(Article from Insurance Law Alert, May 2018)
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The Texas Supreme Court ruled that a policyholder was not obligated to arbitrate her dispute with an insurance agent, finding that an arbitration agreement between the policyholder and insurer did not encompass the policyholder’s claims against the agent, a non-signatory to the agreement. Jody James Farms, JV v. The Altman Group, 2018 WL 2168306 (Tex. May 11, 2018).
James obtained a crop revenue policy through the Altman Group, an insurance agency. The policy contained an arbitration clause that required all coverage disputes to be resolved through arbitration. The Altman Group was not a signatory to the agreement. When the insurer denied coverage for a crop loss claim based on late notice, an arbitration panel ruled in favor of the insurer. Thereafter, James sued the Altman Group for breach of fiduciary duty and deceptive trade practices based on the agency’s alleged failure to timely submit the claim to the insurer. The agency moved to compel arbitration, which a Texas district court granted. The arbitration panel ruled in favor of the agency. The trial court then affirmed the award, denying James’s motion to vacate. An appellate court affirmed, but the Texas Supreme Court reversed.
As a preliminary matter, the Texas Supreme Court held that the question of whether a dispute is subject to arbitration is a gateway issue to be decided by a court, not an arbitration panel. Although parties may agree to arbitrate arbitrability, the court found no such agreement here. In particular, the court held that even assuming that incorporation of the American Arbitration Association rules in an arbitration provision evinces the contracting parties’ intent to arbitrate arbitrability, that principle would not govern the present dispute, which involved a non-signatory to the agreement. The court stated: “[e]ven when the party resisting arbitration is a signatory to an arbitration agreement, questions related to the existence of an arbitration agreement with a non-signatory are for the court, not the arbitrator.”
Turning to the issue of whether the policyholder-agency dispute was subject to arbitration, the court ruled that it was not. The court reasoned that the claims, based on the agency’s purported failure to provide timely notice, do not arise from a disagreement between the insurer and policyholder. Additionally, the court rejected theories of agency, third-party beneficiary, estoppel and “intertwined-claims” as bases to compel arbitration, finding each unsupported by the factual record.