Igf Ins. Co. v. Hat Creek Partnership

• Decision Date: 06 June 2002
• Docket Number: No. 01-1267.,01-1267.
• Citation: 76 S.W.3d 859,349 Ark. 133
• Parties: IGF INSURANCE COMPANY v. HAT CREEK PARTNERSHIP.
• Court: Arkansas Supreme Court

76 S.W.3d 859

349 Ark. 133

IGF INSURANCE COMPANY v. HAT CREEK PARTNERSHIP.

No. 01-1267.

Supreme Court of Arkansas.

June 6, 2002.

Shaver & Smith, by: J. Harmon Smith, III, Wynne; and Henke-Bufkin, P.A., by: R. Jefferson Allen and W. Kurt Henke, Clarksdale, for appellant.

Butler, Hicky, Long, & Harris, by: Andrea Brock, Forrest City, for appellee.

TOM GLAZE, Justice.

This appeal involves the application and interpretation of Arkansas's statutes pertaining to the enforceability of an arbitration clause in an insurance contract, see Ark.Code Ann. § 16-108-201 (Supp.2001); jurisdiction is therefore proper under Ark. Sup.Ct. R. 1-2(b)(6).

On February 10, 1999, Hat Creek Partnership purchased from IGF Insurance Company a multiple peril crop insurance policy (MPCI) that covered Hat Creek's crops planted during the 1999 crop year in Cross County, Arkansas. During the early part of March 1999, Hat Creek's growing wheat was totally destroyed by wild geese. Hat Creek notified IGF in mid-March that wildlife had damaged its wheat crop, and on March 26, 1999, Robert Burns, an IGF adjuster, came to Hat Creek's farm to meet with Paul McCain, a representative of the farm. McCain informed Burns that the wheat had not yet been fertilized, but that it needed to be fertilized, if the crop was not damaged to such a degree that it could not be saved. After examining the wheat fields, Burns represented to McCain that the crop was a total loss. Burns then advised McCain that he would be back in a few days to finish up the claim and pay the loss; based on Burns's representations, Hat Creek did not fertilize the wheat crop.

When Burns did not return to the farm, McCain called to advise Burns that some of the wheat was trying to come back. Burns advised McCain not to worry about the crop because it had failed. On April 7, 1999, Burns came back to the farm to complete plant counts in connection with the wheat crop, and on April 8, 1999, Burns met with McCain and informed him, for the first time, that more than 1100 acres of Hat Creek's wheat crop was not insured.

Hat Creek subsequently filed suit against IGF, alleging that IGF had breached the insurance contract and that the company and its agent, Burns, were liable for negligent misrepresentation. The complaint sought $120,000 in losses, and asserted that, due to Burns's representations that the loss would be paid, the wheat was not fertilized. Burns's representations came at a time when fertilization of the wheat was at a critical point, and Hat Creek claimed that, as a result of Burns's statements that the wheat should not be fertilized and no money should be spent on it, Hat Creek lost all opportunity to salvage any portion of the wheat crop and the crop was a total loss.

IGF filed an answer in which it asked the trial court to stay the action, based on a written agreement to arbitrate contained in the MPCI policy. The arbitration clause read, in pertinent part, as follows:

20. Arbitration

(a) If you and we fail to agree on any factual determination, the disagreement will be resolved in accordance with the rules of the American Arbitration Association. Failure to agree with any factual determination made by FCIC must be resolved through the FCIC appeal provisions published at 7 C.F.R. Part 11.

Further, IGF specifically pled that Hat Creek's claims for recovery under state law were preempted and barred by federal regulations, particularly, 7 C.F.R. §§ 400.176 and 400.352. IGF argued that the complaint should be dismissed and referred to binding arbitration.

On March 27, 2000, IGF filed a motion to compel arbitration in which it argued that the arbitration agreement was enforceable under the Federal Arbitration Act ("FAA"), 9 U.S.C. § 1 et seq. Hat Creek responded by citing Ark.Code Ann. § 16-108-201 (Supp.2001), under which arbitration agreements contained in insurance contracts are not enforceable against insureds. Hat Creek additionally asserted that arbitration could not be compelled, because the Arkansas Uniform Arbitration Act preempts the FAA by virtue of the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq. Hat Creek also contended that the dispute did not arise from the insurance contract, but from representations made by an employee of the insurance company, and as such, IGF should not be allowed to compel Hat Creek to arbitrate the tort action. After a hearing on July 18, 2001, the trial court denied IGF's motion to compel arbitration. IGF brings this appeal from that order.

The denial of a motion to compel arbitration is an immediately appealable order. Ark. R.App. P.—Civ. 2(a)(12); Walton v. Lewis, 337 Ark. 45, 987 S.W.2d 262 (1999); Terminix Int'l Co. v. Stabbs, 326 Ark. 239, 930 S.W.2d 345 (1996); American Ins. Co. v. Cazort, 316 Ark. 314, 871 S.W.2d 575 (1994). Our review of the trial court's denial of a motion to compel arbitration is de novo. Showmethemoney Check Cashers v. Williams, 342 Ark. 112, 27 S.W.3d 361 (2000); Walton v. Lewis, supra.

For its first point on appeal, IGF contends that the FAA, rather than the Arkansas Uniform Arbitration Act, applies to this dispute and calls for arbitration between the parties. IGF notes the strong federal preference for arbitration. In Allied-Bruce Terminix Companies, Inc. v. Dobson, 513 U.S. 265, 115 S.Ct. 834, 130 L.Ed.2d 753 (1995), the Supreme Court stated that "the basic purpose of the Federal Arbitration Act is to overcome courts' refusals to enforce agreements to arbitrate," and held that the Act was to have an "expansive interpretation" in order to reach all transactions or contracts that fall within the broad scope of Congressional powers relating to interstate commerce. Further, 9 U.S.C. § 2 states the following:

A written provision in ... a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

(Emphasis added.) The Supreme Court has held that insurance policies are contracts "involving commerce" and are therefore subject to the Federal Arbitration Act. See United States Dep't of the Treasury v. Fabe, 508 U.S. 491, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993). Thus, IGF asserts, the arbitration clause in the MPCI policy issued to Hat Creek—a "contract evidencing a transaction involving commerce"—was enforceable, and the trial court should have granted its motion to compel arbitration.

Hat Creek responds that the Arkansas General Assembly has specifically exempted insurance policies from the kinds of contracts containing arbitration clauses that are generally held to be enforceable. Notably, Ark.Code Ann. § 16-108-201 (Supp.2001) provides as follows:

(b) A written provision to submit to arbitration any controversy thereafter arising between the parties bound by the terms of the writing is valid, enforceable, and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract; provided, that this subsection shall have no application to personal injury or tort matters, employer-employee disputes, nor to any insured or beneficiary under any insurance policy or annuity contract.

§ 16-108-201(b) (emphasis added). Hat Creek argues that, because its lawsuit was brought pursuant to its insurance policy with IGF, and because the complaint also contained tort allegations, the arbitration clause was not enforceable.

Additionally, Hat Creek contends that under the federal McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., state statutes regulating insurance policies are superior to federal statutes. The McCarran-Ferguson Act was enacted in 1945 in response to the Supreme Court's decision in United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 64 S.Ct. 1162, 88 L.Ed. 1440 (1944), wherein the Court held that an insurance company that conducted a substantial part of its business across state lines was engaged in interstate commerce and therefore was subject to federal antitrust laws. Prior to that time, "it had been assumed that issuing a policy of insurance [was] not a transaction of commerce subject to federal regulation" United States Department of the Treasury v. Fabe, 508 U.S. 491, 499, 113 S.Ct. 2202, 124 L.Ed.2d 449 (1993) (citations omitted), and therefore the States "enjoyed a virtually exclusive domain over the insurance industry." Id. However, after the Court's decision in South-Eastern Underwriters, Congress enacted the McCarran-Ferguson Act in order "to restore the supremacy of the States in the realm of insurance regulation." Fabe, 508 U.S. at 500, 113 S.Ct. 2202. The Fabe Court stated that Congress "[made] its mission very clear" with the first section of the Act, which provides that "Congress hereby declares that the continued regulation and taxation by the several States of the business of insurance is in the public interest, and that silence on the part of the Congress shall not be construed to impose any barrier to the regulation or taxation of such business by the several States." 15 U.S.C. § 1011. See Fabe, 508 U.S. at 500, 113 S.Ct. 2202.

After the Congressional declaration of McCarran-Ferguson's policy, the Act provides, in relevant part, as follows:

(a) State regulation

The business of insurance, and every person engaged therein, shall be subject to the laws of the several States which relate to the regulation or taxation of such business.

(b) Federal regulation

No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of...