Opinion
No. 04-08-00128-CV
Delivered and Filed: May 21, 2008.
This proceeding arises out of Cause No. 07-09-106661-DCVAJA, styled Alfredo DeLeon v. Ranchers and Farmers Mutual Insurance Company, pending in the 365th Judicial District Court, Dimmit County, Texas, the Honorable Amado J. Abascal, III presiding.
PETITION FOR WRIT OF MANDAMUS CONDITIONALLY GRANTED.
Sitting: CATHERINE STONE, Justice, PHYLIS J. SPEEDLIN, Justice, STEVEN C. HILBIG, Justice.
MEMORANDUM OPINION
In this mandamus proceeding, relator Farmers and Ranchers Mutual Insurance Company ("Farmers") seeks to enforce an arbitration clause in a homeowners insurance policy following the trial court's denial of Farmers's motion to compel arbitration. Because we conclude the trial court was obligated to compel arbitration, we conditionally grant the writ of mandamus.
Background
In October 2003, Alfredo DeLeon purchased a mobile home and financed it through a mortgage company. As part of this transaction, DeLeon completed an application for homeowners insurance. Farmers accepted the application and issued a homeowners insurance policy to DeLeon. Farmers renewed DeLeon's policy annually over the next three years. In 2007, DeLeon sued Farmers for breach of contract after a dispute arose about a claim he made under the policy. Farmers answered the suit and moved to compel arbitration. DeLeon resisted arbitration, arguing he had not agreed to arbitrate and, alternatively, the arbitration clause was unconscionable. The trial court denied the motion to compel arbitration.
Mandamus Prerequisites
A party seeking to compel arbitration in the trial court must establish the existence of a valid arbitration agreement that covers the claims asserted. In re AdvancePCS Health L.P., 172 S.W.3d 603, 605 (Tex. 2005) (orig. proceeding); J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). Once the party seeking to compel arbitration satisfies this initial burden, the burden shifts to the party resisting arbitration to establish a defense to enforcing arbitration. See AdvancePCS, 172 S.W.3d at 607; Webster, 128 S.W.3d at 227. Whether there is an enforceable agreement to arbitrate is a legal question subject to de novo review. Webster, 128 S.W.3d at 227; see In re U.S. Home Corp., 236 S.W.3d 761, 763 (Tex. 2007) (orig. proceeding). When a trial court erroneously denies a motion to compel arbitration and the underlying contract is governed by the FAA, mandamus relief is appropriate. In re Bank One, N.A., 216 S.W.3d 825, 826 (Tex. 2007) (orig. proceeding).
Discussion
As a preliminary matter, Farmers met its evidentiary burden to show the existence of an arbitration agreement. In support of its motion to compel arbitration, Farmers submitted the following proof: (1) a sworn copy of the arbitration clause
The clause appears in a policy endorsement, which provides in part:
in DeLeon's policy; and (2) an affidavit from a Farmers's representative stating the policy for October 27, 2006 to October 27, 2007 was mailed to DeLeon on September 18, 2006, and was not returned. This proof was not contradicted by DeLeon.
Applying well-settled law, Farmers argues the arbitration clause in DeLeon's policy constituted a valid arbitration agreement that the trial court was obligated to enforce. We agree. An insurance policy is a contract entered into by the insurer and the insured and each party becomes bound by the terms of the agreement. Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Crocker, 246 S.W.3d 603, 606 (Tex. 2008); Ruiz v. Gov't Employees Ins. Co., 4 S.W.3d 838, 841 (Tex.App.-El Paso 1999, no pet.). As DeLeon's suit "is based on that [a]greement," he "cannot enforce all of it except the arbitration clause." See AdvancePCS, 172 S.W.3d at 607; see also In re FirstMerit Bank, N.A., 52 S.W.3d 749, 756 (Tex. 2001) (orig. proceeding).
We reject DeLeon's arguments that there was no valid arbitration agreement because he never signed an agreement to arbitrate and had no notice of the arbitration clause. As to the absence of DeLeon's signature, the law does not require that arbitration agreements be signed, so long as they are written and agreed to by the parties. See AdvancePCS, 172 S.W.3d at 606 (holding arbitration clause contained in a provider agreement was enforceable even though it was not signed by the parties); In re Halliburton, 80 S.W.3d 566, 569 (Tex. 2002) (orig. proceeding) (holding arbitration clause was accepted by continued employment). As to DeLeon's purported lack of notice, Farmers submitted uncontradicted proof that it forwarded the policy to DeLeon. As the insured, DeLeon had a duty to read the policy and was charged with knowledge of the policy terms and conditions. See Ruiz, 4 S.W.3d at 841; Garrison Contractors, Inc. v. Liberty Mut. Ins. Co., 927 S.W.2d 296, 300 (Tex.App.-El Paso 1996), aff'd, 966 S.W.2d 482 (Tex. 1998). We also conclude DeLeon did not establish the arbitration clause was unconscionable. "Unconscionability includes two aspects: (1) procedural unconscionability, which refers to the circumstances surrounding the adoption of the arbitration provision, and (2) substantive unconscionability, which refers to the fairness of the arbitration provision itself." Halliburton, 80 S.W.3d at 571. DeLeon argued the arbitration clause was procedurally unconscionable because it was a material term of the agreement that was added after the contract was formed. In making this argument, DeLeon did not claim the arbitration clause was added after the policy was issued, but that the arbitration clause was added after he completed his application. An insurance contract does not arise unless and until an application for insurance is accepted by the insurance company and a policy is issued. In re Great S. Life Ins. Co. Sales Practices Lit., 192 F.R.D. 212, 218 (N.D. Tex. 2000); Inglish v. Prudential Ins. Co. of America, 928 S.W.2d 702, 706 (Tex.App.-Houston [1st Dist.]1996, writ denied). Applying this basic rule, the arbitration clause was not added after DeLeon's contract was formed and therefore was not procedurally unconscionable on this ground. See Great S., 192 F.R.D. at 218; Inglish, 928 S.W.2d at 706.
DeLeon further argued the arbitration clause was procedurally unconscionable because he was not given an opportunity to choose the insurance carrier and was not told the policy would contain an arbitration clause when he initially applied for insurance. However, DeLeon's lack of choice was not sufficient to establish procedural unconscionability. See U.S. Home, 236 S.W.3d at 764 ("`Adhesion contracts are not automatically unconscionable, and there is nothing per se unconscionable about arbitration agreements.'") (quoting AdvancePCS, 172 S.W.3d at 608). Also, whether DeLeon was told about the arbitration clause during the application process is irrelevant, given that the arbitration clause appeared in the policy itself and DeLeon was charged with knowledge of the policy under the law. See Ruiz, 4 S.W.3d at 841; Garrison, 927 S.W.2d at 300. We therefore conclude DeLeon did not establish a procedural unconscionability defense.
Finally, De Leon argued the arbitration clause was substantively unconscionable because it required the arbitration to take place in Beaumont, Jefferson County, Texas. DeLeon asserted this requirement would be inconvenient, expensive, and burdensome for him, but he submitted no proof to support this assertion. A party opposing arbitration because of excessive costs must provide specific evidence that he will actually incur such costs. U.S. Home, 236 S.W.3d at 764; FirstMerit Bank, 52 S.W.3d at 756-57. Absent such evidence, DeLeon did not establish a substantive unconscionability defense.
This provision states: "[t]he site of the proceedings shall be the nearest city [ ] over one hundred thousand people if YOU initiate the demand for arbitration; otherwise the proceedings shall take place in Beaumont, Jefferson County, Texas."
Conclusion
We conclude Farmers established the existence of a valid arbitration agreement and DeLeon did not establish a defense to its enforcement. No one disputes the arbitration clause invokes the FAA and covers DeLeon's claims. We therefore conditionally grant the writ of mandamus. The trial court is directed to vacate its order denying Farmers's motion to compel arbitration and to enter a new order compelling arbitration. The writ will issue only if the trial court fails to comply within ten days.
TEXAS COMPREHENSIVE HOMEOWNERS PROGRAM COMPULSORY DISPUTE RESOLUTION ENDORSEMENT
It is understood and agreed that the APPRAISALS and LEGAL ACTION AGAINST US conditions have been deleted and replaced by the following:COMPULSORY DISPUTE RESOLUTION
Should any dispute arise between YOU and US; from, through or by this policy, including any statutory law or common law right YOU have against US (excepting an alleged material misrepresentation contained in the application), then such dispute shall be arbitrated in accordance with the rules and procedures under the Federal Arbitration Act and the Texas General Arbitration Act subject to the following. . . ."