Bcs Ins. Co. v. Wellmark, Inc.

• Decision Date: 01 June 2005
• Docket Number: No. 04-2575.,04-2575.
• Parties: BCS INSURANCE COMPANY, Plaintiff-Appellant, v. WELLMARK, INCORPORATED, doing business as Blue Cross and Blue Shield of Iowa, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

410 F.3d 349

BCS INSURANCE COMPANY, Plaintiff-Appellant, v. WELLMARK, INCORPORATED, doing business as Blue Cross and Blue Shield of Iowa, Defendant-Appellee.

No. 04-2575.

United States Court of Appeals, Seventh Circuit.

Argued December 8, 2004.

Decided June 1, 2005.

Mark E. Wilson (argued), Marc J. Pearlman, Kerns, Pitrof, Frost & Pearlman, Chicago, IL, for Plaintiff-Appellant.

Fritz K. Huszagh (argued), Hinshaw & Culbertson, Chicago, IL, for Defendant-Appellee.

Before FLAUM, Chief Judge, and POSNER and SYKES, Circuit Judges.

SYKES, Circuit Judge.

BCS Insurance Company seeks an order compelling arbitration of a dispute with its insured, Wellmark, Inc., pursuant to an arbitration clause in its insurance policy that provides for arbitration of disputes "at the option of the . . . Insured." Wellmark, the insured, opted to litigate rather than arbitrate, as was its right under the plain language of the arbitration clause.

BCS prefers arbitration, however, and to avoid Wellmark's exercise of the litigation option has invoked what it refers to as the "relation back" provision of the policy. That provision, appearing in the liability limits section of the policy, says that claims arising out of the same or interrelated wrongful acts are treated as a single claim deemed made at the time the earliest claim was made. BCS contends that Wellmark's claim is related to certain other claims made against earlier policies BCS issued to Wellmark. The earlier policies contained mandatory rather than optional arbitration clauses. Therefore, BCS argues, the "relation back" clause operates to bring this claim within the mandatory arbitration provision of the earliest policy.

We reject this reading of the policy. The so-called "relation back" clause of the policy may or may not operate to limit the availability or scope of coverage for this claim. That, however, is a question on the merits of the claim, not its arbitrability. The arbitration clause of the policy in question unambiguously allows but does not require arbitration. It is the insured's choice. Wellmark chose litigation. The district court properly refused to compel arbitration.

I. Background

BCS issued errors-and-omissions insurance policies to Wellmark annually between 1994 and 1997. The policies provide "claims made and reported" coverage, which means that each policy only covers claims made against and reported by Wellmark within the specified policy period. See Pension Trust Fund for Operating Eng'rs v. Fed. Ins. Co., 307 F.3d 944, 955 (9th Cir.2002) (distinguishing types of insurance policies). The 1994-1996 policies contain mandatory arbitration clauses; however, the 1997 policy provides for optional arbitration and gives the choice to the insured. The arbitration clause of the 1997 policy reads as follows: "Any controversy arising out of or relating to this Policy or the breach thereof shall, at the option of the Participant Insured, . . . be settled by binding arbitration."

In four class action lawsuits brought in 1994, 1995, 1996, and 1997, Wellmark, which does business as Blue Cross and Blue Shield of Iowa, was accused of making illegal profits based on undisclosed agreements it had with medical providers. Wellmark ultimately settled the lawsuits and sought coverage from BCS. Following attempts at negotiation, Wellmark filed suit against BCS in the United States District Court for the Southern District of Iowa seeking coverage under the 1997 policy. BCS believed that arbitration of all of Wellmark's claims was required and filed suit in the Northern District of Illinois to compel arbitration.

By agreement of the parties, the district court ordered arbitration of the claims made under the 1994-1996 policies pursuant to the mandatory arbitration provisions in those policies. Based on the optional nature of the arbitration clause in the 1997 policy, however, the district court refused to order arbitration of the claim against that policy. The court rejected BCS's argument that the "relation back" provision in the 1997 policy brought the 1997 claim within the mandatory arbitration clauses of the earlier policies.¹

II. Discussion

The plain language of the 1997 policy permits but does not require arbitration, at the option of the insured, and that ought to be enough to turn away BCS's attempt to compel Wellmark to arbitrate the 1997 claim. BCS says it's not that simple. Citing AT & T Technologies, Inc. v. Communications Workers of America, 475 U.S. 643, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986), BCS argues that because the policy contains an arbitration clause, a "federal presumption of arbitration" applies. BCS also reiterates its argument that the "relation back" provision in the 1997 policy brings the 1997 claim within the mandatory arbitration provision of the earliest policy, covering the period January 1, 1994, to January 1, 1995.

The first argument is easily dispatched. BCS overreads the arbitration "presumption" language from AT & T Technologies. Arbitration is a matter of consent. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 479, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989). "The [Federal Arbitration Act] directs courts to place arbitration agreements on equal footing with other contracts, but it `does not require parties to arbitrate when they have not agreed to do so.'" EEOC v. Waffle House, Inc., 534 U.S. 279, 293, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002) (quoting Volt, 489 U.S. at 478, 109 S.Ct. 1248). The language of the parties' agreement determines arbitrability, and "[w]hile ambiguities in the language of the agreement should be resolved in favor of arbitration, we do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated." Id. at 294, 122 S.Ct. 754 (citation omitted).

Further, while "[t]here is no denying that many decisions proclaim that federal policy favors arbitration, . . . this differs from saying that courts read contracts to foist arbitration on parties who have not genuinely agreed to that device." Stone v. Doerge, 328 F.3d 343, 345 (7th Cir.2003). Just "[a]s there is no thumb on the scale in favor of one judicial forum over another, there is no preference for arbitration over adjudication either." Id. at 346. The judicial task is "to implement the p...