American Employers' Ins. Co. v. Aiken

• Citation: 942 S.W.2d 156
• Decision Date: 13 March 1997
• Docket Number: No. 2-96-295-CV,2-96-295-CV
• Parties: AMERICAN EMPLOYERS' INSURANCE COMPANY, Commercial Union Insurance Company, the Employers' Fire Insurance Company, the Northern Assurance Company of America, and Cu Lloyds of Texas, Appellant v. Lanny AIKEN, LaVera Aiken and Lanny Aiken Insurance Agency, Inc., Appellee.
• Court: Texas Court of Appeals

Page 156

942 S.W.2d 156

AMERICAN EMPLOYERS' INSURANCE COMPANY, Commercial Union

Insurance Company, the Employers' Fire Insurance

Company, the Northern Assurance Company

of America, and Cu Lloyds of

Texas, Appellant v. Lanny AIKEN, LaVera Aiken and Lanny Aiken Insurance Agency, Inc., Appellee.

No. 2-96-295-CV.

Court of Appeals of Texas,

Fort Worth.

March 13, 1997.

Rehearing Overruled April 24, 1997.

David R. Hudgins, Tom J. Stollenwerck, Dallas, for appellant.

David Martin, Waco, for appellee.

Before DAY, LIVINGSTON and HOLMAN, JJ.

OPINION

HOLMAN, Judge.

This interlocutory appeal is authorized by TEX.CIV.PRAC. & REM.CODE ANN. § 171.017(Vernon Supp.1997). ¹ A group of insurance companies collectively called "Commercial Union" appeal the trial court's denial of their motion to compel arbitration and stay the lawsuit of an insurance agency and the agency shareholders, who claim the insurers wrongfully terminated its agency agreement. See id. § 171.002. The appeal challenges the trial court's findings that the agency's claims are not within the scope of the agency agreement's arbitration provision and that the provision is unconscionable and unenforceable. See id. § 171.001. Because the evidence establishes that the agency's claims are within the scope of the arbitration provision and because that provision is valid, enforceable, and not unconscionable, we reverse.

Background

Lanny Aiken and his wife, Lavera Aiken, are shareholders of Lanny Aiken Insurance Agency, Inc., in Granbury, Texas. Since 1958, when Mr. Aiken entered the insurance business, he has represented more than 20 insurance companies and has signed more than 30 agency agreements. The first agreement for the Aiken agency to represent Commercial Union in selling only commercial insurance lines became effective July 1, 1982 and did not contain an arbitration clause. At that time, the Aiken agency was located in Fort Worth. The second agreement between the agency in Fort Worth and Commercial Union was signed only two months later on September 1, 1982 and did include an arbitration clause. The next agreement Mr. Aiken signed was in 1985 for his Fort Worth agency to represent Commercial Union for commercial lines. In 1986, after moving his agency to Granbury, Mr. Aiken signed another agreement for the agency to represent the insurer for personal lines. The 1985 and 1986 agreements did not contain an arbitration clause.

The Arbitration Clause

The arbitration clause in the September 1, 1982 agency agreement states:

(18) Arbitration. If any dispute or disagreement shall arise in connection with any interpretation of this agreement, its performance or non-performance, or the figures and calculations used, the parties shall make every effort to meet and settle their dispute in good faith informally. If the parties cannot agree on a written settlement to the dispute within fourteen (14) days after it arises, or within a longer period agreed upon by the parties, then the matter in controversy shall be settled by arbitration, in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction.

The parties may agree to submit the dispute to one arbitrator; otherwise there shall be three, one named in writing by each party within ten days after notice of arbitration is served by either party upon the other, and a third arbitrator selected by these two arbitrators within fifteen days thereafter. If the arbitrators are unable to agree upon a third arbitrator, then the third arbitrator shall be chosen impartially by the American Arbitration Association. The determination of the arbitrator(s) shall be final and binding on all parties, provided such determination is made in writing and signed by a majority of the arbitrator(s). Where arbitration results in an award, such award shall include interest in the amount of six percent (6%) per annum running from the date when the amount that is the subject of the award first became due. The costs of arbitration shall be borne equally by the parties. [Emphasis added].

On November 3, 1989, Commercial Union sent Mr. Aiken a letter about a proposed new agency agreement, including a synopsis of the proposed new terms, pointing out the fact that those terms would include an arbitration agreement. Mr. Aiken testified that he read the synopsis and saw the information about an arbitration clause. Eventually, he received the new agency agreement by mail and signed it on January 1, 1990. Although the agreement covered the Aiken agency's sales of both personal and commercial lines of insurance for Commercial Union, Mr. Aiken testified that he had read the synopsis of the contract but did not read the actual agreement before he signed it.

Approximately seven months later, on July 16, 1990, the agreement was amended again and the arbitration clause remained intact. The other changes made in the July amendment are not in controversy. The text of the July 16 arbitration clause is identical to the arbitration clauses of both the September 1, 1982 and January 1, 1990 agreements between the Aiken agency and Commercial Union. The appeal focuses on the July 16, 1990 agency agreement because it is the one that was in effect when this dispute arose.

Scope of the Arbitration Clause

The first point of error asserts that the trial court erred by finding that the complaints made by the Aiken agency in this lawsuit are not within the scope of the agency agreement's arbitration clause. Whether the agreement imposes a duty to arbitrate this particular dispute is a matter of contract interpretation and a question of law for the court. Kline v. O'Quinn, 874 S.W.2d 776, 782 (Tex.App.--Houston [14th Dist.] 1994, writ denied), cert. denied, 515 U.S. 1142, 115 S.Ct. 2579, 132 L.Ed.2d 829 (1995). Any doubts regarding the scope of an arbitration agreement should be resolved in favor of arbitration. Cantella & Co., Inc. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996) (orig. proceeding); Merrill Lynch, Pierce, Fenner & Smith v. Eddings, 838 S.W.2d 874, 880 (Tex.App.--Waco 1992, writ denied).

Standard of Review

The Texas General Arbitration Act includes this statement:

A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract.

TEX.CIV.PRAC. & REM.CODE ANN. § 171.002 (Vernon Supp.1997). A trial court that is asked to evaluate the scope of a contract's arbitration clause may summarily decide whether to compel arbitration, based on affidavits, pleadings, discovery, and stipulations. Jack B. Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 269 (Tex.1992).

On appeal, we are asked to review whether the trial court's rulings as to scope and unconscionability were an abuse of discretion. Commercial Union asserts that the rulings were an abuse, and the Aikens say there was no abuse. We must decide whether the trial court's rulings were arbitrary and unreasonable, that is, made without reference to any guiding rules or principles. Worford v. Stamper, 801 S.W.2d 108, 109 (Tex.1990); Southwest Health Plan, Inc. v. Sparkman, 921 S.W.2d 355, 357 (Tex.App.--Fort Worth 1996, no writ).

Termination of the Agency Agreement

In June 1992, Commercial Union evaluated the losses it had experienced on claims filed by the holders of its insurance policies written through the Aiken agency and elected to terminate the Aiken agency's authority to write personal lines insurance under the July 16, 1990 agency agreement. The July 16, 1990 agreement includes this language:

20. Termination.

....

(C) This agreement may be terminated by [Commercial Union] at any time upon written notice to agent stating when, not less than ninety (90) days after mailing of such notice, such cancellation shall become effective.

....

(E) All termination procedures are subject to any statutory or regulatory requirements.

Mr. and Mrs. Aiken and their agency contend in this lawsuit that the method by which Commercial Union terminated the agency agreement violated a statutory requirement that before a fire and casualty insurer may terminate an agency agreement that has been in effect for a period of two years in Texas, the insurer must give the agency at least six-months' advance notice in writing. See TEX.INS.CODE ANN. art. 21.11-1 (Vernon 1981 & Supp.1997). While the Aikens are maintaining that Commercial Union did not comply with the statutory notice requirement, the insurer is contending that it did. The Aikens also assert that because the termination of the agency agreement caused the insurers' cancellation of policies held by the agency's policyholders, the agency termination violated a statutory prohibition against canceling a homeowner's policy unless the insured had filed three or more claims under the policy within a three year period. See id. art. 21.49-2B § 7(c), (d) (Vernon Supp.1997). Determining which party enjoys the correct position on the agency's claims that there were statutory violations by Commercial Union is simply an evidentiary matter not ripe for our review in this appeal. However, the impasse between the parties about whether the insurers did or did not satisfy the contractual obligation to comply with statutory requirements raises the question of whether that impasse is a "dispute or disagreement" that the parties' own contract requires them to arbitrate because the dispute arose in connection the insurer's alleged nonperformance of the agency agreement. It is.

The Agency's Tort Theories

The Aikens' third amended original petition also asserts tort claims. They allege that because the termination of the agency agreement resulted in cancellation of the outstanding insurance policies that were written while the agency...