2003 Decisions

Opinions of the United

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Precedential or Non-Precedential: Precedential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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Recommended Citation

"Brayman Constr Corp v. Home Ins Co" (2003). 2003 Decisions. Paper 781.

http://digitalcommons.law.villanova.edu/thirdcircuit_2003/781
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) 

 5 

 

(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. 

 6 

 

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-ofcontract 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 

 8 

 

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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