Jefferson Fire Ins. Co. v. Bierce & Sage, Inc.

• Decision Date: 07 December 1910
• Citation: 183 F. 588
• Parties: JEFFERSON FIRE INS. CO. v. BIERCE & SAGE, Inc.
• Court: U.S. District Court — Eastern District of Michigan

183 F. 588

JEFFERSON FIRE INS. CO. v. BIERCE & SAGE, Inc.

United States Circuit Court, E.D. Michigan, Southern Division.

December 7, 1910

Miller Smith, Paddock & Perry (George Quintard Horwitz, of counsel) for complainant.

Stevenson Carpenter & Butzel, for defendant.

DENISON District Judge (sitting by designation).

Defendant was general agent for complainant in four states. The Insurance Company, by notice, undertook to terminate the agency. The agent denied the rightfulness of the termination and refused to account for or pay over premiums in its hands, claiming the right to accumulate them and apply them against its damages for the unlawful cancellation. The Insurance Company filed this bill to obtain (1) an accounting of premiums and delivery of these trust moneys, (2) a construction of the contract, and (3) an injunction against any proceedings under the arbitration clause of the contract. A receiver for the premiums was appointed and an injunction issued. Later, the injunction was dissolved, the arbitration (ex parte) resulted in an award to the agent of $32,000 damages for the wrongful cancellation, and a suit at law to recover this award is pending.

It is first urged that Judge Swan's dissolution of the injunction leaves nothing in this case, except the accounting. The matter being one of complicated accounts between principal and agent involving trust funds, and the defendant claiming, by its letters and by its answer, the right to withhold premiums under its construction of its contract rights, the court had undoubted jurisdiction, not only to state an account, but to construe the contract so as to determine the very controversy out of which the failure to account arose; but there was no necessary reason why defendant should be enjoined from proceeding with the steps preliminary to the trial of its claim at law. It may well have been thought that these proceedings might be allowed in order that the entire matter might be so far along towards a final disposition upon either result of this present cause. I do not think it was intended to transfer the main question to the law court so that this court could not decide that question, if, in regular course, it should first be reached for decision in this court; as it has been now reached.

The right of this or of any court to determine whether the Insurance Company could cancel the contract without special cause, depends upon the arbitration clause which is:

'In the event of any misunderstanding as to the meaning of these presents or as to the operations thereunder, the same shall be settled in an equitable manner () than a legal manner, and all differences shall be referred to arbitration * * * whose decision shall be final. The parties to this agreement hereby waive the right of appeal to a court of law or equity from the decision of the arbitrators.'

A more complete ouster of courts from all jurisdiction could not well be formulated; and it is void under the familiar rule declared by the English courts in Scott v. Avery, 5 H. of L. Cases, 827, and by the United States Supreme Court in Home Insurance Company v. Morse, 20 Wall. 445, 22 L.Ed. 365. The well-considered exceptions to and limitations of this rule do not go beyond the cases where the advance agreement was (1) to submit to general arbitration specific questions of fact, the determination of which is a condition precedent to any legal action, or (2) to submit to a supervising umpire or a technical expert or one man who is both, questions of fact arising under his supervision or pertaining to his specialty, and such questions of construction or of law as are incidental to the controversy which may arise upon such subject. Munson v. Straits, etc., Co. (D.C.) 99 F. 787, affirmed 100 F. 1005, 41 C.C.A. 156; R.R. Co. v. March, 114 U.S. 549, 5 Sup.Ct. 1035, 29 L.Ed. 255; Conners v. U.S. (C.C.) 130 F. 614, affirmed on this point 141 F. 16, 72 C.C.A. 272; Memphis Trust Co. v. Brown & Ketchum Co. (6th Circuit) 166 F. 398, 93 C.C.A. 162; Spurrier v. La Cloche, Appeal Cases H. of L., 1902, p. 446. The circumstances of the present case do not bring it within any of these exceptions or limitations. The basic controversy here is wholly one of meaning and construction, and does not involve any application of the contract to facts arising during its execution, but existed to its full extent the moment the contract was signed.

Defendant's counsel suggests that the agreement may stand as a means of fixing damages in connection with a possible judicial holding that the cancellation was unlawful. The agreement cannot be saved by reading into it any such limitation not found in its language. There was no lawful foundation upon which the arbitration proceedings could be commenced; and being, as they were in this case, repudiated as soon as proposed and never accepted or acquiesced in to any extent, they had no legal force whatever.

It is further urged that the contract was a Pennsylvania contract and that, under Pennsylvania decisions, the arbitration agreement is valid. The premise that this should be considered a Pennsylvania contract may be assumed; but I do not think the decisions in that state justify the conclusion. The...