Towe Hester & Erwin, Inc. v. Kansas City Fire & Marine Ins. Co.
| Decision Date | 01 April 1997 |
| Docket Number | No. 86062,No. 1,86062,1 |
| Citation | 947 P.2d 594,1997 OK CIV APP 58 |
| Parties | 1997 OK CIV APP 58 TOWE, HESTER & ERWIN, INC., Plaintiff/Appellee, v. KANSAS CITY FIRE & MARINE INSURANCE COMPANY, Glen Falls Insurance Company, Niagara Falls Insurance Company, the Fidelity Insurance Company, the Fidelity and Casualty Company, Marine Office of America Corporation, Michael Kolody, and the Continental Insurance Company, Defendants/Appellants, The Continental Insurance Companies and the Continental Corporation, Defendants. Court of Civil Appeals of Oklahoma, Division |
| Court | United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma |
Towe, Hester & Erwin, Inc. (TH & E), a licensed insurance agency in Lawton, sued defendants, a group of affiliated non-resident insurance companies (collectively, Continental). TH & E alleged that it was forced to sign a "Rehabilitation Program" agreement under threat of immediate termination of the agency agreement. TH & E further alleged that neither the Rehabilitation Program Agreement nor the Circle Agent Five-Year Market Agreement, dated August 21, 1990, were part of, or subject to, the arbitration clause in the January 1, 1992 Agency Agreement. TH & E claimed it was damaged by Continental's wrongful conduct, breach of contract, breach of fiduciary duties, misrepresentation and deceit.
Continental answered the lawsuit denying any wrongdoing and pointing out that the August 21, 1990 document was not a Circle Agency agreement but was a Five Year Market Agreement Addendum to the 1984 Agency Agreement. Continental also affirmatively defended on the ground that the parties, by contract, had agreed that unresolved disputes arising in connection with the Agency Agreements would be submitted to arbitration.
Subsequently, Continental filed two applications to stay the proceedings and compel arbitration--the first grounded on the Oklahoma Uniform Arbitration Act, 15 O.S.1991 § 801 et seq. (Oklahoma Arbitration Act), and the second filed pursuant to the Federal Arbitration Act, 9 U.S.C. § 1 et seq. TH & E then amended its petition alleging facts which might provide a basis for avoiding arbitration. The trial court denied Continental's applications. Continental lodged this appeal pursuant to Sup.Ct.R. 1.60(I), interlocutory orders appealable by right, and 15 O.S.1991 § 817.
The appellate court reviews the "grant or denial of a motion to compel arbitration de novo, applying the same legal standard employed by the district court." Armijo v. Prudential Insurance Co. of America, et al., 72 F.3d 793, 796 (10th Cir.1995).
Continental states that an arbitration provision is applicable to all claims asserted by TH & E. It then contends that the Federal Arbitration Act requires the court to refer TH & E's claims to arbitration. In the alternative, Continental argues that the Oklahoma Arbitration Act requires arbitration of the claims. In addition, Continental asserts that it has not waived its right to arbitration, and that its actions were neither unconscionable nor illegal, which would justify revocation of the underlying contract.
We find that the Federal Arbitration Act applies to the matter at hand and that the trial court erred in denying the Second Application for Stay and in failing to compel arbitration. Consequently, there is no need to address whether the Oklahoma Arbitration Act would also mandate arbitration. We further find that Continental did not waive its rights to arbitration. Whether TH & E was fraudulently induced into entering the Rehabilitation Program Agreement is an issue to be decided through the arbitration process.
Both federal and Oklahoma statutes provide that arbitration agreements are valid, enforceable and irrevocable except upon grounds which exist at law or in equity for the revocation of any contract. 9 U.S.C. § 2; 15 O.S.1991 § 802. TH & E argues that the Federal Arbitration Act is inapplicable because its claims are sufficient for revocation of a contract on legal or equitable grounds. In this regard, TH & E argues that it was fraudulently induced into executing the Rehabilitation Program Agreement, which it claims was an independent contract that did not contain an arbitration clause.
In the federal scheme, only if "the claim is fraud in the inducement of the arbitration clause itself--an issue which goes to the 'making' of the agreement to arbitrate" will the federal court proceed to adjudicate the issue. Prima Paint Corporation v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403, 87 S.Ct. 1801, 1806, 18 L.Ed.2d 1270 (1967). A contention that the entire contract is void must be decided by the arbitrator because doubts concerning the scope of the arbitrable issue should be resolved in favor of arbitration. Telum, Inc., v. E.F. Hutton Credit Corp., 859 F.2d 835, 837 (10th Cir.1988), cert. denied, 490 U.S. 1021, 109 S.Ct. 1745, 104 L.Ed.2d 182 (1989).
The 1984 and 1992 Agency Agreements between the parties both contain, at Section IX, prominent and detailed arbitration provisions. 1 The August 21, 1990 Five-Year Market Agreement is an addendum to the 1984 Agency Agreement. Both the 1984 and 1992 Agency Agreements in Section V, paragraph B, contain the authority for Continental to establish a rehabilitation period in order to work with the local agency to avoid termination of the agreement. Thus, TH & E's claims arising from the Rehabilitation Program Agreement is a dispute "in connection with" the Agency Agreements and are subject to arbitration, absent any other legal impediment.
In connection with its claim that the Rehabilitation Program Agreement is revocable, TH & E claims that Continental wanted it to obtain from its clients unlawful endorsements which would reduce the uninsured motorist coverage its clients had, i.e., Continental wanted to eliminate "stacking" coverages. Continental denied this claim and relies on extant Oklahoma law which allows insurers to limit liability to single UM coverage where multiple vehicles are insured under a single policy and where only one premium is charged for the UM coverage. Withrow v. Pickard, 905 P.2d 800, 806 (Okla.1995). We find this issue arbitrable pursuant to the federal act.
Finally, we find no support for the argument that the 1984 and 1992 Agency Agreements between the parties do not relate to interstate commerce. 2 The entire business relationship between the parties is interstate in character, and affects interstate commerce.
TH & E also claims that all of the agreements between the parties are contracts of adhesion. Contracts of adhesion, however, are not in themselves illegal or inequitable. They are often used in commerce and allow the party proposing the contract a measure of standardization among the contracts it lets and equal treatment among its contractees. In Oklahoma, the rule is that "[p]rinted contracts are interpreted most strongly against the drafter of the instrument...." Continental Federal Savings & Loan v. Fetter, 564 P.2d 1013, 1019 (Okla.1977). A strong interpretation against the drafter is a way of strengthening the nondrafter's contracting position. If a preprinted contract should contain an illegal arbitration clause, which could happen when a national concern contracts with parties who have differing state laws, then courts may sever the offending clause. Graham Oil Company v. ARCO Products Company, 43 F.3d 1244, 1248 (9th Cir.1994).
TH & E also argues that arbitration is precluded by the McCarran-Ferguson Act, 15 U.S.C. § 1011, et seq. (the Act). The Act generally relegates the regulation of insurance to the states and prohibits Congress from passing laws which supersede any state law "regulating the business of insurance." 15 U.S.C. § 1012(b). Thus, TH & E argues that the Federal Arbitration Act may not be construed to allow arbitration of insurance disputes if a state law specifically prohibits such arbitration.
The Tenth Circuit Court of Appeals has held that the Kansas arbitration statute was sufficiently specific to exclude disputes involving reinsurance agreements from the reach of the Federal Arbitration Act. Mutual Reinsurance Bureau v. Great Plains Mutual Insurance Company, Inc., 969 F.2d 931 (10th Cir.1992). The Kansas Arbitration Act (K.S.A. 5-401) provided:
"A written agreement to submit any existing controversy to arbitration or a provision in a written contract, other than a contract of insurance ... is valid, enforceable and irrevocable...." (Emphasis added.)
The Tenth Circuit concluded that the Kansas Arbitration Act was a statute regulating the business of insurance because of the specific exclusion of "contracts of insurance," and that a reinsurance agreement was such a contract.
The Oklahoma Act provides as follows:
"This act shall not apply to collective bargaining agreements or contracts with reference to insurance except for those contracts between insurance companies." 15 O.S.1991 § 802 A (emphasis added).
TH & E has cited a trilogy of Supreme Court cases construing the "business of insurance" phrase used in the Act. Securities and Exchange Commission v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969); Group Life and Health Insurance v. Royal Drug, 440 U.S. 205, 99 S.Ct. 1067, 59 L.Ed.2d 261 (1979); and Union Labor Life Insurance Company v. Pireno, 458 U.S. 119, 102 S.Ct. 3002, 73 L.Ed.2d 647 (1982). The common focus in these cases is the relationship between the insurance company and the policy holder.
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