Title: American Bankers Life Assurance Co. v. RICE ACCEPT. CO.

State: alabama

Issuer: Alabama Supreme Court

Document:

709 So. 2d 1188 (1998)
AMERICAN BANKERS LIFE ASSURANCE COMPANY
v.
RICE ACCEPTANCE COMPANY, INC.
1952061.

Supreme Court of Alabama.
January 30, 1998.
Michael L. Bell and R. Jeffery Kelsey of Lightfoot, Franklin & White, L.L.C., Birmingham, for appellant.
Randy Myers of Richard Jordan, Randy Myers and Ben Locklar, P.C., Montgomery; and W. Sidney Fuller, Andalusia, for appellee.
*1189 KENNEDY, Justice.
Rice Acceptance Company, Inc. ("Rice"), sued American Bankers Life Assurance Company ("American Bankers"), alleging that American Bankers had committed fraudulent suppression against Rice in its handling of a dispute over a life insurance policy claim; the policy was sold by Rice and issued by American Bankers. Pursuant to a "Service Expense Reimbursement Agreement" (hereinafter "Reimbursement Agreement") executed by Rice and American Bankers, American Bankers moved to compel arbitration of Rice's fraudulent suppression claim. The trial court denied American Banker's motion to compel arbitration. American Bankers appeals from the trial court's order denying that motion. That denial of the motion to arbitrate is an appealable order. See Terminix Int'l Co. Ltd. Partnership v. Jackson, 628 So. 2d 357 (Ala.1993); Ex parte Brice Building Co., 607 So. 2d 132 (Ala.1992).
Rice is a consumer loan company, which, in addition to providing consumer loans, often sells credit life insurance on those loans to its customers. Rice contracted with American Bankers for Rice to sell American Bankers insurance policies on the loans. Rice, acting as American Bankers' agent, earned commissions on the policies it sold. American Bankers held commission accounts in which it reserved its agents' commissions, including those of Rice. The Reimbursement Agreement executed by Rice and American Bankers set out numerous rules concerning the policies, including the rates and amounts of commissions provided by American Bankers to Rice for the sale of the policies, as well as the manner in which policy losses and expenses were to be treated by American Bankers.
In 1994, Rice and American Bankers were sued by Geraldine Whiting, a beneficiary under a $2,500 American Bankers credit life insurance policy sold by Rice to Whiting's husband. Whiting's complaint alleged that American Bankers had wrongfully refused to pay her claim on her deceased husband's policy. Rice and American Bankers agreed to settle Whiting's claims because American Bankers admitted it had improperly handled the death claim and that the proceeds should have been paid.
Rice contends that American Bankers requested Rice to participate in the settlement by contributing approximately 18% of the settlement amount, and that American Bankers represented that it would pay the majority of the settlementapproximately $115,000.[1] However, as a result of the settlement, American Bankers debited approximately $116,949 from Rice's commission account. Rice maintains that it did not learn of this debit until after it had been made. In debiting Rice's account, American Bankers relied on a portion of the Reimbursement Agreement providing for a deduction from Rice's commission earnings of "the cumulative total of all losses and loss expenses, and claims adjustment expenses incurred."
Rice then brought this fraud action, alleging that American Bankers had deceitfully induced it to agree to paying a portion of the settlement. American Bankers moved to arbitrate Rice's claim, pursuant to the Reimbursement Agreement's arbitration provision:
As noted above, the trial court denied American Bankers' motion to compel arbitration of Rice's claim. In its order denying the motion, the trial court held that the dispute was "independent of or collateral to `the meaning or interpretation' of the [Reimbursement Agreement]."
*1190 American Bankers contends that although Rice couches the dispute in terms of fraud the dispute concerns only a difference in interpretation of the Reimbursement Agreement, and, therefore, that the arbitration agreement applies to the dispute. Rice argues that the arbitration clause in the Reimbursement Agreement is a narrow one, concerning only contractual disputes, and that the noncontractual fraud claim is predominantly unrelated to the arbitration clause.
In Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995), the United States Supreme Court held that the Federal Arbitration Act ("FAA") governs all contracts falling within Congress's power under the Commerce Clause. Allied-Bruce Terminix substantially changed the arbitration law of this State, which had previously been declared in Ala.Code 1975, § 8-1-41(3) ("The following obligations cannot be specifically enforced: ... An agreement to submit a controversy to arbitration[.]"). The federal policy favoring arbitration was recognized by this Court in Allied-Bruce Terminix Companies v. Dobson, 684 So. 2d 102 (Ala.1995), on remand following the United States Supreme Court's Allied-Bruce Terminix decision. In that opinion, this Court stated:
684 So. 2d 102, 107 (quoting Moses H. Cone Memorial Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25, 103 S. Ct. 927, 941, 74 L. Ed. 2d 765, 785 (1983)).
In Ex parte Gates, 675 So. 2d 371 (Ala. 1996), this Court considered a petition for a writ of mandamus concerning an arbitration provision in a mobile home installment sales contract. The Gateses, as purchasers of the mobile home, made several claims against the seller and the manufacturer of the mobile home, including claims alleging that the seller had made misrepresentations and concealed material facts in order to induce the Gateses to purchase the mobile home. The arbitration provision in the contract provided for arbitration of "[a]ll disputes, claims, or controversies arising from or relating to this Contract or the relationships which result from this Contract, or the validity of this arbitration clause or the entire Contract." 675 So. 2d  at 373. This Court, holding that the trial court had properly compelled arbitration of the Gateses' claims, including their fraud claims, stated:
675 So. 2d  at 374-75.
The language of the arbitration provision found in the Reimbursement Agreement is clearly narrower than that in Gates. Unlike the arbitration provision in Gates, it does not broadly provide for arbitration of all disputes "related to" the Reimbursement Agreement or "relationships created" by virtue of the agreement. The arbitration provision in the Reimbursement Agreement is limited to disputes "as to the meaning or interpretation of this Agreement."
The issue presented by Rice's complaint is whether American Bankers fraudulently suppressed from Rice an intent to deduct the amount of the settlement from Rice's commission account, not whether American Bankers, pursuant to the Reimbursement Agreement, could legally deduct the settlement from Rice's commission account. Therefore, Rice's fraud claim is not subject to the narrow arbitration clause found in the Reimbursement Agreement.
In Old Republic Ins. Co. v. Lanier, 644 So. 2d 1258 (Ala.1994), the issue was whether the disputes between the parties fell within the arbitration provisions of their agreements. Identical arbitration provisions in the two applicable agreements between the parties provided that "any dispute arising out of this Agreement" shall be submitted to arbitration. 644 So. 2d  at 1260. We held *1191 that the "arising out of" language in the arbitration provisions was intended to cover a narrow scope of disputes, "`i.e., only those relating to the interpretation and performance of the contract itself.'" 644 So. 2d  at 1262 (quoting Mediterranean Enterprises, Inc. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir.1983)). The "arising out of" language was not intended to cover matters or claims independent of, or collateral to, the contract.
The language in the arbitration clause in this present case is narrower than the "arising out of" language in Old Republic because it expressly states that "any dispute or disagreement between the parties as to the meaning or interpretation of this Agreement" is subject to arbitration. The arbitration clause is clearly limited to the "meaning or interpretation" of the contract. Resolution of the fraud claim in the instant case does not require an inquiry into the meaning of the contract or its performance, so the fraud claim is not subject to the arbitration provision. Accordingly, we affirm the trial court's order denying the motion to compel arbitration.
AFFIRMED.
COOK and BUTTS, JJ., concur.
ALMON and HOUSTON, JJ., concur specially.
SHORES, J., concurs in the result.
HOOPER, C.J., and MADDOX and SEE, JJ., dissent.
ALMON, Justice (concurring specially).
I agree that Rice's fraud claim is outside the scope of the Reimbursement Agreement's arbitration clause, which applies only to disputes "as to the meaning or interpretation of this Agreement." The question whether American Bankers fraudulently represented that it would pay 82% of the settlement of Ms. Whiting's claim is not a dispute as to the meaning or interpretation of the Reimbursement Agreement.
I write specially to emphasize that § 8-1-41(3), Ala.Code 1975, is still the law of this State. Except to the extent that the Supremacy Clause of the United States Constitution, art. VI, cl. 2; the Federal Arbitration Act, 9 U.S.C. § 1 et seq.; and decisions of the Supreme Court of the United States[2] bar its operation, § 8-1-41(3) continues in full force and effect. For this reason, I would also hold that § 8-1-41(3) prevents specific performance of this arbitration clause, which states that it is "subject to applicable provisions of the statutes of the state in which the customer is domiciled dealing with arbitration." An arbitration agreement will be enforced only according to its terms and the wishes of the parties. First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 947, 115 S. Ct. 1920, 1925, 131 L. Ed. 2d 985, 995 (1995). In Fidelity National Title Ins. Co. v. Jericho Management, Inc., [Ms. 1950828, Sept. 12, 1997] (Ala.1997) (pending on application for rehearing), this Court held that the phrase "unless prohibited by applicable law" incorporated § 8-1-41(3). I would hold that the arbitration clause in the Reimbursement Agreement, by incorporating state law, incorporates § 8-1-41(3) so that this clause cannot be enforced in this State.
Finally, I am not sure that this contract is one "evidencing a transaction involving [interstate] commerce," 9 U.S.C. § 2, so as to be within the scope of the FAA at all. However, because the clause is so clearly not applicable to this dispute, I have not fully studied the question whether interstate commerce is involved in the contract between American Bankers and Rice Acceptance.
HOUSTON, Justice (concurring specially).
American Bankers Life Assurance Company, by its own admission, wrongfully refused to pay a $2,500 claim based on a policy covering the life of N.J. Timmons, the common-law husband of Geraldine Whiting. This resulted in Whiting's suing American Bankers and Rice Banking Company for fraud and American Bankers for bad faith refusal to pay a valid insurance claim. Rice had liability insurance that would pay any judgment obtained against Rice in the Whiting action up to the limit of that liability *1192 policy and would pay Rice's expenses in defending the fraud claim. American Bankers admitted to Rice that American Bankers had erred in refusing to pay Whiting, and it agreed to settle with Whiting for $140,000 if Rice's liability insurance would pay 18% of the loss. American Bankers gave Rice no indication that after it had paid the 82% of the settlement that it had agreed to pay, it would reimburse itself by taking that 82% from the commission account American Bankers held for Rice. However, American Bankers did that; and when Rice learned what American Bankers had done, Rice sued American Bankers, alleging that American Bankers had fraudulently suppressed an intent to fund its part of the Whiting settlement from Rice's commission account. The issue is not whether American Bankers, according to the terms of the "Service Expense Reimbursement Agreement," could legally deduct from Rice's commission account the 82% of the settlement; that issue, according to the Reimbursement Agreement, would have to be determined by arbitration. The issue is whether American Bankers fraudulently suppressed from Rice what it intended to do, in order to get Rice and its liability insurer to agree to settle with Whiting. As I understand Rice's contention, it is arguing that if American Bankers intended to make Rice pay the entire settlement for American Bankers' misfeasance, then American Bankers should have told Rice this. Rice's complaint is as follows:
[1]  Whiting settled her claims for $140,000.
[2]  E.g., Allied-Bruce Terminix Companies v. Dobson, 513 U.S. 265, 115 S. Ct. 834, 130 L. Ed. 2d 753 (1995), and Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 79 L. Ed. 2d 1 (1984).