Life of America Ins. Co. v. Aetna Life Ins. Co., 84-2236

• Decision Date: 03 October 1984
• Docket Number: No. 84-2236,84-2236
• Citation: 744 F.2d 409
• Parties: LIFE OF AMERICA INSURANCE COMPANY, Insurance Investment Company and John W. Woodward, Plaintiffs-Appellants, v. AETNA LIFE INSURANCE COMPANY, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 409

744 F.2d 409

LIFE OF AMERICA INSURANCE COMPANY, Insurance Investment Company and John W. Woodward, Plaintiffs-Appellants, v. AETNA LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 84-2236

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Oct. 3, 1984.

Hutcheson & Grundy, James M. Lober, Houston, Tex., for plaintiffs-appellants.

Susman & McGowan, James Thomas McCartt, H. Lee Godfrey, Houston, Tex., for defendant-appellee.

Appeal from the United States District Court for the Southern District of Texas.

Before CLARK, Chief Judge, REAVLEY, and GARWOOD, Circuit Judges.

PER CURIAM:

Life of America Insurance Company (Life of America) appeals an order compelling arbitration of its dispute with Aetna Life Insurance Company (Aetna) and an order staying all proceedings pending arbitration. The issue on appeal is whether the McCarran-Ferguson Act precludes arbitration in this case because provisions of Texas insurance law and general law which provide for the award of punitive damages would be impaired. We find the McCarran-Ferguson Act does not preclude arbitration of this dispute between Life of America and Aetna and any issues as to awards of damages are premature. The district court's order and stay are affirmed.

I.

In April 1970, Life of America entered into a Reinsurance Agreement with Aetna under which Life of America agreed to reinsure 37% of the coverage under a group life insurance plan with El Paso Natural Gas Company (El Paso). During the term of the Reinsurance Agreement, Aetna would refund to El Paso a portion of the premiums paid if at the end of each year the actual loss experience was less than the estimated loss experience upon which the premiums were calculated. Life of America would contribute its pro-rata share of these refunds.

In 1983 a dispute arose over Life of America's obligation to participate in the refunds. Life of America contends Aetna is seeking contributions for a year which commenced after the Reinsurance Agreement terminated. Aetna sought to submit the dispute to arbitration as provided in the Reinsurance Agreement. ¹ Life of America filed this suit seeking a declaratory judgment that it was not obligated to make further payments under the Reinsurance Agreement, an injunction against arbitration of the suit, treble damages for violation of article 21.21 Sec. 4(8) of the Texas Insurance Code, ² and treble damages for violation of Sec. 17.46(12) of the Texas Deceptive Trade Practices-Consumer Protection Act ³ (DTPA). In response, Aetna asserted its right under sections 3 and 4 of the United States Arbitration Act to seek an order compelling arbitration and a stay of all proceedings pending arbitration. ⁴ The district court granted Aetna's motions. Life of America now claims that arbitration of this dispute would impair, invalidate or supersede state insurance laws and therefore conflict with the McCarran-Ferguson Act. ⁵

II.

Life of America claims its dispute with Aetna is not arbitrable because public policy prohibits an arbitrator from awarding treble damages. Thus, by sending this dispute to arbitration, Life of America will be denied treble damages, a remedy it is entitled to under Texas DTPA and insurance laws. Life of America argues that deprivation of these state-delineated remedies contravenes the McCarran Act which prohibits federal law from impairing, invalidating or superseding state law promulgated to regulate the business of insurance.

Life of America does not urge that its arbitration agreement impinges on any right other than its right to treble damages under Texas law. In analyzing this question, we look separately at each of Life of America's treble damage claims.

We look first at the claim for treble damages under the Texas DTPA. In Commerce Park at DFW Freeport v. Mardian Construction Co., 729 F.2d 334 (5th Cir.1984), this court dealt specifically with the question of whether treble damages were awardable in arbitration of claims under the Texas DTPA. The court determined that the propriety of an award of treble damages by an arbitrator was best left to an action to enforce an award, should one be granted. Id. at 339 n. 6. In addition we note that the DTPA is a general statute. Whether Texas intended it to apply when a statute specifically designed to regulate the business of insurance also provided for treble damages is unclear. We further note that the agreement to arbitrate this claim, in and of itself, does not implicate the McCarran Act.

Life of America's claim for treble damages under Texas insurance laws is a bit more complicated. These laws were promulgated to regulate the business of insurance. However, Life of America's sole protest against the arbitration it contracted for is that it could be denied treble damages. This argument prematurely assumes both that an arbitrator will award it actual damages and that such an arbitrator would be prohibited from granting treble damages. Although we are aware of Texas authority prohibiting arbitrators from awarding punitive damages, see International Union of Operating Engineers, Local No. 450 v. Mid-Valley, Inc., 347 F.Supp. 1104, 1109 (S.D.Tex.1972), whether an arbitrator appointed under this agreement may award treble damages when such an award is specifically authorized by Texas statute is unanswered. Were we to deny arbitration on the assumption that an arbitrator was unable to award treble damages, we would be deciding prematurely the propriety of Texas treble damages and their availability in this arbitration. We refuse at this juncture to predict whether actual damages should be awarded in this case. Furthermore, we expressly pretermit any ruling on the propriety of awarding treble damages in this arbitration. Rather, we follow the approach taken by this court in Commerce Park that such a determination is best left to an action to enforce the award, should one be made. 729 F.2d at 339 n. 6.

Until arbitration establishes that Life of America is entitled to damages but must be denied treble damages, its asserted rights under Texas law have not been impaired. The arbitrator may fashion a remedy that fully satisfies Life of America or it may find Life of America is entitled to no actual damages, ⁶ in which case there would be nothing to treble.

We expressly refrain from deciding that Texas law applies to this dispute. In a choice-of-law clause, the parties agreed that Connecticut law would govern the Reinsurance Agreement. ⁷ They also selected Hartford, Connecticut as the forum where arbitration would take place. ⁸ Life of America has not alleged that the arbitration or choice-of-law agreements were induced by fraud or overreaching so as to negate their validity and effect. The briefs do not elucidate any special interest of the State of Texas which would justify supplanting the chosen law of Connecticut for that of Texas. Whether this dispute between two insurance companies involves insureds who are Texas residents is an open issue. In short, whether there is reason to ignore the choice-of-law clause agreed to by the parties is a matter to be decided by the arbitrator.

Our decision is influenced heavily by the strong national policy favoring arbitration. See Southland Corporation v. Keating, --- U.S. ----, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984). ⁹ This court has adhered consistently to that policy, noting that arbitration should not be denied "unless it can be said with positive assurance that an arbitration clause is not susceptible of an interpretation which would cover the dispute at issue...." Commerce Park, 729 F.2d at 338; Wick v. Atlantic Marine, Inc., 605 F.2d 166, 168 (5th Cir.1979). Similarly, the settlement of disputes by arbitration is favored in the law of Texas. Carpenter v. North River Insurance Co., 436 S.W.2d 549, 553; (Tex.Civ.App.--Houston [14th Dist.] 1968, writ ref'd n.r.e.).

When a written arbitration agreement exists, the arbitrability of a dispute is a question to be decided by the courts on the basis of the contract entered into by the parties. 9 U.S.C. Secs. 3 & 4; Commerce Park, 729 F.2d at 338. Absent allegations of fraud in the inducement of the arbitration clause itself, arbitration must proceed when an arbitration clause on its face appears broad enough to encompass the parties' claims. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 406, 87 S.Ct. 1801, 1807, 18 L.Ed.2d 1270 (1967); Commerce Park, 729 F.2d at 338-39. On its face, the language of the arbitration clause in the contract between Life of America and Aetna is broad enough to cover the claims here at issue.

At this juncture, we see no certain impairment of Texas insurance law which would trigger the McCarran Act or thwart arbitration. Therefore, we are swayed by the ponderous mandate which declares that doubts as to the availability of arbitration must be resolved in favor of arbitration. Moses H. Cone Memorial Hosp. v. Mercury Const., 460 U.S. 1, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983); United Steelworkers v. Warrior & Gulf Nav. Co., 363 U.S. 574, 583, 80 S.Ct. 1347, 1353, 4 L.Ed.2d 1409 (1960); Commerce Park, 729 F.2d at 338. When the overwhelming public policy in favor of arbitration is weighed against the speculative infringement upon Texas insurance laws which this case presents, the balance clearly favors the district court's...