American Fidelity Fire Ins. Co. v. Barry

• Decision Date: 05 January 1978
• Docket Number: Docket No. 77-1993
• Citation: 80 Mich.App. 670,264 N.W.2d 92
• Parties: AMERICAN FIDELITY FIRE INS. CO., Plaintiff-Appellant, v. Dorothy BARRY and American Arbitration Association, Defendants-Appellees.
• Court: Court of Appeal of Michigan — District of US

Page 92

264 N.W.2d 92

80 Mich.App. 670

AMERICAN FIDELITY FIRE INS. CO., Plaintiff-Appellant, v. Dorothy BARRY and American Arbitration Association Defendants-Appellees.

Docket No. 77-1993.

Court of Appeals of Michigan.

Jan. 5, 1978.

Leave to Appeal Denied April 5, 1978.

Released for Publication April 6, 1978.

Lakin & Worsham, P. C., by Sanford N. Lakin, Southfield, for plaintiff-appellant.

Charles E. Raymond, Wyandotte, for defendants-appellees.

Before RILEY, P. J., and WALSH and MILLER, ^* JJ.

PER CURIAM.

This is an appeal from the granting of accelerated judgment in favor of defendants in an action for declaratory judgment brought by plaintiff insurance company. Plaintiff sought a determination that there existed no contract between the parties providing for uninsured motorist coverage with respect to a particular vehicle, and also sought to enjoin arbitration proceedings demanded by defendant Barry.

It is undisputed that there is an insurance contract between the parties applicable to a 1966 Mercury in which defendant claims she was driving when she was injured by an uninsured motorist. The insurer, though, denies that the policy includes uninsured motorist coverage. The policy contains an arbitration provision:

"8. Arbitration: If any person making claim hereunder and the company do not agree that such person is legally entitled to recover damages from the owner or operator of an uninsured automobile because of bodily injury to the insured, or do not agree as to the amount of payment which may be owing under this endorsement, then, upon written demand of either, the matter or matters upon which such person and the company do not agree shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Such person and the company each agree to consider itself bound and to be bound by any award made by the arbitrators pursuant to this endorsement."

Under M.C.L.A. § 600.5001(2); M.S.A. § 27A.5001(2), "(s)uch an agreement shall stand as a submission to arbitration of any controversy arising under said contract not expressly exempt from arbitration by the terms of the contract". Defendant contends and the trial court agreed that her dispute with plaintiff as to the scope of her coverage is arbitrable under their contract; plaintiff insists otherwise.

The scope of arbitration is determined by the contract between the parties; whether an issue is arbitrable or not is a matter for judicial determination. Kaleva-Norman-Dickson School District No. 6, Counties of Manistee, Lake & Mason v. Kaleva-Norman-Dickson School Teachers' Association,393 Mich. 583, 587, 227 N.W.2d 500 (1975); Brown v. Holton Public Schools,397 Mich. 71, 74, 243 N.W.2d 255 (1976). But the scope of a court's consideration whether an issue is arbitrable is sharply limited. If a claim on its face is governed by the contract, it should be decided by the arbitrator unless strong evidence demonstrates that the matter is outside the scope of the arbitration provision. Kaleva, supra, 393 Mich. at 590-595, 227 N.W.2d 500; Ferris State College v. Ferris Faculty Association, 72 Mich.App. 244, 247-248, 249 N.W.2d 375 (1976). Recently, this Court forcefully restated the rule of judicial deference toward the arbitration of arbitrability:

"Public policy in this state favors arbitration in the resolution of disputes. Kaleva-Norman-Dickson School District No. 6 v. Kaleva-Norman-Dickson School Teachers' Association, 393 Mich. 583, 227 N.W.2d 500 (1975). Arbitration clauses contained in contracts are to be liberally construed, Stadel v. Granger Brothers, Inc., 4 Mich.App. 250, 258, 144 N.W.2d 609 (1966), resolving any doubts about the arbitrability of an issue in favor of arbitration. Chippewa Valley Schools v. Hill, 62 Mich.App. 116, 233 N.W.2d 208 (1975), lv. den. 395 Mich. 806 (1975). If the arbitration clause arguably includes the asserted dispute, then arbitration should be ordered upon proper motion. GCR 1963, 769. Kaleva-Norman-Dickson School District No. 6 v. Kaleva-Norman-Dickson School Teachers' Association, supra, 393 Mich. at 592, 227 N.W.2d 500; (Board of Control of) Ferris State College v. Ferris Faculty Association, 72 Mich.App. 244, 249 N.W.2d 375 (1976)." Campbell v. Community Service Insurance Co. of Lansing, Michigan, 73 Mich.App. 416, 419, 251 N.W.2d 609, 610 (1977).

In this case, defendant's claim "on its face" relates to the insurance contract for the 1966 Mercury created by the endorsement of January 3, 1975. It is true that on the merits the claim appears to be unsound. The endorsement by which the 1966 Mercury was substituted for another vehicle appears to make no provision for uninsured motorist coverage. But the question is not whether the claim is valid but rather who is to pass on its validity in the first instance. As Justice Levin wrote in his Kaleva opinion:

"In deciding whether a dispute involving an issue of contract interpretation is arbitrable, a court should guard against the temptation to make its own interpretation of the substantive provisions of the contract encompassing the merits of the dispute. If the parties have agreed that an arbitrator shall decide questions of contract interpretation, the merits of the dispute are for the arbitrator.

"Where a court finds itself weighing the pros and cons of each party's interpretation of substantive provisions of the contract, it is likely that the court has gone astray. The question for the court is not whether one interpretation or another is correct, but whether the parties have agreed that an arbitrator shall decide which of the competing interpretations is correct." 393 Mich. at 594-595, 227 N.W.2d at 505.

The arbitrability of an issue is ascertained through a three-stage inquiry.

First, is there an arbitration agreement in a contract between the parties? We agree with the trial court that there is. Plaintiff makes the strained argument that there are actually several contracts for bodily injury liability, for property damage liability, etc. between plaintiff and defendant with respect to each insured vehicle, consequently it can be said that there is no contract for uninsured motorist coverage under which to arbitrate anything. We disagree. The cases cited by plaintiff finding distinct insurance contracts which could be "stacked", Citizens Mutual Insurance Co. v. Turner, 53 Mich.App. 616, 220 N.W.2d 203 (1974); Arminski v. United States Fidelity & Guaranty Co., 23 Mich.App. 352, 178 N.W.2d 497 (1970), are inapposite, among other reasons, because, there, separate and independent premiums were paid on separate vehicles. We reject plaintiff's argument in this context as an abstract formalism, as we have rejected similar arguments by other insurers seeking to avoid arbitration under agreements they had themselves prepared. See Detroit Automobile Inter-Insurance Exchange v. Spafford, 62 Mich.App. 365, 233 N.W.2d 283 (1975), and Campbell v. Community Service Insurance Co. of Lansing, Michigan, supra. We, therefore, conclude that the present dispute "presents questions of coverage", Spafford, supra, at 369, 233 N.W.2d 283, and is a "dispute * * * over payment", Campbell, supra, 73 Mich.App. at 419, 251 N.W.2d 609.

Second, is the insured's claim "on its face", Kaleva, supra, or "arguably", Campbell, supra, related to the contract? In answering this question, any doubts should be resolved in favor of arbitration. Chippewa Valley Schools v. Hill, 62 Mich.App. 116, 120, 233 N.W.2d 208 (1975), lv. den., 395 Mich. 806 (1975); Campbell, supra, 73 Mich.App. at 419, 251 N.W.2d 609. Defendant's claim "on its face" is based on her insurance contract with plaintiff concerning the 1966 Mercury. The claim may well prove to be as groundless as defendant insists it is, but even if it would be a "clear error" to make an award to the defendant, the dispute is arbitrable. Compare Spafford, supra, with Detroit Automobile Inter-Insurance Exchange v. Spafford, 76 Mich.App. 85, 255 N.W.2d 780 (1977).

Third, is the dispute "expressly exempt" by the terms of the contract? If not, it is arbitrable. M.C.L.A. § 600.5001(2); M.S.A. § 27A.5001(2), Kaleva, supra, 393 Mich. at 592-593, 227 N.W.2d 500. Plaintiff insurer has not claimed that the arbitration provision exempts disputes of this type, though there was nothing to prevent it from excluding "matters of coverage" from arbitration, see, e. g., American Motorists Insurance Co. v. Llanes, 64 Mich.App. 105, 108, 235 N.W.2d 77 (1975), rev. on other grounds,396 Mich. 113, 240 N.W.2d 203 (1976). An ambiguous insurance contract is construed against the insurance company which prepared it. Lintern v. Zentz,327 Mich. 595, 600, 42 N.W.2d 753, 18 A.L.R.2d 713 (1950); 43 Am.Jur.2d, Insurance, § 271, pp. 329-331. The case against the defendant may well be as strong as the plaintiff insists, but the arguments should be addressed to the arbitrator, not the courts. This Court disfavors attempts "to segregate disputed issues into arbitrable sheep and judicially-triable goats (or vice versa )". Maryland Casualty Co. v. McGee, 32 Mich.App. 539, 545, 189 N.W.2d 44, 47 (1971); see also Michigan Mutual Liability Co. v. Graham, 44 Mich.App. 406, 407, 205 N.W.2d 289 (1973). If the arbitrator exceeds his authority because a nonarbitrable issue has been submitted to him, the award may be vacated. GCR 1963, 769.9, Detroit Demolition Corp. v. Burroughs Corp.,45 Mich.App. 72, 79-80, 205 N.W.2d 856 (1973), Ferndale Education Association v. School District for the City of Ferndale # 2, 67 Mich.App. 645, 649-650, 242 N.W.2d 481 (1976).

Plaintiff insists that it has to challenge the jurisdiction of the arbitrator before proceeding to arbitration or else waive any claim that the dispute is not arbitrable, citing American Motorists Insurance Co. v. Llanes, 396 Mich. 113, 240 N.W.2d 203 (1976). In Llanes the Supreme...