Adir Int'l, LLC v. Travelers Indem. Co.

• Decision Date: 30 December 2020
• Docket Number: B293415
• Parties: ADIR INTERNATIONAL, LLC, Plaintiff and Respondent, v. THE TRAVELERS INDEMNITY CO., Defendant and Appellant.
• Court: California Court of Appeals Court of Appeals

ADIR INTERNATIONAL, LLC, Plaintiff and Respondent, v. THE TRAVELERS INDEMNITY CO., Defendant and Appellant.

B293415

COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION SEVEN

December 30, 2020

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

(Los Angeles County Super. Ct. No. BC575513)

APPEAL from an order of the Superior Court of Los Angeles County, Lisa Hart Cole, Judge. Affirmed.

Gordon & Rees, Asim K. Desai, Margaret M. Drugan; Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Blaine H. Evanson, and Samuel Eckman for Defendant and Appellant.

Klapach & Klapach and Joseph S. Klapach for Plaintiff and Respondent.

____________________

INTRODUCTION

The Travelers Indemnity Co. appeals from an order granting a motion for reconsideration and declaring arbitration provisions unenforceable and void. Travelers argues the trial court did not have jurisdiction under Code of Civil Procedure section 1008, subdivision (b), to reconsider its prior ruling because case law cited in the motion was not "new" law. Travelers also argues the trial court erred in ruling that the Insurance Code required Travelers to file the arbitration provisions with the Insurance Commissioner (Commissioner) for the arbitration provisions to be effective and that, if California required invalidation of the arbitration provisions, the Federal Arbitration Act (FAA) preempted California law. We affirm.

FACTUAL AND PROCEDURAL HISTORY

A. Workers' Compensation Insurance

1. The Policy

Adir International, LLC operates the Curacao chain of retail department stores. From 2004 to 2011, on eight occasions, Travelers issued a workers' compensation insurance policy (the policy) to Adir.¹ The policy was a "guaranteed cost" policy with standard language approved by the Commissioner.² The policycontained the rates it would charge Adir. In the policy, Travelers warranted that the policy would apply to a single uniform loss experience rating plan. Before issuing the policy to Adir, in accordance with Insurance Code section 11658,³ Travelers filed the policy with the Workers' Compensation Insurance Rating Bureau (Rating Bureau) for the Commissioner's review.⁴ The Commissioner did not object to the policy.

With regard to dispute resolution, the policy provided, in a section titled "Actions Against Us": "There will be no right of action against us under this insurance unless: . . . The amount you owe has been determined with our consent or by actual trial and final judgment." The policy did not contain an arbitration provision. The policy documents also included a "Policyholder Notice" that contained information regarding sections 11737 and 11753.1. The notice provided that, pursuant to sections 11737 and 11753.1, an insured aggrieved by Travelers' "decision adopting a change in a classification assignment that results in increased premium, or by the application of [Traveler's] rating system to [an insured's] workers' compensation insurance" could send Travelers a written complaint, and if "dissatisfied" with Travelers' decision upon review, an insured may appeal to the Commissioner.

The policy also contained an endorsement titled "Retrospective Rating Plan Premium Endorsement - Large Risk Alternative Rating Option." The Retrospective Rating Plan Endorsement provided: "This endorsement is issued because you chose to have the cost of the insurance rated retrospectively. This endorsement applies only to workers compensation and employers liability insurance when rated under the provisions of the Large Risk Alternative Rating Option that we have negotiated with you." The endorsement did not set forth its premium calculation, definitions, terms, rates, or the parties' obligations under the alternative rating option.⁵ The guaranteedcost rates were the only rates in the policy.

2. The Unfiled Agreement

As an annual condition for issuing the policy, Adir executed a separate agreement with Travelers that contained the terms and conditions for the Retrospective Rating Plan Endorsement.⁶ The agreement provided that Travelers issued the policy "based upon [Adir's] compliance with the terms and conditions set forth in the [agreement]." Thus, the agreement set forth the manner by which Travelers would retrospectively calculate the premium and other charges for the policy based on Adir's "incurred losses" and "claims handling charges." In addition, the agreement introduced a requirement that Adir post collateral, permitted Travelers to collect attorneys' fees, altered the policy's cancellation terms, and required the binding arbitration of disputes. If the terms of the policy and the agreement conflicted, the agreement's terms prevailed.

Regarding dispute resolution, the agreement stated: "The parties recognize that disputes may arise between them . . . about the parties' rights and duties relative to payment of premium andother charges under this Agreement and the Policies. In addition, disputes may arise regarding whether and how much our claims handling practices (e.g., investigation, administration, payments in connection with any claims under the Policies) may impact the amount of premium and other charges which you may owe to us under this Agreement and the Policies. . . . [I]n the event such a dispute is not resolved, either party shall submit the matter to arbitration and the other party shall be bound by such submission, provided that you shall not submit to arbitration any matter seeking to restrict our right to draw upon the Collateral or which would have the effect of restricting our right to draw upon the Collateral. [¶] Neither party shall submit to arbitration (i) any coverage disputes which arise under or in connection with claims or suits brought against the Polices . . . ." The agreement further provided that it was "deemed made in the State of Connecticut and involves interstate commerce. Accordingly, we and you agree that any arbitration proceeding arising out of or related to this Agreement shall be governed by the [FAA] . . . and, to the extent not inconsistent with the FAA, Connecticut arbitration law." Travelers did not file the agreement with the Rating Bureau.

B. The Commissioner's 2011 Notice Regarding Side Agreements

On February 14, 2011, the Commissioner issued a letter to the Rating Bureau requesting it to "notify its member insurers" that the Commissioner "has prohibited the use of collateral agreements, which is synonymous with the term 'side-agreement,' concerning workers' compensation insurance unless they are attached to the policy." The Commissioner further stated that an insurer's attempted enforcement of unfiled sideagreements could constitute a violation of California law. The Department's letter quoted former California Code of Regulation, title 10, section 2268 (regulation 2268). Regulation 2268, at that time, provided: "No collateral agreements modifying the obligation of either the insured or the insurer shall be made unless attached to and made a part of the policy . . . ."⁷

On February 17, 2011, the Rating Bureau issued a notice to its insurer members, including Travelers, stating that the Commissioner was "particularly concerned with arbitration provisions contained in unattached collateral agreements and considers such terms unenforceable unless the insurer can demonstrate that the arbitration agreement was expressly agreed to by the insured at the time the policy was issued." According to the Commissioner, after Travelers received this notice, Travelers issued the agreement for the final policy year to Adir, and Travelers "knew that continued use of unfiled collateral agreements would constitute a violation of California law." (Matter of Adir, supra, at pp. 45-46.)

C. Forum For the Parties' Premium Dispute

When Adir's insurance coverage expired on July 1, 2012, Adir did not renew its workers' compensation insurance with Travelers. On August 25, 2014, Travelers sent Adir a letter demanding arbitration pursuant to the agreement. Travelers sought arbitration regarding "the amount of premium currently owing to Travelers by Adir . . . for the period July 1, 2011 to July 1, 2012." On March 13, 2015, Adir filed a complaint in the Los Angeles County Superior Court against Travelers and Adir's insurance broker, Grosslight Insurance, Inc. Based on its workers' compensation insurance, Adir alleged causes of action against Travelers for breach of contract, tortious breach of the covenant of good faith and fair dealing, fraud based on intentional misrepresentation and fraud based on concealment.⁸ Adir alleged: "Travelers failed to properly evaluate and set appropriate reserves, failed to resolve claims timely and efficiently, failed to disclose settlement offers/demands that would have otherwise led to the resolution to workers' compensation claims saving [Adir] millions of dollars in fees, costs and expenses, failed to provide sufficient staff to overlook claims, improperly delayed resolution of claims by engaging in a pattern and practice of systematic 'partial body part denials,' and failed to properly audit and evaluate reserves on the workers' compensation claims made against [Adir]." Adir also sought a declaration that the arbitration provisions in the agreement were "void and unenforceable" because the arbitration provisions modified the policy and Travelers failed to file the provisions withthe Rating Bureau as required by section 11658.

On March 25, 2015, Adir filed a complaint with the Department based on Travelers' practice of using unfiled agreements in connection with its workers' compensation insurance policies. (Matter of Adir, supra, at p. 3.) Adir alleged that "Travelers' attempt to compel arbitration under the [agree...