Sparks v. Old Republic Home Prot. Co.

• Decision Date: 27 May 2020
• Docket Number: No. 115,789,115,789
• Citation: 467 P.3d 680
• Parties: William B. SPARKS and Donna Sparks, Plaintiffs/Appellees, v. OLD REPUBLIC HOME PROTECTION COMPANY, INC., Defendant/Appellant, Old Republic International and All Season's Heating and Air, LLC, Defendants.
• Court: Oklahoma Supreme Court

467 P.3d 680

William B. SPARKS and Donna Sparks, Plaintiffs/Appellees,

v.OLD REPUBLIC HOME PROTECTION COMPANY, INC., Defendant/Appellant,Old Republic International and All Season's Heating and Air, LLC, Defendants.

No. 115,789

Supreme Court of Oklahoma.

FILED MAY 27, 2020

Amy N. Bennett, John David Lackey, PAUL & LACKEY, P.C., Tulsa, Oklahoma, for Defendants/Appellants

Mark E. Bialick, R. Ryan Deligans, DURBIN LARIMORE & BIALICK, Oklahoma City, Oklahoma, and David W. Little, LAW OFFICES OF DAVID LITTLE, Oklahoma City, Oklahoma, for Plaintiff/Appellee

OPINION

EDMONDSON, J.:

¶1 We granted certiorari to address the first impression questions of: (1) whether a home warranty plan meets the definition of an insurance contract, (2) and if it is insurance, whether a forced arbitration clause in such a contract is unenforceable under the Oklahoma Uniform Arbitration Act, (3) whether 12 O.S. 2011 § 1855 of the Oklahoma Uniform Arbitration Act is a state law enacted for the purpose of regulating insurance under the McCarran-Ferguson Act, 15 U.S.C. § 1012 (b), and (4) whether pursuant to the McCarran-Ferguson Act, does § 1855 preempt the application of the Federal Arbitration Act, 9 U.S.C. §§ 1 - 307 ? We answer all questions in the affirmative.

FACTS AND PROCEDURAL HISTORY

¶2 Donna Sparks purchased a policy from Old Republic Home Protection (ORHP) which included coverage for the repair or replacement cost of the home air conditioning system during the stated policy term. ORHP drafted this contract which included a provision that disputes between the parties would be resolved by arbitration under the Federal Arbitration Act. There is no evidence that this arbitration policy provision was independently discussed or negotiated between the parties. Almost six months after purchasing the coverage, the Plaintiffs alleged they suffered a covered loss. Specifically, Plaintiffs claimed that their home was extensively damaged as a result of problems that arose from faulty repair work to the air conditioning system. Plaintiffs notified ORHP when covered repairs were needed who then selected the repair company to be dispatched to their home. Plaintiffs alleged that ORHP engaged in a pattern and practice of using unqualified contractors to perform work and deliberately sought contractors who would opine little or no work was needed. ORHP did not directly perform the home repair services. Homeowners asserted that ORHP was negligent in the selection and hiring of the repair company, and thus ORHP is liable to the Plaintiffs for damage to their home. On July 7, 2016, homeowners filed a lawsuit against ORHP for breach of contract and bad faith breach of contract.

¶3 The contract is titled as an "Oklahoma Home Warranty." The contract identifies the following advantages of an Old Republic Home Warranty Plan:¹

Home Buyers In an ideal world, buying a home should be one of the most memorable and rewarding experiences of your life. However, the headaches caused by a heating system failure or a broken refrigerator could taint those memories forever.

Safeguard your budget against expensive system and appliance failures with an Old Republic Home Warranty Plan. ...

What would you pay without a home warranty? Potential out-of-pocket repair or replacement costs for major systems and appliances:

Item	Repair/Replacement Cost without a Home Warranty
Heating System	$318 - $3,911 Air
Air Conditioning	$360 - $5,100
Water Heater	$384 - $2,331
Oven/Range	$325 - $2,487
Refrigerator	$294 - $1,904
Washer/Dryer	$230 - $1,112

The rate sheet reflects the respective premium for each of the three different levels of coverage offered, Standard, Ultimate and Platinum. On the bottom corner of this page also appears an insignia with "Old Republic Insurance Group."² Plaintiffs purchased the Platinum coverage and the "Declaration of Coverage" identifies the contract as a "home warranty."³

¶4 Initially, ORHP pled that it was an insurance company and that the agreement between ORHP and the Plaintiffs was an "insurance" contract but later pled that it was not an insurance company and that this was simply a home service contract but not insurance . This change in position was reflected in an Amended Answer filed after the trial court's February 7, 2017 Order denying ORHP's motion to compel arbitration. There is no transcript of this hearing and no evidence in the record reflecting that ORHP obtained leave of court to file the Amended Answer. Homeowners did not file an objection to the amended pleading.

¶5 On February 8, 2017 the trial court filed a summary order stating ORHP's "motion to compel arbitration denied-motion to stay denied."⁴ The trial court made no other findings and the order is silent on the reason for the denial. An appeal may be taken from an order denying a motion to compel arbitration. 12 O.S. 2011 § 1879 (A) (1).

¶6 ORHP filed a Petition in Error on February 23, 2017 urging that it was error for the district court to deny the Motion for Arbitration and Motion to Stay "given the contract between the parties pursuant to the Federal Arbitration Act ( 9 U.S.C. § 1, et seq. ), the Oklahoma Uniform Arbitration Act ( 12 O.S. § 1851 et seq. ), and applicable case law interpreting those statutes."⁵ On appeal, ORHP argued as follows: (1) the FAA controlled this dispute, (2) the Oklahoma Uniform Arbitration Act is preempted by the FAA, (3) McCarran-Ferguson Act does not apply because "Old Republic and the Plaintiffs chose the law that governs all disputes (the FAA)." ORHP did not dispute that the McCarran-Ferguson Act gives individual states the right to regulate insurance or that " 12 O.S. § 1855 (D) purports to regulate insurance in Oklahoma."⁶ However, ORHP argued that the "McCarran-Ferguson Act can only apply when interpreting a contract that does not contain a choice of law agreement,"⁷ and therefore, it was not relevant to any issue before this Court. ORHP cited no legal authority to support this last argument. The sole support offered by ORHP was simply that "the FAA is not reverse preempted by the McCarran-Ferguson Act because this Contract chooses the FAA to the exclusion of any contradictory laws."⁸ We are not persuaded by statements without legal authority.

¶7 ORHP drafted the preprinted policy issued to the Plaintiffs. ORHP inserted all language regarding the FAA choice of law. Contrary to ORHP's argument, Dean Witter Reynolds, Inc. v. Shear , 1990 OK 67, ¶ 1, 796 P.2d 296 does not support the argument that the FAA must control as the "choice of law" chosen by the parties in the contract; it offers no useful guidance in this regard. Dean Witter obtained an arbitration award against its customer and then brought an action pursuant to the Oklahoma Uniform Arbitration Act to obtain an executable judgment. On appeal, Shear sought relief on the single contention that the arbitration and the choice-of-law clauses were void under a provision of the Oklahoma constitution. We refused to consider this argument because Shear failed to timely preserve this issue by proper response to the summary judgment filed by Dean Witter. For that reason we held that Shear "cannot now invoke Oklahoma law to test the validity of the arbitration clause of the State's fundamental law." Dean Witter Reynolds , 1990 OK 67, ¶ 7, 796 P.2d at 298. We did not hold, as urged by ORHP, that New York law and the arbitration clause applied because of the parties "choice of law" provision in the contract. Unlike the appellant in Dean Witter Reynolds , the Plaintiffs challenged the choice of law provision before the trial court, and this issue is fully preserved. We do not find Dean Witter Reynolds instructive on the issues before us.

¶8 ORHP further asserted that the application of 12 O.S. 2011 § 1855 conflicts with federal law, ie. the FAA, which should preempt any conflicting state law under the pronouncements of Marmet Health Care Ct., Inc. v. Brown , 565 U.S. 530, 132 S.Ct. 1201, 182 L.Ed.2d 42 (2012). In Marmet , the West Virginia court held that as a matter of public policy under West Virginia law, an arbitration clause in a nursing home agreement adopted prior to a negligent act shall not be enforced to compel arbitration. The state court went on to conclude that the FAA did not preempt the state public policy against predispute arbitration agreements as applied to claims for personal injury against a nursing home. The Supreme Court found that the FAA displaces a state law that prohibits outright the arbitration of a particular type of claim. Id., 565 U.S. at 533, 132 S.Ct. at 1203. The Marmet court did not consider the reverse preemption granted to states under the McCarran-Ferguson Act for state law provisions relating to the business of insurance. For this reason, we do not find Marmet controlling.

¶9 Next ORHP argued that "home warranties" are really a ‘home service contract’ and therefore this type of contract by statutory definition is not insurance pursuant to the Oklahoma Home Service Contract Act, 36 O.S. §§ 6750 - 6755. ORHP further argued, if this contract is not "insurance" then Section 1855 of the Oklahoma Uniform Arbitration Act would not apply, which exempts any contract that "references insurance" from the provisions of that Act. If the contract at issue was not one that referenced insurance, then the McCarran-Ferguson Act would not apply to reverse preempt the Federal Arbitration Act. Stated differently, the FAA would preempt any state law that would be in conflict and this matter should be ordered to arbitration. As more fully discussed below, we find the home warranty is insurance and we reject these contentions from ORHP.

¶10 On November 19, 2018 the Court of Civil Appeals affirmed the lower court's order, with one judge dissenting. The majority concluded that Oklahoma state law, the Uniform Arbitration Act, 12 O.S. 2011 § 1855 (D) prevented the trial court from compelling arbitration because the contract "referenced insurance" within the meaning of this Act and further that the Oklahoma le...