Ex parte Foster

• Citation: 758 So.2d 516
• Parties: Ex parte Dorothy B. FOSTER. (In re Dorothy B. Foster v. David Belew et al.)
• Decision Date: 20 August 1999
• Court: Alabama Supreme Court

758 So.2d 516

Ex parte Dorothy B. FOSTER.

(In re Dorothy B. Foster v. David Belew et al.)

1972306.

Supreme Court of Alabama.

August 20, 1999.

Rehearing Denied January 28, 2000.

J. Danny Hackney of Gaiser & Associates, P.C., Birmingham; and Michael E. Newell of Jackson & Newell, Haleyville, for petitioner.

Michael C. Quillen and Emily Sides Bonds of Walston, Wells, Anderson & Bains, L.L.P., Birmingham, for respondents David Belew and William Belew Insurance Agency.

Dorothy A. Powell and Marda W. Sydnor of Parsons, Lee & Juliano, P.C., Birmingham, for respondent Southern United Fire Insurance Company.

On Rehearing Ex Mero Motu

PER CURIAM.

This Court released an opinion in this case on March 19, 1999. On March 25, 1999, it entered an order withdrawing that March 19, 1999, opinion and placing the case on rehearing, ex mero motu.

Dorothy B. Foster, the plaintiff in an action pending in the Jefferson County Circuit Court, petitions for a writ of mandamus directing the trial court to vacate its order compelling arbitration of her claims against the defendants David Belew, William Belew Insurance Agency, and Southern United Fire Insurance Company based on allegations of fraud, breach of contract, and bad-faith failure to pay an insurance claim. The petition is denied.¹

The trial court, without stating its reasons, granted the defendants' motion to compel arbitration. The motion was based on a broad arbitration provision in Foster's insurance policy that reads, in pertinent part, as follows:

"Arbitration—Any and all disputes, disputed claims and controversies of any nature whatsoever between any insured and Southern United Fire Insurance Company, its agents (or persons or entities alleged to be its agents), employees, representatives, and/or officers, whether such disputes, demands, claims or controversies are based upon, relate to or arise out of this Policy (or the issuance or events leading up to the issuance of this Policy), any disputed claims submitted under this Policy, or to any event, statement, act, omission or condition which occurred or failed to occur prior to the issuance of this Policy or which occurs or fails to occur contemporaneously with the issuance of this Policy or which occurs or fails to occur at any time after this Policy is issued, will be submitted to binding arbitration. In addition, all questions, disputes and controversies of any nature whatsoever related to the enforceability, validity, scope of interpretation of this Policy or this arbitration clause shall be resolved by binding arbitration."

(Emphasis on "claims" in original; other emphasis added.)²

Foster argues 1) that the McCarran-Ferguson Insurance Regulation Act, 15 U.S.C. §§ 1011-1012 ("McCarran-Ferguson Act"), precludes application of the Federal Arbitration Act, 9 U.S.C. § 1 et seq. ("FAA"), to policies of insurance and, therefore, that Ala.Code 1975, § 8-1-41(3), renders the arbitration provision unenforceable; 2) that the insurance application she signed contained no arbitration provision and, therefore, that she did not assent to the arbitration provision contained in her policy; 3) that she did not agree to the arbitration provision contained in her policy (for the reason stated in number 2 above) and, therefore, that enforcement of the arbitration provision would violate the FAA and, in turn, her rights under Article I, § 10, § 11, and § 13 of the Alabama Constitution of 1901; 4) that the arbitration provision is too vague or uncertain to enforce (i.e., that it fails to specifically disclose the various fees required to initiate the arbitration process and to pay the arbitrators); and 5) that the arbitration provision should not be enforced because, she says, it is part of an adhesion contract and is unconscionable. In support of her fifth argument, Foster contends that she was not aware that the arbitration provision would be in her policy (specifically, she argues that it was a complicated provision buried in a complicated document that she was presented on a "take-it-or-leave-it basis" and that she was not told of its existence) and that participation in the arbitration process would create a financial hardship on her.

The issue whether the contract grants to an arbitrator the power to decide preliminary issues of arbitrability is for the court. When deciding whether the parties agreed to arbitrate issues of arbitrability, a court must apply general statelaw principles that govern the formation of contracts, subject to the specific federallaw requirement that there be "clear and unmistakable" evidence that the parties agreed to submit issues of arbitrability to an arbitrator. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944, 115 S.Ct. 1920, 131 L.Ed.2d 985 (1995). See, also, I. Macneil et al., Federal Arbitration Law, § 14.10.1, § 14.10.3, § 15.1.4.1 (1995). In determining whether there is clear and unmistakable evidence that the parties agreed to arbitrate issues of arbitrability, the related and antecedent issues concerning whether an arbitration provision was fraudulently induced, is unconscionable, or is otherwise revocable, are for the court. See Allstar Homes, Inc. v. Waters, 711 So.2d 924 (Ala.1997); see, also, Doctor's Associates, Inc. v. Casarotto, 517 U.S. 681, 687, 116 S.Ct. 1652, 134 L.Ed.2d 902 (1996) ("generally applicable contract defenses, such as fraud, duress, or unconscionability, may be applied to invalidate arbitration agreements without contravening § 2" of the FAA); I. Macneil, supra, chapter 19 "Consensual Defenses to Enforcement: Fraud, Duress and Undue Influence, Incapacity, Mistake, Unconscionability, and Adhesion Contracts" (containing a good discussion of contract defenses available under the FAA). The arbitration provision in Foster's policy is clear on its face, and in unmistakable terms it manifests the parties' assent to submit issues of arbitrability to arbitration. See Loerch v. National Bank of Commerce of Birmingham, 624 So.2d 552 (Ala.1993).³ The clear language of the arbitration provision prima facie shows that the parties agreed to arbitrate preliminary issues of arbitrability. Nothing in the record tends to rebut that prima facie showing so as to create a factual issue as to the parties' intent.

In this regard, we specifically note that Foster does not argue that she was fraudulently induced to agree to allow an arbitrator to decide issues of arbitrability. Furthermore, this Court has rejected Foster's first argument—that the McCarran-Ferguson Act precludes application of the FAA to her insurance contract. See American Bankers Ins. Co. of Florida v. Crawford, 757 So.2d 1125 (Ala.1999). Foster's second argument—that she should not be compelled to arbitrate anything (including issues of arbitrability) because the arbitration provision was included in her policy and not in the application she signed—has no support in Alabama contract law. See Ex parte Rager, 712 So.2d 333 (Ala.1998), wherein this Court held that an insurance application does not have to include an arbitration provision in order for a policyholder to be bound by an arbitration provision set out in the policy. Therefore, Foster's third argument, which is based on the faulty premise of her second argument, is equally without merit. In addition, in Ex parte McNaughton, 728 So.2d 592 (Ala.1998), this Court held that arbitration agreements, even those resulting from an apparent inequality of bargaining power, are not in themselves unconscionable, and, recently, in Ex parte Dan Tucker Auto Sales, Inc., 718 So.2d 33 (Ala.1998), this Court considered and rejected the argument that financial hardship, standing alone, was a sufficient ground to justify revoking or rewriting an agreement to arbitrate:

"Phelps argues that it might place a hardship upon him to force him to pay the filing fees, but, if it does, this alone should not permit this Court to substitute different meanings for the terms used by the parties. To do so would be contrary to Alabama law:

"`Where a contract is unambiguous and plain in expression, we know of no canon of construction that warrants an interpretation the only effect of which is to relieve a party to the contract from consequences deemed by him hard or unfair. Where the parties express without ambiguity their intention, no court can alter the agreement, and no room for judicial construction is left.'

"Lilley v. Gonzales, 417 So.2d 161, 163 (Ala.1982).

"We should note, as did the Arizona Court of Appeals when it answered this same question in 1971 [A.P. Brown Co. v. Superior Court, 16 Ariz.App. 38, 490 P.2d 867 (1971)], that our holding in no way precludes claimants under financial hardships from acquiring a resolution to contract disputes they have agreed to arbitrate. Phelps did not exhaust his administrative remedies as to the matter of the filing fee; he did not pursue the options provided for him under the AAA Commercial Arbitration Rules. Rule 48 specifically provides that the AAA can defer or reduce the administrative fees `in the event of extreme hardship on the part of any party.' Phelps has not yet asked the AAA to do this. It is also possible under Rule 43 for the arbitrator to apportion all fees to one party or the other. The AAA's Commercial Arbitration Rules discourage frivolous claims, and, at the same time, they take into account the needs of financially distressed claimants."

718 So.2d at 37-38. Based on the holdings in Ex parte Rager, Ex parte McNaughton, and Ex parte Dan Tucker Auto Sales, we conclude that Foster's fifth argument is also without merit.⁴

When there is no genuine issue of fact concerning the formation of an agreement to arbitrate, the court may decide, as a matter of law, that the parties did or did not enter into such an agreement. TranSouth Financial Corp. v. Bell, 739 So.2d 1110 (Ala.1999). The record indicates that Foster and Southern United agreed to submit their disputes to arbitration, including disputes over the...