Masco Corp. v. Zurich American Ins. Co.

• Decision Date: 31 August 2004
• Docket Number: No. 03-3071.,03-3071.
• Citation: 382 F.3d 624
• Parties: MASCO CORPORATION, Plaintiff-Appellee, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellant, Near North Insurance Agency, Inc., et al., Defendants.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 624

382 F.3d 624

MASCO CORPORATION, Plaintiff-Appellee, v. ZURICH AMERICAN INSURANCE COMPANY, Defendant-Appellant Near North Insurance Agency, Inc., et al., Defendants.

No. 03-3071.

United States Court of Appeals, Sixth Circuit.

Argued April 27, 2004.

Decided and Filed August 31, 2004.

Appeal from the United States District Court for the Northern District of Ohio, James S. Gallas, United States Magistrate Judge.

Joseph A. Hinkhouse (argued), Damon N. Vocke (briefed), Lord, Bissell & Brook, Chicago, IL, Hugh D. Berkson (briefed), Hermann, Cahn & Schneider, Cleveland, OH, for Appellant.

Marc A. Sanchez, Frantz Ward (argued and briefed), Cleveland, OH, for Appellee.

Before MARTIN and ROGERS, Circuit Judges; BELL, Chief District Judge.^*

ROGERS, Circuit Judge.

The district court in this case refused to give effect to a broad arbitration clause in an insurance policy, where the underlying dispute between the parties revolved around policy coverage that neither party intended, but that was imposed on the contract by law as determined by subsequent Ohio Supreme Court opinions. Because the dispute nonetheless falls within the ambit of the arbitration agreement, we reverse.

Zurich American Insurance Company ("Zurich"), through its agent, Near North Insurance Agency, Inc. ("Near North"), sold to Masco Corporation ("Masco") two commercial automobile insurance policies, one effective June 30, 1997, to June 30, 1998, and a second, renewal policy, effective June 30, 1998, to June 30, 1999. The two policies included a deductible agreement, consisting of a basic agreement and a set of specifications. As part of the deductible agreement, Zurich agreed to pay and handle the claims made under the policies, and Masco agreed to pay Zurich a $500,000 deductible for claims made under the policies. The deductible agreement included an arbitration clause reading, "Any dispute arising out of the interpretation, performance or alleged breach of this agreement, shall be submitted to arbitration.. . ."

In negotiating the purchase of automobile insurance, Masco specifically instructed Near North that it wished to purchase policies that contained no uninsured/underinsured-motorist ("UM/UIM") coverage. Near North and Zurich provided Masco with forms that all parties thought rejected UM/UIM coverage. At the time the polices were purchased and the deductible agreement was entered into, both parties to this appeal thought that their contract did not include UM/UIM coverage.

Later events, however, rendered the parties' rejection of UM/UIM coverage ineffective. The Ohio Supreme Court in Scott-Pontzer v. Liberty Mutual Fire Insurance Co., 85 Ohio St.3d 660, 710 N.E.2d 1116 (1999), and Linko v. Indemnity Insurance Co. of North America, 90 Ohio St.3d 445, 739 N.E.2d 338 (2000), interpreted & sect; 3937.18 of the Ohio Revised Code to extend UM/UIM coverage to almost all corporations buying automobile insurance unless they expressly rejected the coverage in a very precise way. Both Zurich and Masco agree that the manner in which they rejected possible UM/UIM coverage, although arguably valid at the time of contracting, did not satisfy the Linko requirements. It is thus uncontroverted that a new burden of coverage arose flowing from Zurich to Masco and those affiliated with Masco.¹

Zurich has paid a pair of UM/UIM claims made against the policies. On March 11, 1999, Natalie Ruska, the daughter of an employee of a Masco subsidiary, was killed in an automobile accident. Ms. Ruska's estate sued Zurich in an Ohio state court claiming entitlement to Scott-Pontzer benefits. Zurich settled the suit, paying Ms. Ruska's estate approximately $700,000. Zurich then demanded payment of the $500,000 deductible from Masco.

On April 7, 1999, Linda Collins was injured in an automobile accident. At the time of the accident, Ms. Collins was a passenger in a vehicle being driven by her daughter, Rachael Collins, an employee of a Masco subsidiary. Collins sued Zurich demanding Scott-Pontzer benefits. At oral argument, Zurich admitted that it paid Ms. Collins at least $140,000 in Scott-Pontzer benefits. Masco believes that Zurich will demand payment of a deductible for the Collins claim.

Wishing to clarify its legal position, Masco filed a complaint in the Ohio Court of Common Pleas against Zurich and Near North seeking a declaration that: (a) it owed no obligation to pay deductibles for UM/UIM claims brought against Zurich, (b) if it is required to pay Zurich a deductible then Near North should indemnify it, and (c) that the deductible contained in the liability portion of the policies does not apply to UM/UIM coverage imposed by operation of law. Zurich removed the case to the federal district court, and moved to stay and compel arbitration based on the arbitration clause in the deductible agreement. The district court denied the motion to stay, holding that the "the underlying disputes in the complaint are beyond the scope" of the deductible agreement because "Masco could never have agreed to pay a deductible for coverage that would arise by operation of law years later as a result of a deficiency in the policy or waiver drafted by Zurich." Masco Corp. v. Zurich Am. Ins. Co., No. 4:02 CV 0988, slip op. at 5 (N.D.Ohio Dec. 5, 2002). Zurich timely appealed. The question of arbitrability is the sole issue on appeal.

The Federal Arbitration Act (the "FAA") manifests "a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983). "To enforce this dictate, [the FAA] provides for a stay of proceedings when an issue is referable to arbitration and for orders compelling arbitration when one party has failed or refused to comply with an arbitration agreement." Javitch v. First Union Sec., Inc., 315 F.3d 619, 624 (6th Cir.2003) (citing 9 U.S.C. §§ 3 & 4). This court reviews de novo a district court's decision whether to compel arbitration pursuant to the FAA. Burden v. Check Into Cash of Kentucky, LLC, 267 F.3d 483, 487 (6th Cir.2001).

Case law amply supports arbitrability of Masco's claims against Zurich in this case. "Before compelling an unwilling party to arbitrate, the court must engage in a limited review to determine whether the dispute is arbitrable; meaning that a valid agreement to arbitrate exists between the parties and that the specific dispute falls within the substantive scope of that agreement." Javitch, 315 F.3d at 624. "[A]s a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Moses H. Cone, 460 U.S. at 24-25, 103 S.Ct. 927 (1983). "[T]here is a general presumption of arbitrability, and any doubts are to be resolved in favor of arbitration `unless it may be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.'" Highlands Wellmont Health Network, Inc. v. John Deere Health Plan, Inc., 350 F.3d 568, 576-77 (6th Cir.2003) (quoting AT & T Techs., Inc. v. Communications Workers of Am., 475 U.S. 643, 650, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986)). Where, as here, the arbitration clause is broad, "only an express provision excluding a specific dispute, or `the most forceful evidence of a purpose to exclude the claim from arbitration,' will remove the dispute from consideration by the arbitrators." Id. at 577 (quoting AT & T Techs., 475 U.S. at 650, 106 S.Ct. 1415). Of course, "[w]hile ambiguities in the language of the agreement should be resolved in favor of arbitration, we do not override the clear intent of the parties, or reach a result inconsistent with the plain text of the contract, simply because the policy favoring arbitration is implicated." EEOC v. Waffle House, Inc., 534 U.S. 279, 294, 122 S.Ct. 754, 151 L.Ed.2d 755 (2002) (internal citations omitted).

Here, notwithstanding Masco's argument to the contrary, the arbitration clause in the deductible agreement was patently broad enough to cover the dispute as to whether Zurich can recover deductibles for the UM/UIM payments made under the policies. The arbitration clause encompasses "[a]ny dispute arising out of the interpretation, performance or alleged breach of [the deductible agreement]." J.A. at 66. Masco's claims against Zurich, which pray for a declaration that Masco has no obligation under the deductible agreement to pay deductibles for UM/UIM coverage, plainly fall within these spacious terms. The dispute "arises out of" the parties' conflicting "interpretation" of Masco's obligations under the deductible agreement and Masco's "alleged breach" of the deductible agreement by failing to pay deductibles for UM/UIM coverage.

Masco argues that, because the parties did not contemplate UM/UIM coverage, they could not possibly have contracted to submit disputes arising out of this coverage to arbitration. But, by its plain terms, the arbitration clause embraces any dispute arising out of the deductible agreement whether or not the parties anticipated the dispute at the time of contracting. Our task, of course, is limited to enforcing the parties' agreement as written, and we have no license to write a "foreseeability" limitation into the arbitration agreement. As the Seventh Circuit held in Deputy v. Lehman Bros., Inc., 345 F.3d 494, 513 (7th Cir.2003), "[w]hether a claim is subject to arbitration depends on the contractual language, and in this case the arbitration clause did not limit its scope to reasonably foreseeable claims." See also Fazio v. Lehman Bros., Inc., 340 F.3d 386, 395-96 (6th Cir.2003).

Masco further argues that (1) the deductible, which applies to "Masco Policies for Automobile Liability" (J.A. at 75), does not apply to UM/UIM claims, and (2) Ohio law forbids the imposition of a deductible on UM/UIM coverage created by operation of law. These arguments address the substance of the parties' dispute, not whether the...