbitration of coverage disputes and (2) the McCarran-Ferguson Act ("MFA"). 15 U.S.C. § 1012. The MFA provides that "[n]o act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance ... unless such Act specifically relates to the business of insurance." Id. at § 1012(b). By barring the preemptive power of certain federal statutes, the MFA "inversely preempts" federal law and makes it inapplicable to state insurance law when (1) the federal statute is not specifically related to the insurance business, (2) the state statute at issue was enacted to regulate insurance, and (3) application of the federal statute would "invalidate, impair, or supersede" the state statute.5 Moore v. Liberty Nat. Life Ins. Co., 267 F.3d 1209, 1220 (11th Cir.2001). Prescott argues four provisions of the Florida Insurance Code would be impaired if the court enforces the parties' arbitration agreement: Sections 626.905, 626.907, 626.908, and 626.937. Sections 626.905, 626.907, and 626.908 are part of the Unauthorized Insurers Process Law ("UIPL") and provide methods of substituted service on unauthorized insurers.6 They also outline the procedures such companies must follow when sued under the UIPL.7 Section 626.937 is part of the Surplus Lines Law and provides methods of service when a surplus-lines insurer is sued.8 Prescott claims these statutes grant it substantive rights, including the right to file suit against Lexington; the FAA would impair these rights; and the MFA therefore inversely preempts the FAA.9
Prescott first argues that Florida common law precludes enforcement of the parties' arbitration clause. The court disagrees. Concededly, Florida courts have long interpreted a range of coverage disputes as matters for courts, not arbitration or appraisal panels, to decide. See, e.g., Midwest Mut. Ins. Co. v. Santiesteban, 287 So.2d 665, 667 (Fla.1973) (); Johnson v. Nationwide Mut. Ins. Co., 828 So.2d 1021, 1025 (Fla.2002) (); Corzo v. Am. Superior Ins. Co., 847 So.2d 584, 585 (Fla. 3d DCA 2003); Gonzalez v. State Farm Fire and Cas. Co., 805 So.2d 814, 817 (Fla. 3d DCA 2000).10 Nevertheless, Prescott's reliance on these cases is misplaced because they do not involve an interstate nexus and, as a result, do not implicate the FAA. Where the FAA applies, the Supreme Court has made clear that state law, "whether of legislative or judicial origin," escapes the FAA's preemption only if the state law is designed to govern "the validity, revocability, and enforceability of contracts generally." Perry v. Thomas, 482 U.S. 483, 492 n. 9, 107 S.Ct. 2520, 96 L.Ed.2d 426 (1987). The Florida case law Prescott cites does not establish general rules of contract law; it addresses the narrower issue of enforcing arbitration clauses when an insurer disputes coverage. Perry specifically includes such judicially-created arbitration rules within the FAA's preemptive scope. See id. (); see also Davis v. Southern Energy Homes, Inc., 305 F.3d 1268, 1273 (11th Cir.2002) (). Contrary to Prescott's claim, Florida courts, and federal courts interpreting Florida law, have frequently enforced the arbitration of coverage disputes when the FAA applies to an insurance policy. See, e.g., American Int'l Group, Inc. v. Siemens Building Technologies, Inc., 881 So.2d 7 (Fla. 3d DCA 2004) (); Kong v. Allied Professionals Ins. Co., No. 8:07-cv-2142-T-17, 2008 WL 2853677 (M.D.Fla. July 22, 2008); Mayard-Paul v. The Mega Life & Health Ins. Co., No. 01-cv-3488, 2001 WL 1711519 (S.D.Fla. Dec. 21, 2001).11 Indeed, coverage issues have been referred to arbitration even in the absence of an interstate nexus and a FAA arbitration clause.12 See Thomas v. United Wisconsin Life Ins. Co., 348 F.Supp.2d 1320 (M.D.Fla.2004).
The Court also disagrees with Prescott's second argument that compelling arbitration would "invalidate, impair, or supercede" provisions of the UIPL and Surplus Lines Law in violation of the MFA. As stated earlier, Prescott argues that §§ 626.905, 626.907, and 626.908 of the UIPL —...
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