Brayman Const. Corp. v. Home Ins. Co.

• Decision Date: 12 February 2003
• Docket Number: No. 02-1316.,02-1316.
• Parties: BRAYMAN CONSTRUCTION CORPORATION v. HOME INSURANCE COMPANY; Zurich North America Insurance Company, Appellants.
• Court: U.S. Court of Appeals — Third Circuit

319 F.3d 622

BRAYMAN CONSTRUCTION CORPORATION v. HOME INSURANCE COMPANY; Zurich North America Insurance Company, Appellants.

No. 02-1316.

United States Court of Appeals, Third Circuit.

Argued November 20, 2002.

Filed February 12, 2003.

Emilie L. Bakal (Argued), Daniel J. Endick, Mound, Cotton, Wollan & Greengrass, New York, NY, Dennis J. Roman, Grogan Graffam, P.C., Pittsburgh, PA, for Appellant.

Christopher C. French (Argued), Nicholas P. Vari, Heath B. Monesmith, Kirkpatrick & Lockhart, Pittsburgh, PA, for Appellee.

Before BARRY and AMBRO, Circuit Judges, ACKERMAN,^* District Judge.

OPINION OF THE COURT

AMBRO, Circuit Judge.

This case requires us to decide whether a dispute between an insurance company and its insured must be arbitrated. In light of the strong federal policy favoring arbitration, we hold that the dispute is arbitrable and therefore reverse the District Court's decision.

I. Background

Plaintiff Brayman Construction Corp. ("Brayman") purchased a workers' compensation insurance policy (the "Policy"), effective January 1, 1995, from The Home Insurance Co. ("Home"). The parties subsequently entered into a separate retrospective premium agreement (the "RPA"), which required Brayman to pay Home an additional premium on the Policy whenever a covered claim led to a judgment or settlement. While the underlying Policy was silent as to arbitration, the RPA contained an arbitration clause, which read, in relevant part:

If any dispute shall arise between the Company and Insured with reference to the interpretation of this Agreement, or their rights with respect to any transaction involved, whether such dispute arises before or after termination of this Agreement, such dispute, upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen.... The decision in writing of any two arbitrators, when filed with the parties hereto, shall be final and binding on both parties.

The RPA also contained a provision that "[n]othing in this Agreement shall modify, alter, or amend any of the terms or conditions of the Policies relating to the insurance afforded thereunder."

This dispute arose because of a workers' compensation claim submitted by a former Brayman employee. Brayman believed that the claim was meritless. It alleges that it so informed Home, but that Home and its defense counsel never investigated whether the employee's alleged injuries existed before her employment with Brayman. As a result, Home improperly paid her compensation benefits.

Dissatisfied with this outcome, Brayman eventually persuaded Home to retain new defense counsel, who hired independent experts to assess the employee's claim and confirmed Brayman's suspicion that she had received treatment for her alleged injury before Brayman hired her. A workers' compensation judge then allowed Brayman to terminate her benefits.

Home assessed Brayman $195,100 under the RPA to account for the previous payment of the employee's claim. When Brayman refused to pay Home the retrospective premium, Home demanded arbitration in accordance with the RPA. In response to Home's demand to arbitrate, Brayman brought three claims before the District Court: (1) compensatory and punitive damages for Home's bad faith, for which 42 Pa. Cons.Stat. § 8371¹ provides a cause of action; (2) punitive and compensatory damages for Home's alleged breach of its contractual obligation under the Policy to provide Brayman with a competent defense to the employee's claim and of Home's contractually implied duty of good faith; and (3) a declaratory judgment that Brayman has no obligation to pay Home $195,110. Brayman alleges that it has sustained approximately $270,000 in injuries due to Home's mishandling of the employee's claim.² Along with its complaint, Brayman filed a motion to stay the arbitration. Home opposed Brayman's motion to stay arbitration and filed a cross-motion to compel arbitration and to dismiss or, in the alternative, to stay proceedings.

A magistrate judge issued a Report and Recommendation concluding that Brayman's motion to stay arbitration should be granted. The District Court issued an order adopting the magistrate judge's recommendation. Home appeals.

II. Jurisdiction and Standard of Review

Home is a New York corporation, Brayman is a Pennsylvania corporation, and Brayman seeks damages in excess of $75,000. The District Court therefore properly exercised diversity jurisdiction under 28 U.S.C. § 1332. Our Court has appellate jurisdiction under 9 U.S.C. § 16(a), which allows an appeal to be taken from, inter alia, a district court's denial of a petition to compel arbitration.

Whether the dispute between Brayman and Home is arbitrable turns on questions of contract construction and statutory interpretation, both questions of law over which we exercise plenary review. See Teamsters Indus. Employees Welfare Fund v. Rolls-Royce Motor Cars, Inc., 989 F.2d 132, 135 (3d Cir.1993) (contract construction); Moody v. Sec. Pac. Bus. Credit, Inc., 971 F.2d 1056, 1063 (3d Cir.1992) (statutory interpretation); see also Hoxworth v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir.1992) (exercising plenary review over a district court's denial of a motion to stay an action and compel arbitration).

III. Discussion

A. The RPA's arbitration provision makes this dispute arbitrable

The Federal Arbitration Act, 9 U.S.C. § 1, et seq. (the "FAA"), mandates that "any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983); see also Battaglia v. McKendry, 233 F.3d 720, 727 (3d Cir.2000) ("[A]n agreement to arbitrate a particular dispute `should not be denied unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'") (quoting AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). Moreover, the "presumption [in favor of arbitrability] is particularly applicable where the [arbitration] clause is ... broad." AT & T Techs., 475 U.S. at 650, 106 S.Ct. 1415.

Here, the RPA's arbitrability provision is broad in scope, sweeping into its reach "any dispute ... between the Company and Insured with reference to the interpretation of [the RPA], or their rights with respect to any transaction involved." See ACE Capital Re Overseas Ltd. v. Cent. United Life Ins. Co., 307 F.3d 24, 30 (2d Cir.2002) (noting that the identical clause has a "broad scope") (quoting Hartford Accident & Indem. Co. v. Swiss Reinsurance Am. Corp., 246 F.3d 219, 224 (2d Cir.2001)); Houston Gen. Ins. Co. v. Realex Group N.V., 776 F.2d 514, 516-17 (5th Cir.1985) (compelling arbitration because the language "any dispute ... with reference to ... [the parties'] rights with respect to any transaction involved" is as broad as the language "any dispute ... as to the rights or liabilities incident to this Agreement"). The language "any transaction involved" in the arbitration provision in our case is ambiguous. However, in light of the federal policy mandating that we interpret ambiguous contractual language in favor of arbitration, we read "any transaction involved" to mean any business dealing relating, in whole or in part, to the RPA. Because all of Brayman's claims present a dispute under the RPA or concern a "transaction involved" with the RPA dispute — Home's alleged mishandling of the workers' compensation claim — the entire dispute is covered by the RPA's arbitration provision.

Brayman argues, however, that this dispute concerns whether Home acted in good faith as required by the Policy, rather than whether Brayman owes Home a premium under the RPA. It cites Tippins, Inc. v. The Home Indemnity Co., Civil Action No. 97-1564 (W.D.Pa. Mar. 16, 1998) (slip op.), which addressed a situation virtually indistinguishable from that presented here (as well as the same defendant, Home). Tippins, like Brayman, argued that its dispute concerned the insurer's good faith, not whether it owed an additional premium. The Tippins Court agreed, saying that "[t]he relevant issue... is whether Home breached a duty of good faith and fair dealing.... Whether Tippins may [or] may not owe a premium payment to Home at the end of the day is incidental." Id. at 7. The District Court in this case found Tippins controlling.

Home cites district court caselaw from other circuits that takes the opposite view. Svedala Industries, Inc. v. The Home Insurance Co., 921 F.Supp. 576 (E.D.Wis. 1995), also involved a bad-faith claim and premium agreement language essentially identical to that here and in Tippins. In Svedala, which applied Wisconsin law, the Court held that the bad-faith claim was subject to arbitration because the "transaction involved" language in the premium agreement was sufficiently broad to bring the claim within the premium agreement's arbitrability provision. Id. at 579-80. In re Home Insurance Co., 908 F.Supp. 180 (S.D.N.Y.1995), involved the same parties and facts as Svedala and reached the same result.

While Tippins is both plausible and well-reasoned, we forego following its path and instead concur more with the Svedala Court's reasoning. In light of the breadth of the arbitration provision at issue here, as well as the federal policy counseling that doubts be construed in favor of arbitration, the District Court should have held this dispute arbitrable.

That the RPA says "[n]othing in this Agreement shall modify, alter, or amend any of the terms and conditions of the Policies relating to the insurance afforded thereunder" does not alter our conclusion. We read this provision, by virtue of the language "relating to the insurance afforded thereunder," to declare only that the RPA does not modify the insurance coverage afforded by the...