Opinion ID: 2588595
Heading Depth: 2
Heading Rank: 2

Heading: Does the Arbitration Clause Include Within Its Scope the Tort of Bad Faith?

Text: In her complaint, Ms. Lovey alleged causes of action entitled Breach of Contract and Bad Faith. The district court held that both causes of action were subject to the arbitration clause. On appeal, Ms. Lovey contends that even if this Court holds that the arbitration clause is enforceable, we should hold that her bad faith claim is not within the scope of the arbitration clause. Whether an arbitration clause in a contract requires arbitration of a particular dispute or claim depends upon its terms. When construing a contract, a court must first decide whether it is ambiguous, which is a question of law. Howard v. Oregon Mut. Ins. Co., 137 Idaho 214, 46 P.3d 510 (2002). A contractual provision will be found ambiguous if it is reasonably subject to conflicting interpretations. Id. Because the arbitration clause at issue does not appear ambiguous on its face, nor has either party asserted that it contains ambiguity, this Court exercises free review over its interpretation. Selkirk Seed Co. v. State Ins. Fund, 135 Idaho 434, 18 P.3d 956 (2000). Interpretation of an unambiguous document is a question of law. Western Heritage Ins. Co. v. Green, 137 Idaho 832, 54 P.3d 948 (2002). The meaning of an unambiguous contract and the intent of the parties must be determined from the plain meaning of the words used. Mutual of Enumclaw Life Ins. Co. v. Lincoln, 131 Idaho 454, 958 P.2d 1140 (1997). The relevant wording from the arbitration clause in the BlueShield policy states, Any controversy or claim arising out of or relating to this Policy, or the breach thereof, shall be settled by arbitration. We have not previously construed the scope of an arbitration clause applying to [a]ny controversy or claim arising out of or relating to the contract. Other courts, however, have done so. In Prima Paint Corp. v. Flood & Conklin Manufacturing Co., 388 U.S. 395, 87 S.Ct. 1801, 18 L.Ed.2d 1270 (1967), the United States Supreme Court stated that such language is easily broad enough to encompass a claim of fraud in the inducement regarding the contract in which the arbitration clause appeared. In Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984), the Supreme Court held such language in the arbitration clause of a franchise agreement broad enough to cover statutory claims arising under the California Franchise Investment Law. When holding that an arbitration clause using such wording included claims for fraudulent inducement and mutual mistake of fact, the Pennsylvania Supreme Court stated, Broader language would be difficult to contrive. Flightways Corp. v. Keystone Helicopter Corp., 459 Pa. 660, 331 A.2d 184, 185 (1975). The Fourth Circuit Court of Appeals characterized clauses using such language to be broad arbitration clauses capable of an expansive reach, American Recovery Corp. v. Computerized Thermal Imaging Inc., 96 F.3d 88, 93 (4th Cir.1996), embrac[ing] every dispute between the parties having a significant relationship to the contract regardless of the label attached to the dispute, J.J. Ryan & Sons, Inc. v. Rhone Poulenc Textile, S.A., 863 F.2d 315, 321 (4th Cir.1988). Such language is broader in scope that an arbitration clause applying only to claims arising under the contract. Mediterranean Enter., Inc. v. Ssangyong Corp., 708 F.2d 1458, 1464 (9th Cir.1983). When holding that an arbitration clause included tort claims of intentional interference with business relations, defamation, and conspiracy, the Alabama Supreme Court stated, Moreover, it is often observed that the words `relating to' in the arbitration context are given a broad construction. Karl Storz Endoscopy-America, Inc. v. Integrated Med. Sys., Inc., 808 So.2d 999, 1013 (Ala.2001). In Pierson v. Dean, Witter, Reynolds, Inc., 742 F.2d 334 (7th Cir.1984), the plaintiffs brought common-law tort claims against Dean Witter to recover damages regarding its management of their account. Based upon their Customers Agreement that provided for arbitration of any controversy arising out of or relating to this contract or breach thereof, Dean Witter filed a motion to dismiss the common-law claims or, in the alternative, to stay them pending arbitration. The trial court denied the motion, and Dean Witter appealed. The Seventh Circuit Court of Appeals reversed, stating: The arbitration clause in this case is broadly worded and encompasses any controversy arising out of or relating to the contract or its breach. Claims of fraud under a contract, breach of fiduciary duty, negligence, and gross negligence are not immune from arbitration under a broadly-worded valid arbitration clause. 742 F.2d at 338. Finally, in Bos Material Handling, Inc. v. Crown Controls Corp., 186 Cal.Rptr. 740, 137 Cal.App.3d 99 (Cal.Ct.App. 1983), an equipment dealer filed a tort action against its supplier and others after the supplier terminated the written dealer agreement, which included an arbitration clause applicable to [a]ny controversy or claim arising out of or relating to this agreement, or breach thereof. The complaint alleged tort claims of tortious breach of good faith and fair dealing, fraud, unfair competition, restraint of trade, and intentional interference with prospective advantage and contract, all grounded upon the termination of the dealer agreement. In holding that the tort claims were within the scope of the arbitration clause, the California Court of Appeals stated: In the particular situation where contracts provide arbitration for `any controversy ... arising out of or relating to the contract ...' the courts have held such arbitration agreements sufficiently broad to include tort, as well as contractual, liabilities so long as the tort claims `have their roots in the relationship between the parties which was created by the contract.' 186 Cal.Rptr. at 742, 137 Cal.App.3d at 105 (quoting Berman v. Dean Witter & Co., Inc., 119 Cal. Rptr. 130, 133, 44 Cal.App.3d 999, 1003 (Cal. Ct.App.1975)). Other courts have generally agreed that whether a claim falls within the scope of an arbitration clause depends not on the characterization of the claim as tort or contract, but on the relationship of the claim to the subject matter of the arbitration clause. Rodgers Builders, Inc. v. McQueen, 76 N.C.App. 16, 331 S.E.2d 726 (1985). Arbitration clauses worded as applying to any claim or controversy arising out of or relating to the contract are sufficiently broad to include tort claims which arise out of or are related to the contract between the parties or their contractual relationship. Id. For a tort claim to be considered as arising out of or relating to a contract, it must, at a minimum, raise some issue the resolution of which requires reference to or construction of some portion of the contract itself. Seifert v. U.S. Home Corp., 750 So.2d 633 (Fla.1999); Dusold v. Porta-John Corp., 167 Ariz. 358, 807 P.2d 526 (App.1990). The required relationship between the dispute and the contract does not exist simply because the dispute would not have arisen absent the existence of the contract between the parties. Seifert v. U.S. Home Corp., 750 So.2d 633 (Fla.1999); Dusold v. Porta-John Corp., 167 Ariz. 358, 807 P.2d 526 (App.1990). If the contract places the parties in a unique relationship that creates new duties not otherwise imposed by law, then a dispute regarding a breach of a contractually-imposed duty is one that arises from the contract. Dusold v. Porta-John Corp., 167 Ariz. 358, 807 P.2d 526 (App.1990). Conversely, the dispute is not one arising out of the contract if the duty alleged to be breached is one imposed by law in recognition of public policy and is generally owed to others besides the contracting parties. Id. For example, in Seifert v. U.S. Home Corp . a widow brought a wrongful death action arising from the death of her husband from carbon monoxide poisoning when the air conditioning system in their home picked up exhaust fumes from a car left running in the garage and distributed them into the house. The construction contract that she and her husband had executed with the builder contained an arbitration clause applicable to [a]ny controversy or claim arising under or related to this Agreement. After the builder's motion to compel arbitration was denied, it appealed. In upholding the trial court, the Florida Supreme Court reasoned as follows: These allegations [of negligence and breach of the duty to warn] rely on obligations that would extend to anyone, third parties as well as the Seiferts, who might be injured by U.S. Home's tortious conduct. Indeed, it appears to be entirely fortuitous that it was Mr. Seifert, and not a guest or someone else in the house, who was injured as a result of the alleged neglect by U.S. Home.... While it is certainly true that this dispute would not have arisen but for the sales agreement between U.S. Home and the Seiferts, we conclude that the mere existence of such contract is not sufficient to compel that this dispute be arbitrated. None of the allegations assert that U.S. Home's duties or obligations arose from or were governed by the contract. 750 So.2d at 641-42 (footnote and citations omitted). Likewise, in Dusold v. Porta-John Corp . the plaintiff brought an action to recover for personal injuries he allegedly received from chemicals he used to clean and service portable toilets owned by the defendant Porta-John. He obtained those chemicals from Porta-John and cleaned and serviced the toilets pursuant to a Service Contract Agreement that contained a clause requiring arbitration of any controversy or claim arising out of, or relating to this agreement, or the breach thereof. The trial court granted Porta-John's motion to dismiss based upon the arbitration clause, and the plaintiff appealed. In reversing the dismissal and holding that the claim was not within the scope of the arbitration clause, the Arizona Court of Appeals reasoned as follows: Applying that rationale to this litigation, we note that Dusold alleged that his personal injuries occurred because Porta-John failed to warn him of the dangerous and toxic nature of its chemicals and failed to properly instruct him as to their safe use. Dusold does not contend that these duties to warn or instruct arose out of any contractual obligation of Porta-John under the licensing agreement between them. Rather, Dusold alleges that the duties to warn or instruct arose solely from Porta-John's obligations as a supplier of hazardous materials and such a supplier's duties are controlled by common law tort principles of products liability. The Arizona Supreme Court has recognized that when an injured buyer maintains a tort action on a theory of strict liability, the essential nature of the action sounds in tort, even if the parties' relationship was formed by a contract, because the liability of the seller would exist even without a contract. According to Dusold, the duties involved here would be owed to him by Porta-John even if he were a contractual stranger. We agree. In our opinion, the resolution of this dispute can take place without any reference to or construction of the contract between the parties. As such, it is not subject to the arbitration clause in the contract requiring arbitration in Michigan. 807 P.2d at 531. In the instant case, Ms. Lovey has alleged a claim of tortious bad faith. [5] To recover on that claim, she must show: (1) BlueShield intentionally and unreasonably denied or delayed payment; (2) her claim was not fairly debatable; (3) BlueShield's denial or delay was not the result of good faith mistake; and (4) the resulting harm was not fully compensable by contract damages. Simper v. Farm Bur. Mut. Ins. Co. of Idaho, 132 Idaho 471, 974 P.2d 1100 (1999). The duty allegedly breached by BlueShield is based solely upon the insurance policy. White v. Unigard Mut. Ins. Co., 112 Idaho 94, 730 P.2d 1014 (1986). That duty does not apply to the public in general or to anyone who is not a party to the policy. Id; Idaho State Ins. Fund v. Van Tine, 132 Idaho 902, 980 P.2d 566 (1999). In order to prove her bad faith claim, Ms. Lovey must establish that she was entitled to recover under the BlueShield policy. Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 45 P.3d 829 (2002). Establishing that claim will require reference to or construction of some portion of the policy itself. Thus, Ms. Lovey's bad faith claim is a claim arising out of or relating to the BlueShield policy and is within the scope of the arbitration clause.