Lanier v. Old Republic Ins. Co.

• Decision Date: 12 August 1996
• Docket Number: Civil Action No. 95-T-1395-N.
• Citation: 936 F. Supp. 839
• Court: U.S. District Court — Middle District of Alabama
• Parties: Tom LANIER d/b/a J.T. Lanier & Associates; and Chattawood Insurance Company, Plaintiffs, v. OLD REPUBLIC INSURANCE COMPANY and Old Republic Union Insurance Company, Defendants.

936 F. Supp. 839

Tom LANIER d/b/a J.T. Lanier & Associates; and Chattawood Insurance Company, Plaintiffs, v. OLD REPUBLIC INSURANCE COMPANY and Old Republic Union Insurance Company, Defendants.

Civil Action No. 95-T-1395-N.

United States District Court, M.D. Alabama, Northern Division.

August 12, 1996.

William Joseph Baxley, Charles A. Dauphin, Baxley, Dillard, Dauphin & McKnight, Birmingham, AL, for Tom Lanier dba J.T. Lanier & Associates, Chattawood Insurance Company.

Richard H. Gill, John Fairley McDonald, III, Copeland, Franco, Screws & Gill, P.A., Julia J. Weller, Sasser & Littleton, P.C., Montgomery, AL, Michael R. Hassan, Albert E. Fowerbaugh, Jr., Lord, Bissell & Brook, Chicago, IL, for Old Republic Ins. Co. Inc., Old Republic Union Insurance Company.

MEMORANDUM OPINION

MYRON H. THOMPSON, Chief Judge.

This lawsuit arises out of an arbitration award entered to resolve a dispute between plaintiffs Chattawood Insurance Company and Tom Lanier, d/b/a J.T. Lanier Associates, on one side and defendants Old Republic Insurance Company and Old Republic Union Insurance Company on the other side. It is now before the court on a petition for entry of judgment upon the arbitration award filed by Lanier & Associates and Chattawood Insurance and a motion to remand the arbitration award for clarification filed by the Old Republic companies. The court's jurisdiction has been properly invoked based on diversity of citizenship between the parties. 28 U.S.C.A. § 1332 (West 1966 & Supp.1993). For the reasons that follow, both the petition for entry of judgment and the motion for remand will be granted in part and denied in part.

I. BACKGROUND

A. Agency and Reinsurance Agreements

In 1987, Lanier & Associates entered into two agency agreements with the Old Republic companies to sell insurance policies to logging companies in Alabama, Georgia, and Florida. The agreements contained arbitration clauses for resolving disputes and also contained a provision stating that Alabama law would apply to disputes arising out of the contracts.¹

In 1988, Chattawood Insurance, which had been formed by Lanier & Associates, entered into a quota-share reinsurance agreement with the Old Republic companies. Under the reinsurance agreement, Chattawood Insurance was to pay 25% of the first $300,000 of the loss on each claim paid by the Old Republic companies on the policies sold by Lanier & Associates and 25% of the loss adjustment expenses incurred by the companies in processing, that is, adjusting, the claim. In return, the Old Republic companies were to pay Chattawood Insurance 25% of the premiums received on these policies. The reinsurance agreement provided that disputes were to be resolved through arbitration.²

In addition, pursuant to agreements entered in 1991, Chattawood Insurance and the Old Republic companies established independent bank custody accounts in which Chattawood Insurance was to maintain sufficient funds to secure its obligations to the Old Republic companies.³

B. Arbitration Proceeding

Numerous disputes arose between the parties regarding their business relationship. Most of the disputes centered around a sub-agent relationship Lanier & Associates and Chattawood Insurance established with a company in Florida called Chancy-Stoutamire, Inc. In 1992, the Old Republic companies terminated Lanier & Associates as an agent but continued using Chancy-Stoutamire, Inc. for the production of business. In November 1992, Lanier & Associates and Chattawood Insurance filed suit against the Old Republic companies in state court, and the Old Republic companies moved to compel arbitration. That case eventually went to the Alabama Supreme Court, which ruled that some of the claims in the case were subject to arbitration under the Federal Arbitration Act ("FAA"), as amended, 9 U.S.C.A. §§ 1-16 (West 1970 & Supp.1996). Old Republic Insurance Company v. Lanier, 644 So.2d 1258, 1263 (1994). The parties then proceeded to arbitration.

In November 1994, while the arbitration proceeding was pending, the Old Republic companies withdrew $445,427.50 from the bank custody accounts, claiming that those funds were owed to cover losses and loss adjustment expenses on policies sold by Lanier & Associates. Chattawood Insurance filed a motion with the arbitration panel, requesting that the Old Republic companies return the funds pending the outcome of the dispute. On December 9, 1994, the panel entered an interim order denying the motion based on the representation by the Old Republic companies that they would retain the funds in their own bank accounts until the conclusion of the arbitration proceeding. The panel ordered that "The status quo with respect to the custody accounts is to be maintained," and the Old Republic companies must give 15-days written notice to Chattawood Insurance and the panel before withdrawing further funds during the pendency of the proceeding.⁴

On July 14, 1995, the panel entered a final award of $400,000 to Lanier & Associates for breach of contract and $420,312.93 to the Old Republic companies for past losses and loss adjustment expenses. The award also provided that Chattawood Insurance would be liable for future loss adjustment expenses, "provided that the claim and loss adjustment expenses attributed to any particular claim shall not exceed 11.8% thereof," and that "if the full reinsurance premium was not ceded on any policy written or renewed by Chancy-Stoutamire from July 27, 1992 through October 26, 1992, then no such claim or loss shall be payable by Chattawood on any such policy."⁵ Upon receipt of the final award on July 26, the Old Republic companies sent a letter to the panel requesting "clarification and/or amendment" of three issues.⁶ Two of the issues are the subject of this litigation: whether the award gave the Old Republic companies $420,312.93 for losses and loss adjustment expenses in addition to or in place of the $445,427.50 it withdrew from the custody accounts in November 1994; and what the phrase "11.8% thereof" means.⁷

C. Federal Litigation

Shortly thereafter, Lanier & Associates and Chattawood Insurance turned to state court again and filed a motion for a preliminary injunction to prevent the arbitration panel from clarifying the award. The parties then discussed the issue and agreed to allow the courts to determine whether to remand the award. On October 11, 1995, the Old Republic companies filed a motion in state court to remand the award to the arbitration panel for clarification or in the alternative to modify, correct, or vacate the award.

Lanier & Associates and Chattawood Insurance then turned to federal court and filed a petition for entry of judgment. The Old Republic Companies filed an answer and counterclaims and refiled a motion to remand for clarification. The parties agreed to proceed in federal court, and so the petition for entry of judgment and the motion to remand are now before this court.

II. DISCUSSION

A. Choice-of-law

Lanier & Associates and Chattawood Insurance contend that, because the agency agreements state that Alabama law will govern disputes arising out of the contracts, the court should apply the Alabama Arbitration Act ("AAA"), Alabama Code of 1975 §§ 6-6-1 through 6-6-16 (Michie 1993), and enter a final judgment enforcing the award as it is, without remand. The Old Republic companies respond that the FAA applies and, under the FAA, this court has the authority to, and should, remand the award to the arbitration panel for clarification.

1. Volt and Mastrobuono

In Volt Information Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior University, 489 U.S. 468, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989), the Supreme Court provided general guidelines regarding preemption of state law by the FAA. In that case, the parties had entered into an arbitration agreement requiring that California law be applied. 489 U.S. at 471, 109 S.Ct. at 1251. One of the parties moved for a stay of arbitration pending resolution of related litigation. California arbitration law allowed a stay, but the FAA did not. Id. The Court stated that the FAA "was designed to overrule the judiciary's longstanding refusal to enforce agreements to arbitrate and place such agreements upon the same footing as other contracts." Id. at 474, 109 S.Ct. at 1253 (quotation marks omitted). "Section 2 of the FAA `creates a body of federal substantive law of arbitrability, applicable to any arbitration agreement within the coverage of the Act,' which requires that `questions of arbitrability ... be addressed with a healthy regard for the federal policy favoring arbitration,' and that `any doubts concerning the scope of arbitrable issues ... be resolved in favor of arbitration.'" Id. (quoting Moses. H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 24-25, 103 S.Ct. 927, 941-942, 74 L.Ed.2d 765 (1983)). The Court emphasized that "The FAA contains no express pre-emption provision, nor does it reflect a Congressional intent to occupy the entire field of arbitration." Id. at 479, 109 S.Ct. at 1255. "When Congress has not completely displaced state regulation in an area, state law may be pre-empted to the extent that it actually conflicts with federal law" or "undermines the goals and policies of the FAA." Id. at 477, 109 S.Ct. at 1255.

Applying these guidelines, the Supreme Court held that, because the parties had "agreed that their arbitration agreement will be governed by the law of California," the FAA did not preempt state law. Id. at 470, 109 S.Ct. at 1251. The Court explained that, "Interpreting a choice-of-law clause to make applicable state rules governing the conduct of arbitration — rules which are manifestly designed to encourage resort to the arbitral process — simply does not offend the rule of liberal construction in favor of arbitration ..., nor does it offend any other policy embodied in the FAA." Id. at 476, 109 S.Ct. at 1254.

Here, both sides argue that ...