Companion Life Ins. Co. v. Whitesell Mfg., Inc.

• Decision Date: 01 December 1995
• Citation: 670 So.2d 897
• Parties: COMPANION LIFE INSURANCE COMPANY v. WHITESELL MANUFACTURING, INC. 1941373.
• Court: Alabama Supreme Court

Page 897

670 So.2d 897

COMPANION LIFE INSURANCE COMPANY v. WHITESELL MANUFACTURING, INC.

1941373.

Supreme Court of Alabama.

Dec. 1, 1995.

Appeal from Colbert Circuit Court (CV-94-482); Inge Johnson, Judge.

William A. Davis III and Steven T. McMeekin of Starnes & Atchison, Birmingham, for Appellant.

David B. Walston and Jerry Dean Hillman of Walston, Stabler, Wells, Anderson & Bains, Birmingham, and James D. Hughston of Hughston, Hughston & Hughston, Tuscumbia, for Appellee.

HOUSTON, Justice.

The defendant, Companion Life Insurance Company ("Companion"), appeals from the trial court's order denying its motion to compel the plaintiff, Whitesell Manufacturing, Inc. ("Whitesell"), to submit its various state law claims (including claims based on allegations of fraud, negligence, wantonness, breach of contract, and bad faith failure to pay an insurance claim) to arbitration. ¹ We affirm.

Whitesell's claims arose out of Companion's alleged wrongful refusal to pay under an "excess loss" insurance policy that Whitesell had purchased. Under that policy, which contained an arbitration clause, Companion had agreed to reimburse Whitesell for expenses Whitesell incurred under its self-insured employee health care plan in excess of specified amounts. Whitesell filed its complaint on October 4, 1994. On October 27, 1994, Companion removed the case to the United States District Court for the Northern District of Alabama, Northwestern Division, and filed an answer asserting that Whitesell's state law claims were preempted by the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. § 1001 et seq. ("ERISA"). On November 7, 1994, Whitesell moved to remand the case to the Colbert County Circuit Court. The parties' attorneys met on November 15, 1994, pursuant to Rule 26(f), Fed.R.Civ.P., to formulate a comprehensive discovery plan to govern the litigation in the district court. At this meeting, Companion agreed to a scheduling plan for the district court to adopt. The agreement signed by Companion's attorney stated: "The case should be ready for trial by [September 15, 1995,] and at this time trial is expected to take approximately 3-4 days." On December 1, 1994, Whitesell submitted a brief to the district court in support of its motion to remand. On February 15, 1995, the district court remanded the case to the circuit court, holding that Whitesell's state law claims were not governed by ERISA. On March 6, 1995, Companion filed an amended answer, asserting for the first time that Whitesell's claims were subject to arbitration. Whitesell moved to strike the amended answer on the ground that Companion had waived its right to arbitration by initially attempting to dispose of its claims in the federal district court under ERISA. Companion later filed a motion to compel arbitration and to stay the circuit court proceedings. The trial court denied Companion's motion, ruling that Companion had substantially invoked the litigation process, to the prejudice of Whitesell, and, therefore, that it had waived its contractual right to arbitration.

This Court has never clearly articulated the standard by which an order denying a motion to compel arbitration on the ground of waiver should be reviewed. However, in Ex parte McKinney, 515 So.2d 693 (Ala.1987), this Court applied an abuse-of-discretion standard in reviewing the trial court's granting of a motion to compel arbitration over an objection that the moving party had waived its right to arbitrate. Logically, that same standard should be applied in reviewing the trial court's order in this case. See, also, Ex parte Main Street South, Ltd., 577 So.2d 1289, 1291 (Ala.1991); Ex parte Alexander, 558 So.2d 364, 365 (Ala.1990) (applying an abuse-of-discretion standard in reviewing the granting of a motion to compel arbitration).

The sole issue presented is whether the trial court abused its discretion in denying Companion's motion to compel arbitration.

It is well settled under Alabama law that a party may waive its right to arbitrate a dispute if it substantially invokes the litigation process and thereby substantially prejudices the party opposing arbitration. Whether a party's participation in an action amounts to an enforceable waiver of its right to arbitrate depends on whether the participation bespeaks an intention to abandon the right in favor of the judicial process and, if so, whether the opposing party would be prejudiced by a subsequent order requiring it to submit to arbitration. No rigid rule exists for determining what constitutes a waiver of the right to arbitrate; the determination as to whether there has been a waiver must, instead, be based on the particular facts of each case. See Huntsville Golf Development, Inc. v. Aetna Casualty & Surety Co., 632 So.2d 459 (Ala.1994); Ex parte McKinney, 515 So.2d 693 n. 2 (Ala.1987); Ex parte Merrill Lynch, Pierce, Fenner & Smith, Inc., 494 So.2d 1 (Ala.1986); Ex parte Costa & Head (Atrium), Ltd, 486 So.2d 1272 (Ala.1986), overruled on other grounds, Ex parte Jones, 628 So.2d 316 (Ala.1993). In accord, see S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507 (11th Cir.1990), cert. denied, 498 U.S. 1026, 111 S.Ct. 677, 112 L.Ed.2d 669 (1991).

After carefully considering the record and the well-written briefs, we conclude that the trial court did not abuse its discretion in denying Companion's motion to compel arbitration. We agree with the trial court's conclusion that Companion's response to Whitesell's complaint was inconsistent with any desire that it may have had to resolve the case by arbitration. Companion's removal of the case to the federal court, its attempt to have Whitesell's claims disposed of under ERISA in that judicial forum, and its invocation of the arbitration clause approximately five months after the filing of Whitesell's complaint and only after an adverse ruling in the federal district court, certainly indicate an intention on Companion's part, at least initially, to forfeit its right of arbitration in favor of a judicial resolution. Furthermore, we agree with the trial court's conclusion that Whitesell would be substantially prejudiced if Companion were allowed to invoke the arbitration clause. Whitesell's attorney submitted an affidavit stating that his firm had "rendered a total of 33.4 hours of professional services [to Whitesell] resulting in fees of approximately $4,175.00 ... to secure the remand of [the] action to the proper judicial forum." We are not persuaded by Companion's contention that Whitesell would have incurred these same expenses if Companion had insisted on arbitration at the outset of the action. Although the applicability of ERISA may also have been an issue during arbitration, as Companion insists, Whitesell would have been spared the expense and delay necessarily involved in contesting Companion's attempt to litigate the case in the federal court if Companion had invoked the arbitration clause earlier.

We reiterate that whether there has been a waiver of a right to arbitration must be decided on a case-by-case basis. We further note that our holding in this case is not inconsistent with our previous cases in which we have found no waiver of the right to arbitrate. See...