Opinion
Case No. 01-3488-CIV-MORENO
December 21, 2001
ORDER DENYING MOTION TO COMPEL ARBITRATION AND MOTION TO DISMISS FOR IMPROPER VENUE AND GRANTING MOTION TO DISMISS STATUTORY BAD FAITH CLAIM
THIS CAUSE came before the Court upon Defendant's Motion to Compel Arbitration, Motion to Dismiss for Improper Venue, and Motion to Dismiss Statutory First Party Bad Faith Claim ( D.E. No. 8), filed on October 18, 2001 and Plaintiffs Motion for Partial Summary Judgment ( D.E. No. 19), filed on November 20, 2001.
THE COURT has considered the motion, the response, the reply and the pertinent portions of the record, and being otherwise fully advised in the premises, it is
ADJUDGED that the motion to compel arbitration is DENIED because the arbitration clause conflicts with Florida law on attorney's fees in the insurance context. It is
ADJUDGED that the motion to dismiss for improper venue is DENIED. The Court finds that Florida law governs the policy, and, therefore, Florida is a proper venue for Plaintiff to bring suit. it is further
ADJUDGED that the statutory first-party bad faith claim is DISMISSED without prejudice because the claim is not ripe. It is also
ADJUDGED that Plaintiffs Motion for Partial Summary Judgment is DENIED without prejudice to refile at a later date pending resolution of the question certified herein to the Eleventh Circuit, United States Court of Appeals.
I. BACKGROUND
Plaintiff Constantin Mayard-Paul is a 71 year-old citizen of Haiti and a self-employed attorney, who purchased an international medical/health insurance policy from Defendant The Mega Life Health Insurance Company in August, 1999. Plaintiff maintains a residence in Miami, Florida. Defendant is domiciled in Oklahoma City, Oklahoma, with its principal offices in Dallas, Texas.
Defendant's claims underwriting and management company, Specialty Risk International, Inc. ("SRI"), processed Plaintiff's application after receiving it from the insurance agent, Mario Ramirez of Life Partners Insurance Group, an insurance agency located in Miami, Florida. SRI issued an international health/medical insurance policy to Plaintiff in August, 1999.
While the policy was in effect, Plaintiff was diagnosed with colon cancer in October, 2000, and began treatment. On December 7, 2000, Plaintiff submitted a claim to Defendant for benefits. Plaintiff contends that Defendant notified him by letter dated March 6, 2001, that it was denying coverage and canceling the policy. Defendant disputes that it denied coverage and asserts that it rescinded the policy without making a determination of coverage due to Plaintiffs misrepresentations in his application regarding his past health history.
On August 10, 2001, Plaintiff filed this case alleging breach of contract and statutory first-party bad faith. Defendant moves this Court to compel arbitration of the breach of contract claim, dismiss the case for improper venue, and to dismiss the statutory first-party bad faith claim. Plaintiff agrees that the statutory first-party bad faith claim is premature.
II. LEGAL ANALYSIS
1. Arbitration
The policy that forms the basis of Plaintiff's breach of contract claim contains an arbitration and venue selection clause. The clause requires arbitration in Indianapolis, Indiana of any dispute arising from the policy, or its alleged breach. Defendant relies on this clause to argue this Court should compel arbitration. Plaintiff makes two arguments in response. First, Plaintiff urges this Court to hold the McCarran-Ferguson Act, 15 U.S.C. § 1011, et seq., inversely preempts the Federal Arbitration Act and Florida law requires this Court to adjudicate this claim. Second, Plaintiff argues the arbitration clause is unenforceable under Florida law.
The arbitration clause is as follows:
Legal Actions: Any disputes arising from this Policy, or its alleged breach, may, if not resolved by the parties, be referred to arbitration by either party. Arbitration shall be conducted in the City of Indianapolis, Indiana, USA in accordance with Commercial Arbitration Rules of the American Arbitration Association, and judgment on any award rendered in such arbitration may be entered in any state or federal court in such City. Arbitration shall be the sole remedy for alleged breach of this Policy. Notices in connection with such arbitration and process in any judicial proceeding in connection wherewith may be served by personal delivery or registered mail on the Company at its international administrators office of 9200 Keystone Crossing Ste. 300, Indianapolis, Indiana 46240 USA and on the Insured Person at the most current address appearing on the records of the Company, with the same effect as if personally served in such City. The Company's liability in any such arbitration shall be limited to such amounts as the arbitrators may determine are due under this Policy, with such interest thereon and such cost of the arbitration proceeding, if any, as the arbitrators may direct. In no event shall the Company be liable for any extra-contractual damages, whether characterized, without limitation, as consequential, exemplary, punitive or tort damages, for any alleged breach of this Policy.
a. McCarran-Ferguson Act Preemption
Congress passed the McCarran-Ferguson Act in 1945 establishing that states generally retain power to regulate the insurance industry. The Act states: "[n]o Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance . . . unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1011.
The McCarran-Ferguson Act "transformed the legal landscape by overturning the normal rules of pre-emption." U.S. Dep't of Treasury v. Fabe, 508 U.S. 491, 507-08, 113 S.Ct. 2202, 2211 (1993). The McCarran-Ferguson Act establishes that state laws enacted "for the purpose of regulating the business of insurance" do not yield to conflicting federal statutes unless a federal statute specifically requires otherwise. Id.
To determine whether the McCarran-Ferguson Act bars the application of federal law, the Court must apply the Eleventh Circuit's tripartite test, which is: (1) whether the federal law specifically relates to the business of insurance; (2) whether the state law at issue was enacted for the purpose of regulating the business of insurance; and (4) whether the application of the federal law would impair, invalidate, or supersede the state law at issue. See Moore v. Liberty Nat'l Life Ins. Co., 267 F.3d 1209, 1220 (11th Cir. 2001). The issue, here, turns on whether the Federal Arbitration Act, 9 U.S.C. § 1, et seq., which requires this Court to enforce valid arbitration clauses, is inversely preempted by state law. McCarran-Ferguson bars application of the FAA in this case only if (1) the FAA does not specifically relate to the business of insurance, (2) the Florida legislature or Indiana general assembly has enacted laws regulating the business of insurance; and (3) the FAA's application "invalidates, impairs, or supersedes" the state statute. Humana Inc. v. Forsyth, 525 U.S. 299, 307 (1999).
The first prong of the analysis is easily met. The FAA is a "congressional declaration of a liberal federal policy favoring arbitration, notwithstanding any state substantive or procedural policies to the contrary." Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983). The FAA establishes a substantive body of federal law that promotes a strong federal policy favoring arbitration, requires district courts to rigorously enforce private arbitration agreements, and reverses centuries of judicial hostility to arbitration agreements. See Volt Info. Sciences, Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 474-476 (1989). It is undisputed that the FAA does not specifically relate to the business of insurance.
The second prong is also easily met as both the Florida legislature and the Indiana general assembly have enacted insurance codes regulating the insurance industry. See Ch. 624-651, Fla. Stat.; Title 27, Ind. Code. At issue is the third prong of the Moore analysis, which requires this Court to determine whether the FAA's application "invalidates, impairs, or supersedes" a state statute. Moore, 267 F.3d at 1220. If it does, then the FAA is inversely preempted by the McCarran-Ferguson Act.
The Court need not decide at this point whether Florida or Indiana law applies as the analysis is the same with respect to each.
Neither Florida nor Indiana has enacted a statute barring arbitration of insurance claims. Plaintiff Mayard-Paul relies on Florida and Indiana decisional law for the proposition that a denial of coverage is not an arbitrable claim. See State Farm Fire Cas. Co. v. Licea, 685 So.2d 1285, 1287 (Fla. 1996) (holding that denial of coverage is a judicial question); McNall v. Farmers Ins. Group, 392 N.E.2d 520, 524-25 (Ind.Ct.App. 1979) (holding that an insurance company's denial of coverage constitutes a waiver of a right to arbitration). Though Plaintiff contends Defendant denied coverage, the heart of this dispute and a threshold issue is the rescission, since Defendant contends it has not yet denied coverage under the policy and will presumably make that determination if an arbitrator decides Defendant improperly rescinded. Plaintiff provides no case law to indicate that rescission of an insurance policy is not arbitrable. The Court, therefore, need not reach the issue of whether McCarran-Ferguson operates to inversely preempt the FAA if it invalidates a state's case law, as opposed to statutory law.
Because there is no conflict between the FAA and Florida or Indiana decisional or statutory law with respect to arbitrability of rescission of an insurance policy, this Court cannot find the McCarran-Ferguson inversely preempts the FAA, which requires this Court to enforce arbitration clauses.
Plaintiff cites to several cases from other circuits where there was a holding that the McCarran-Ferguson Act did inversely preempt the FAA. Those cases are easily distinguishable because the state's involved had statutes that conflicted with the FAA. See Standard Sec. Life Ins. Co. v. West, 267 F.3d 821, 823-24 (8th Cir. 2001) (holding that Missouri Arbitration Act prohibiting arbitration of insurance cases inversely preempts FAA under the McCarran-Ferguson Act); Stephens v. American Int'l Ins. Co., 66 F.3d 41, 45-46 (2d Cir. 1995) (holding a Kentucky statute relating to insurance inversely preempts the FAA under the MeCarran-Ferguson Act); Mut. Reinsurance Bureau v. Great Plains Mut. Ins. Co., 969 F.2d 931, 933-36 (10th Cir. 1992) (holding that Kansas statute creating exception for insurance contracts in state's arbitration code inversely preempts the FAA under the McCarran-Ferguson Act).
b. Enforceability of the Policy's Arbitration Clause
Plaintiff Mayard-Paul asserts that even if the FAA is applicable, the arbitration clause is unenforceable on several grounds. First, Plaintiff argues the clause improperly prohibits the arbitrator from awarding the prevailing party attorney s fees. Second, Plaintiff argues the clause improperly requires an insured to institute any "legal action" under the policy within 12 months. Third, Plaintiff argues the clause improperly mandates that arbitration occur in Indianapolis, Indiana. Fourth, Plaintiff argues the clause violates his constitutional rights.
Though Defendant disputes that Florida law is applicable, Defendant does so in a cursory fashion failing to provide this Court with an analysis under Indiana law of the issues presented with respect to the enforceability of the arbitration clause. In any event, the Court finds that Florida law applies pursuant to § 627.602, Fla. Stat., which states that "[e]ach health insurance policy delivered or issued for delivery to any person in this state must comply with all applicable provisions of the code . . . ." It is undisputed that the policy itself fails to indicate the governing law. See Affidavit of Catherine A. Hensley ¶ 10. Though Defendant intended the policy be delivered abroad, the policy was, in fact, delivered to Plaintiff in Florida by an insurance agent. As such, this Court finds that Florida law governs.
1. Attorney's Fees
Plaintiff argues the arbitration clause is unenforceable due to the following clause:
The Company's liability in any such arbitration shall be limited to such amounts as the arbitrators may determine are due under this Policy, with such interest thereon and such cost of the arbitration proceeding, if any, as the arbitrators may direct. In no event shall the Company be liable for any extra-contractual damages, whether characterized, without limitation, as consequential, exemplary, punitive or tort damages, for any alleged breach of this Policy.
Plaintiff argues this clause is at odds with Florida law, which provides attorney's fees as of right to prevailing insurance claimants. Florida Statute § 627.428 entitles a prevailing insured in an action against his insurance carrier to an award of attorney's fees. The statute reads: "upon the rendition of a judgment or decree by any of the courts of this state against an insurer and in favor of the insured., a reasonable sum as fees or compensation for the insured's . . . attorney prosecuting the suit in which recovery is had."
The Eleventh Circuit recently held that an entire arbitration agreement is rendered unenforceable by an unambiguous provision that states that all costs of arbitration would be shared equally between the parties because that provision defeated a prevailing employee's right under Title VII to obtain fees and costs. See Perez v. Globe Airport Sec. Servs., Inc., 253 F.3d 1280 (11th Cir. 2001). That provision, the Eleventh Circuit held, tainted the entire agreement, and therefore, could not be severed. See id.; see also Paladino v. Avnet Computer Technologies, Inc., 134 F.3d 1054, 1062 (11th Cir. 1998) (holding that in order for an arbitration clause to be enforceable it must permit relief equivalent to court remedies). Thus, this arbitration clause is unenforceable if it unambiguously limits attorney's fees from the scope of relief Plaintiff may obtain through arbitration, since Plaintiff, if he prevails, is entitled to such fees as a matter of right under Florida law. This Court finds this clause unambiguously limits attorney's fees from the scope of relief Plaintiff may obtain through arbitration, and is therefore unenforceable under the analysis in Perez.
Like the arbitration clause in Perez, this arbitration clause conflicts with statutory law that provides for prevailing party fees as of right. At oral argument, the only distinction Defendant could make was that the arbitration clause in Perez was at odds with Title VII, as opposed to a state's statutory law. While this distinction is obvious, it does little to change the analysis under Perez. In any event, because Perez did not state that this rule applied to arbitration clauses in the insurance context, this Court exercises its authority under 28 U.S.C. § 1292(b) to certify this question to the Eleventh Circuit, United States Court of Appeals.
In addition to arguing that Perez is distinguishable as a Title VII case, Defendant argues that the policy does not preclude Plaintiff from seeking fees in court, an Indiana federal court to be exact, if he prevails in arbitration. In so doing, Defendant relies on the Florida Arbitration Code, which does not authorize attorney's fees. See Beach Resorts Int'l, Inc. v. Clarmac Marine Constr. Co., 339 So.2d 689, 690 (Fla. 2d DCA 1976). The general rule in Florida is that attorney's fees associated with arbitration proceedings are recoverable only by statute or by a specific agreement between the parties. Id. at 691. Under the Florida Arbitration Code, parties have the right to have the issue of attorney's fees decided in court. The arbitrator has no authority to award fees absent an express waiver of this statutory right. See Turnberry Associates v. Serv. Station Aid, Inc., 651 So.2d 1173, 1175 (Fla. 1993). To follow this procedure is counterintuitive in the insurance context where Florida statute provides attorney's fees as of right to a prevailing insured. See § 627.428, Fla. Stat. This procedure only makes sense where an award of attorney's fees is at issue, and not where an award is automatic and as of right to a prevailing party. See § 57.105, Fla. Stat. (allowing, but not requiring Florida courts to award attorney's fees to the prevailing party).
Accordingly, the Court finds that the arbitration provision is unenforceable under Perez because it is at odds with Florida Statute § 627.428, which provides for attorney's fees to a prevailing insured. Because the application of Perez to the insurance context is a novel issue, the Court certifies the issue to the Eleventh Circuit, United States Court of Appeals pursuant to 28 U.S.C. § 1292(b). Because the Court finds the arbitration clause unenforceable due to its conflict with Florida law on attorney's fees, it need not decide whether the twelve-month limitation, the forum selection, and the waiver of jury trial render the clause unenforceable under Florida law.