Brayman Constr Corp v. Home Ins Co ( 2003 )

Opinions of the United
2003 Decisions States Court of Appeals
for the Third Circuit
2-12-2003
Brayman Constr Corp v. Home Ins Co
Precedential or Non-Precedential: Precedential
Docket 02-1316
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"Brayman Constr Corp v. Home Ins Co" (2003). 2003 Decisions. Paper 781.
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PRECEDENTIAL
Filed February 12, 2003
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 02-1316
BRAYMAN CONSTRUCTION CORPORATION
v.
HOME INSURANCE COMPANY; ZURICH NORTH AMERICA
INSURANCE COMPANY,
Appellants
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civil Action No. 01-cv-00762)
District Judge: Honorable William L. Standish
Argued November 20, 2002
Before: BARRY and AMBRO, Circuit Judges,
ACKERMAN*, District Judge
(Filed: February 12, 2003)
_________________________________________________________________
*The Honorable Harold A. Ackerman, United States District Judge for
the District of New Jersey, sitting by designation.
Emilie L. Bakal, Esquire (Argued)
Daniel J. Endick, Esquire
Mound, Cotton, Wollan &
Greengrass
One Battery Park Plaza, 9th Floor
New York, NY 10004
Dennis J. Roman, Esq.
Grogan Graffam, P.C.
Four Gateway Center, 12th floor
Pittsburgh, PA 15222
Attorneys for Appellant
Christopher C. French, Esquire
(Argued)
Nicholas P. Vari, Esquire
Heath B. Monesmith, Esquire
Kirkpatrick & Lockhart
535 Smithfield Street
Henry W. Oliver Building
Pittsburgh, PA 15222
Attorneys for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge:
This case requires us to decide whether a dispute
between an insurance company and its insured must be
arbitrated. In light of the strong federal policy favoring
arbitration, we hold that the dispute is arbitrable and
therefore reverse the District Court’s decision.
I. Background
Plaintiff Brayman Construction Corp. ("Brayman")
purchased a workers’ compensation insurance policy (the
"Policy"), effective January 1, 1995, from The Home
Insurance Co. ("Home"). The parties subsequently entered
into a separate retrospective premium agreement (the
"RPA"), which required Brayman to pay Home an additional
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premium on the Policy whenever a covered claim led to a
judgment or settlement. While the underlying Policy was
silent as to arbitration, the RPA contained an arbitration
clause, which read, in relevant part:
If any dispute shall arise between the Company and
Insured with reference to the interpretation of this
Agreement, or their rights with respect to any
transaction involved, whether such dispute arises
before or after termination of this Agreement, such
dispute, upon the written request of either party, shall
be submitted to three arbitrators, one to be chosen by
each party, and the third by the two so chosen . . ..
The decision in writing of any two arbitrators, when
filed with the parties hereto, shall be final and binding
on both parties.
The RPA also contained a provision that "[n]othing in this
Agreement shall modify, alter, or amend any of the terms or
conditions of the Policies relating to the insurance afforded
thereunder."
This dispute arose because of a workers’ compensation
claim submitted by a former Brayman employee. Brayman
believed that the claim was meritless. It alleges that it so
informed Home, but that Home and its defense counsel
never investigated whether the employee’s alleged injuries
existed before her employment with Brayman. As a result,
Home improperly paid her compensation benefits.
Dissatisfied with this outcome, Brayman eventually
persuaded Home to retain new defense counsel, who hired
independent experts to assess the employee’s claim and
confirmed Brayman’s suspicion that she had received
treatment for her alleged injury before Brayman hired her.
A workers’ compensation judge then allowed Brayman to
terminate her benefits.
Home assessed Brayman $195,100 under the RPA to
account for the previous payment of the employee’s claim.
When Brayman refused to pay Home the retrospective
premium, Home demanded arbitration in accordance with
the RPA. In response to Home’s demand to arbitrate,
Brayman brought three claims before the District Court: (1)
compensatory and punitive damages for Home’s bad faith,
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for which 42 Pa. Cons. Stat. S 83711 provides a cause of
action; (2) punitive and compensatory damages for Home’s
alleged breach of its contractual obligation under the Policy
to provide Brayman with a competent defense to the
employee’s claim and of Home’s contractually implied duty
of good faith; and (3) a declaratory judgment that Brayman
has no obligation to pay Home $195,110. Brayman alleges
that it has sustained approximately $270,000 in injuries
due to Home’s mishandling of the employee’s claim. 2 Along
with its complaint, Brayman filed a motion to stay the
arbitration. Home opposed Brayman’s motion to stay
arbitration and filed a cross-motion to compel arbitration
and to dismiss or, in the alternative, to stay proceedings.
A magistrate judge issued a Report and Recommendation
concluding that Brayman’s motion to stay arbitration
should be granted. The District Court issued an order
adopting the magistrate judge’s recommendation. Home
appeals.
II. Jurisdiction and Standard of Review
Home is a New York corporation, Brayman is a
Pennsylvania corporation, and Brayman seeks damages in
excess of $75,000. The District Court therefore properly
exercised diversity jurisdiction under 28 U.S.C.S 1332. Our
Court has appellate jurisdiction under 9 U.S.C.S 16(a),
which allows an appeal to be taken from, inter alia, a
district court’s denial of a petition to compel arbitration.
_________________________________________________________________
1. That statute provides:
In an action arising under an insurance policy, if the court finds
that the insurer has acted in bad faith toward the insured, the court
may take all of the following actions:
(1) Award interest on the amount of the claim from the date the
claim was made by the insured in an amount equal to the prime
rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the insurer.
2. Given the procedural posture of this case, it remains unclear what
comprises this sum.
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Whether the dispute between Brayman and Home is
arbitrable turns on questions of contract construction and
statutory interpretation, both questions of law over which
we exercise plenary review. See Teamsters Indus.
Employees Welfare Fund v. Rolls-Royce Motor Cars, Inc.,
989 F.2d 132, 135 (3d Cir. 1993) (contract construction);
Moody v. Sec. Pac. Bus. Credit, Inc., 971 F.2d 1056, 1063
(3d Cir. 1992) (statutory interpretation); see also Hoxworth
v. Blinder, Robinson & Co., Inc., 980 F.2d 912, 925 (3d Cir.
1992) (exercising plenary review over a district court’s
denial of a motion to stay an action and compel
arbitration).
III. Discussion
A. The RPA’s arbitration provision makes this dispute
arbitrable
The Federal Arbitration Act, 9 U.S.C. S 1, et seq. (the
"FAA"), mandates that "any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration."
Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp. , 460
U.S. 1, 24-25 (1983); see also Battaglia v. McKendry, 233
F.3d 720, 727 (3d Cir. 2000) ("[A]n agreement to arbitrate
a particular dispute ‘should not be denied unless it may be
said with positive assurance that the arbitration clause is
not susceptible of an interpretation that covers the asserted
dispute.’ ") (quoting AT&T Techs., Inc. v. Communications
Workers of Am., 475 U.S. 643, 650 (1986)). Moreover, the
"presumption [in favor of arbitrability] is particularly
applicable where the [arbitration] clause is .. . broad."
AT&T Techs., 475 U.S. at 650.
Here, the RPA’s arbitrability provision is broad in scope,
sweeping into its reach "any dispute . . . between the
Company and Insured with reference to the interpretation
of [the RPA], or their rights with respect to any transaction
involved." See Ace Capital Re Overseas Ltd. v. Cent. United
Life Ins. Co., 307 F.3d 24, 30 (2d Cir. 2002) (noting that the
identical clause has a "broad scope") (quoting Hartford
Accident & Indem. Co. v. Swiss Reinsurance Am. Corp. , 246
F.3d 219, 224 (2d Cir. 2001)); Houston Gen. Ins. Co. v.
Realex Group N.V., 776 F.2d 514, 516-17 (5th Cir. 1985)
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(compelling arbitration because the language "any dispute
. . . with reference to . . . [the parties’] rights with respect
to any transaction involved" is as broad as the language
"any dispute . . . as to the rights or liabilities incident to
this Agreement"). The language "any transaction involved"
in the arbitration provision in our case is ambiguous.
However, in light of the federal policy mandating that we
interpret ambiguous contractual language in favor of
arbitration, we read "any transaction involved" to mean any
business dealing relating, in whole or in part, to the RPA.
Because all of Brayman’s claims present a dispute under
the RPA or concern a "transaction involved" with the RPA
dispute -- Home’s alleged mishandling of the workers’
compensation claim -- the entire dispute is covered by the
RPA’s arbitration provision.
Brayman argues, however, that this dispute concerns
whether Home acted in good faith as required by the Policy,
rather than whether Brayman owes Home a premium
under the RPA. It cites Tippins, Inc. v. The Home Indemnity
Co., Civil Action No. 97-1564 (W.D. Pa. Mar. 16, 1998) (slip
op.), which addressed a situation virtually indistinguishable
from that presented here (as well as the same defendant,
Home). Tippins, like Brayman, argued that its dispute
concerned the insurer’s good faith, not whether it owed an
additional premium. The Tippins Court agreed, saying that
"[t]he relevant issue . . . is whether Home breached a duty
of good faith and fair dealing . . . . Whether Tippins may
[or] may not owe a premium payment to Home at the end
of the day is incidental." Id. at 7. The District Court in this
case found Tippins controlling.
Home cites district court caselaw from other circuits that
takes the opposite view. Svedala Industries, Inc. v. The
Home Insurance Co., 921 F. Supp. 576 (E.D. Wis. 1995),
also involved a bad-faith claim and premium agreement
language essentially identical to that here and in Tippins. In
Svedala, which applied Wisconsin law, the Court held that
the bad-faith claim was subject to arbitration because the
"transaction involved" language in the premium agreement
was sufficiently broad to bring the claim within the
premium agreement’s arbitrability provision. Id. at 579-80.
In re Home Insurance Co., 908 F. Supp. 180 (S.D.N.Y.
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1995), involved the same parties and facts as Svedala and
reached the same result.
While Tippins is both plausible and well-reasoned, we
forego following its path and instead concur more with the
Svedala Court’s reasoning. In light of the breadth of the
arbitration provision at issue here, as well as the federal
policy counseling that doubts be construed in favor of
arbitration, the District Court should have held this dispute
arbitrable.
That the RPA says "[n]othing in this Agreement shall
modify, alter, or amend any of the terms and conditions of
the Policies relating to the insurance afforded thereunder"
does not alter our conclusion. We read this provision, by
virtue of the language "relating to the insurance afforded
thereunder," to declare only that the RPA does not modify
the insurance coverage afforded by the Policy. The RPA, by
its own terms, modifies other aspects of the relationship
between Brayman and Home. For example, it requires
Brayman to pay a retrospective premium where the Policy
itself does not so prescribe.
We also reject the notion that this dispute is not subject
to mandatory arbitration because Brayman’s breach-of-
contract and bad-faith claims "arise under" the Policy
rather than the RPA. See Polselli v. Nationwide Mut. Fire
Ins. Co., 126 F.3d 524, 530 (3d Cir. 1997) (holding that
bad-faith claims under S 8371 "arise under" insurance
policies). Polselli does not necessarily preclude the
conclusion that Brayman’s claims also relate sufficiently to
the RPA that they are swept into the RPA’s broad
arbitration clause. "If the allegations underlying the claims
‘touch matters’ covered by [an arbitration clause in a
contract], then those claims must be arbitrated, whatever
the legal labels attached to them." Genesco, Inc. v. T.
Kakiuchi & Co., Inc., 815 F.2d 840, 846 (2d Cir. 1987)
(holding civil RICO and Robinson-Patman Act claims
subject to arbitration based on an arbitration provision in
sales-confirmation forms).
Finally, we note that there is no language in the Policy
that is incompatible with this cause of action being resolved
in an arbitral forum. The Policy does not provide that it is
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to be enforced in court or specify a choice of forum.
Compare ITT Hartford Life & Annuity Ins. Co. v. Amerishare
Investors, Inc., 133 F.3d 664, 670 (8th Cir. 1998) (noting
that the agreement at issue provided that "Amerishare
consents to the personal jurisdiction of the Minnesota
courts with respect to the loan documents").
B. Brayman’s S 8371 bad-faith claim is arbitrable
Brayman also asserts a claim under 42 Pa. Cons. Stat.
S 8371, which provides a cause of action against insurers
who act in bad faith. As discussed above, Brayman’sS 8371
claim falls within the RPA’s arbitration provision because
the claim concerns its "rights with respect to" the RPA
dispute at issue. Brayman argues that its S 8371 bad-faith
claim is not arbitrable, however, because S 8371 claims
may be entertained only by a judge as a matter of
Pennsylvania law. See Nealy v. State Farm Mut. Auto Ins.,
695 A.2d 790, 793-94 (Pa. Super. 1997) ("[W]e conclude
that original jurisdiction to decide issues of S 8371 bad
faith is vested in our trial courts . . . . [T]he arbitration
panel did not have jurisdiction to decide the S 8371 bad
faith claim . . . .").
But Nealy directly conflicts with, and therefore is
preempted by, the FAA.3 The FAA prevents state law from
undermining parties’ contracts to arbitrate. Mastrobuono v.
Shearson Lehman Hutton, Inc., 514 U.S. 52, 58-59, 63-64
(1995) (upholding arbitration of a punitive damages claim
under a contractual arbitration provision, notwithstanding
New York state law allowing only courts -- but not
arbitrators -- to award punitive damages); Southland Corp.
v. Keating, 465 U.S. 1, 16 (1984) ("Congress[through the
FAA] intended to foreclose state legislative attempts to
undercut the enforceability of arbitration agreements."); cf.
Roadway Package Sys., Inc. v. Kayser, 257 F.3d 287 (3d
Cir. 2001) (holding that a choice-of-law clause, without
more, did not evidence contractual intent to opt into
Pennsylvania law governing arbitration standards). 4
_________________________________________________________________
3. Nealy considered only whether a S 8371 claim was arbitrable under
the Pennsylvania Arbitration Act, not the FAA. Nealy, 695 A.2d at 791.
4. We also note that it is unclear whether Brayman may bring an S 8371
claim on the facts of this case. See Berks Mut. Leasing Corp. v. Travelers
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IV. Conclusion
In this context, we hold that the dispute between
Brayman and Home is arbitrable. We therefore reverse the
decision of the District Court and remand for proceedings
consistent with this opinion.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
Prop. Cas., No. 01-CV-6784, 2002 WL 31761419, at *5. (E.D. Pa. Dec. 9,
2002) ("Section 8371 . . . does not apply to conduct unrelated to the
denial of a claim."). The viability of Brayman’sS 8371 cause of action is
not before us, however.
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