Mutual Assur., Inc. v. Wilson

• Decision Date: 01 May 1998
• Citation: 716 So.2d 1160
• Parties: MUTUAL ASSURANCE, INC. v. Charles E. WILSON. 1970030.
• Court: Alabama Supreme Court

Page 1160

716 So.2d 1160

MUTUAL ASSURANCE, INC. v. Charles E. WILSON.

1970030.

Supreme Court of Alabama.

May 1, 1998.

Thomas W. Christian, LaBella S. Alvis, and Rhonda Pitts Chambers of Rives & Peterson, P.C., Birmingham, for appellant.

Warren B. Lightfoot, Madeline H. Haikala, and Robin H. Graves of Lightfoot, Franklin & White, L.L.C., Birmingham, for appellee.

HOUSTON, Justice.

This action arose out of a contract dispute between Dr. Charles E. Wilson and his medical liability insurance carrier, Mutual Assurance, Inc. The issue presented is whether that dispute is arbitrable, pursuant to a predispute arbitration provision contained in Dr. Wilson's insurance policy.

The following facts govern our resolution of this case: Dr. Wilson, who is a licensed Alabama physician, practices medicine in Lauderdale County, which borders the states of Mississippi and Tennessee. Dr. Wilson is also licensed to practice in Mississippi, and he treats patients from Mississippi and Tennessee in his Lauderdale County office. Mutual Assurance is an Alabama corporation with its principal place of business in Birmingham. After six of his patients had filed separate actions against him for damages, based on allegations that he had negligently injected a caustic cleaning solution into their bladders during surgery, Dr. Wilson turned to Mutual Assurance to handle their claims. Dr. Wilson also retained an attorney who was not affiliated with Mutual Assurance to represent him.

Dr. Wilson's insurance policy provided for a $25,000 deductible per "medical incident." The policy also provided that "[t]he Company shall not make a settlement without the written consent of the Named Insured provided that: (1) The Named Insured shall not unreasonably withhold consent." When he learned that Mutual Assurance was attempting to settle the six malpractice actions, Dr. Wilson, through his attorney, informed Mutual Assurance that he would consent to settle the claims on two conditions, one of which was that he be allowed to make a one-time payment of $25,000 in order to "settle all of the cases." This correspondence came after Mutual Assurance had notified Dr. Wilson by letter that it would expect a $150,000 payment from him, i.e., the $25,000 deductible times the six medical negligence claims brought against him. Mutual Assurance rejected the conditions proposed by Dr. Wilson. Dr. Wilson nonetheless agreed to allow Mutual Assurance to settle the claims even though he and Mutual Assurance continued to disagree as to whether the policy called for a $25,000 deductible or a $150,000 deductible.

Mutual Assurance eventually requested that Dr. Wilson submit their contract dispute to arbitration, pursuant to the arbitration provision contained in the policy. That provision reads as follows:

"Any dispute, claim or controversy arising out of or relating to this policy, its performance or alleged breach shall be settled by arbitration to be conducted in Birmingham, Alabama, before a single arbitrator, in accordance with the Rules of the American Arbitration Association. If the arbitration is instituted by the Named Insured or any other claimant, written notice of the demand for arbitration shall be filed with the Atlanta Regional Office of the American Arbitration Association and the Company; if by the Company, such written notice shall be filed with the Atlanta Regional Office of the American Arbitration Association and the Named Insured or any other claimant. The award rendered in such arbitration shall be final and binding upon the parties, and judgment upon such award may be entered in any court having jurisdiction thereof. No suit at law or equity or other court proceedings of any nature may be instituted with respect to any dispute, claim or controversy described in [this section] except to enforce the award of the arbitrators."

Dr. Wilson, through his attorney, refused to submit the dispute to arbitration. Immediately thereafter, and without filing a written notice of a demand for arbitration with the Atlanta regional office of the American Arbitration Association, Mutual Assurance filed an action for a declaratory judgment in the Lauderdale Circuit Court, seeking an order compelling Dr. Wilson to arbitrate the contract dispute. Mutual Assurance sought alternative relief in the form of a judgment for $150,000 in accordance with its interpretation of the policy. ¹ Dr. Wilson answered the complaint and asserted various affirmative defenses. Dr. Wilson also filed a counterclaim, based on allegations of breach of contract and fraud. Mutual Assurance answered the counterclaim, raised certain affirmative defenses, and served 21 requests for admission on Dr. Wilson, many of which related to the issue concerning the arbitrability of the dispute. Dr. Wilson responded to these requests. Mutual Assurance filed a separate motion seeking to compel Dr. Wilson to arbitrate. After receiving briefs and conducting a hearing, the trial court denied that motion, holding:

"MASA [Mutual Assurance] has admitted that it did not file written notice with the American Arbitration Association. MASA asserts that it was excused from complying with the clear language of paragraph 13 ARBITRATION since Dr. Wilson's attorney advised that Dr. Wilson would not agree to arbitration. Subsequently, MASA filed the bill for declaratory judgment and alternative complaint for relief followed by a discovery request.

"The Court is of the opinion that MASA has failed to comply with paragraph 13 of the Medical Professional Liability Policy by failing to give written notice to the Atlanta Regional Office of the American Arbitration Association of its request to arbitrate this dispute. The Court further finds that MASA has waived its right to arbitration by substantially involving itself in the litigation process to the prejudice of Dr. Wilson. Accordingly, these failures have created a waiver of arbitration. Ex parte Prendergast, 678 So.2d 778 (Ala.1996), Companion Life Insurance Company v. Whitesell Manufacturing, Inc., 670 So.2d 897 (Ala.1995), Ex parte Smith, 494 So.2d 1 (Ala.1997)."

Mutual Assurance appealed. ² We reverse and remand.

In Companion Life Ins. Co. v. Whitesell Manufacturing, Inc., 670 So.2d 897, 899 (Ala.1995), this Court stated:

"It is well settled under Alabama law that a party may waive its right to arbitrate a dispute if it substantially invokes the litigation process and thereby substantially prejudices the party opposing arbitration. Whether a party's participation in an action amounts to an enforceable waiver of its right to arbitrate depends on whether the participation bespeaks an intention to abandon the right in favor of the judicial process and, if so, whether the opposing party would be prejudiced by a subsequent order requiring it to submit to arbitration. No rigid rule exists for determining what constitutes a waiver of the right to arbitrate; the determination as to whether there has been a waiver must, instead, be based on the particular facts of each case. See Huntsville Golf Development, Inc. v. Aetna Casualty & Surety Co., 632 So.2d 459 (Ala.1994); Ex parte McKinney, 515 So.2d 693 n. 2 (Ala.1987); Ex parte Merrill Lynch, Pierce, Fenner & Smith, Inc., 494 So.2d 1 (Ala.1986); Ex parte Costa & Head (Atrium), Ltd., 486 So.2d 1272 (Ala.1986), overruled on other grounds, Ex parte Jones, 628 So.2d 316 (Ala.1993). In accord, see S & H Contractors, Inc. v. A.J. Taft Coal Co., 906 F.2d 1507 (11th Cir.1990), cert. denied, 498 U.S. 1026, 111 S.Ct. 677, 112 L.Ed.2d 669 (1991)."

In Ex parte Merrill Lynch, Pierce, Fenner & Smith, Inc., 494 So.2d 1, 2-3 (Ala.1986), this Court elaborated on the considerations a court must take into account in determining whether one has waived the right to arbitrate:

"The general rule with regard to waiver of one's right to arbitrate was stated in American Dairy Queen Corp. v. Tantillo, 536 F.Supp. 718 (M.D.La.1982):

" 'It is well settled that there is a strong federal policy favoring arbitration and a waiver of the right to compel arbitration will not be lightly inferred. [Citations omitted.]'

"536 F.Supp. at 720. The court went on to say:

" 'Therefore, the burden on one seeking to prove waiver is a heavy one. The question of what constitutes a waiver of the right of arbitration depends on the facts of each case. [Citations omitted.]'

"Id. In Moses H. Cone Memorial Hospital v. Mercury Construction Corp., 460 U.S. 1, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983), the United States Supreme Court agreed that there is a strong federal policy favoring arbitration:

" 'The [Federal] Arbitration Act establishes that, as a matter of federal law, any doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, delay, or a like defense to arbitrability.'

"460 U.S. at 24-25, 103 S.Ct. at 941.

"There is considerable support for the proposition that the determination of whether there has been a waiver must be made on a case-by-case basis and is to be based on the particular facts of each case. However, a two-pronged test has developed which courts use when considering whether a party has waived the right to arbitrate. First, the party opposing arbitration must prove that there has been a 'substantial invocation of the litigation process.' Tantillo, supra. This however, is only part of what a party is required to prove in order for the court to find that the other has waived the right to seek arbitration.

" 'Even if the Court assumes that there was invocation of the litigation process by the defendants, a finding of waiver cannot be made absent a showing of prejudice to the party opposing arbitration. [Citations omitted.]'

"536 F.Supp. at 722.

"Therefore, this Court must decide whether plaintiff met her burden and proved that the defendants substantially invoked the litigation process and that she suffered...