Court Opinion

ID: 2997682
Source: CourtListenerOpinion
Date Created: 2015-09-24 19:38:14.450754+00
Date Added: 2024-06-11T15:03:11.156640
License: Public Domain

In the
 United States Court of Appeals
               For the Seventh Circuit
                          ____________

No. 04-2575
BCS INSURANCE COMPANY,
                                               Plaintiff-Appellant,
                                 v.

WELLMARK, INCORPORATED,
doing business as BLUE CROSS
AND BLUE SHIELD OF IOWA,

                                              Defendant-Appellee.
                          ____________
          Appeal from the United States District Court for
         the Northern District of Illinois, Eastern Division.
            No. 04 C 969—Joan B. Gottschall, Judge.
                          ____________
    ARGUED DECEMBER 8, 2004—DECIDED JUNE 1, 2005
                  ____________

  Before FLAUM, Chief Judge, and POSNER and SYKES,
Circuit Judges.
  SYKES, Circuit Judge. BCS Insurance Company seeks an
order compelling arbitration of a dispute with its insured,
Wellmark, Inc., pursuant to an arbitration clause in its
insurance policy that provides for arbitration of disputes “at
the option of the . . . Insured.” Wellmark, the insured, opted
to litigate rather than arbitrate, as was its right under the
plain language of the arbitration clause.
2                                                 No. 04-2575

  BCS prefers arbitration, however, and to avoid Wellmark’s
exercise of the litigation option has invoked what it refers
to as the “relation back” provision of the policy. That pro-
vision, appearing in the liability limits section of the policy,
says that claims arising out of the same or interrelated
wrongful acts are treated as a single claim deemed made at
the time the earliest claim was made. BCS contends that
Wellmark’s claim is related to certain other claims made
against earlier policies BCS issued to Wellmark. The earlier
policies contained mandatory rather than optional arbitra-
tion clauses. Therefore, BCS argues, the “relation back”
clause operates to bring this claim within the mandatory
arbitration provision of the earliest policy.
  We reject this reading of the policy. The so-called “rela-
tion back” clause of the policy may or may not operate to
limit the availability or scope of coverage for this claim.
That, however, is a question on the merits of the claim, not
its arbitrability. The arbitration clause of the policy in ques-
tion unambiguously allows but does not require arbitration.
It is the insured’s choice. Wellmark chose litigation. The
district court properly refused to compel arbitration.

                      I. Background
  BCS issued errors-and-omissions insurance policies to
Wellmark annually between 1994 and 1997. The policies
provide “claims made and reported” coverage, which means
that each policy only covers claims made against and re-
ported by Wellmark within the specified policy period. See
Pension Trust Fund for Operating Eng’rs v. Fed. Ins. Co.,
307 F.3d 944, 955 (9th Cir. 2002) (distinguishing types of
insurance policies). The 1994-1996 policies contain manda-
tory arbitration clauses; however, the 1997 policy provides
for optional arbitration and gives the choice to the insured.
The arbitration clause of the 1997 policy reads as follows:
“Any controversy arising out of or relating to this Policy or
No. 04-2575                                                   3

the breach thereof shall, at the option of the Participant
Insured, . . . be settled by binding arbitration.”
  In four class action lawsuits brought in 1994, 1995, 1996,
and 1997, Wellmark, which does business as Blue Cross and
Blue Shield of Iowa, was accused of making illegal profits
based on undisclosed agreements it had with medical
providers. Wellmark ultimately settled the lawsuits and
sought coverage from BCS. Following attempts at negotia-
tion, Wellmark filed suit against BCS in the United States
District Court for the Southern District of Iowa seeking
coverage under the 1997 policy. BCS believed that arbitra-
tion of all of Wellmark’s claims was required and filed suit
in the Northern District of Illinois to compel arbitration.
  By agreement of the parties, the district court ordered
arbitration of the claims made under the 1994-1996 policies
pursuant to the mandatory arbitration provisions in those
policies. Based on the optional nature of the arbitration
clause in the 1997 policy, however, the district court refused
to order arbitration of the claim against that policy. The
court rejected BCS’s argument that the “relation back”
provision in the 1997 policy brought the 1997 claim within
the mandatory arbitration clauses of the earlier policies.1

                       II. Discussion
  The plain language of the 1997 policy permits but does not
require arbitration, at the option of the insured, and that
ought to be enough to turn away BCS’s attempt to compel
Wellmark to arbitrate the 1997 claim. BCS says it’s not that
simple. Citing AT&T Technologies, Inc. v. Communication
Workers of America, 475 U.S. 643 (1986), BCS argues that

1
  The litigation in the United States District Court for the
Southern District of Iowa has been stayed pending the outcome of
this case and the conclusion of the arbitration.
4                                                No. 04-2575

because the policy contains an arbitration clause, a “federal
presumption of arbitration” applies. BCS also reiterates its
argument that the “relation back” provision in the 1997
policy brings the 1997 claim within the mandatory arbi-
tration provision of the earliest policy, covering the period
January 1, 1994, to January 1, 1995.
  The first argument is easily dispatched. BCS overreads
the arbitration “presumption” language from AT&T Tech-
nologies. Arbitration is a matter of consent. Volt Info. Scis.,
Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S.
468, 479 (1989). “The [Federal Arbitration Act] directs
courts to place arbitration agreements on equal footing with
other contracts, but it ‘does not require parties to arbitrate
when they have not agreed to do so.’ ” EEOC v. Waffle
House, Inc., 534 U.S. 279, 293 (2002) (quoting Volt, 489 U.S.
at 478). The language of the parties’ agreement determines
arbitrability, and “[w]hile ambiguities in the language of
the agreement should be resolved in favor of arbitration, we
do not override the clear intent of the parties, or reach a
result inconsistent with the plain text of the contract,
simply because the policy favoring arbitration is impli-
cated.” Id. at 294 (citation omitted).
  Further, while “[t]here is no denying that many decisions
proclaim that federal policy favors arbitration, . . . this
differs from saying that courts read contracts to foist arbi-
tration on parties who have not genuinely agreed to that
device.” Stone v. Doerge, 328 F.3d 343, 345 (7th Cir. 2003).
Just “[a]s there is no thumb on the scale in favor of one
judicial forum over another, there is no preference for arbi-
tration over adjudication either.” Id. at 346. The judicial
task is “to implement the parties’ preferences between ju-
dicial and arbitral forums, not to displace that choice with
one of our own.” Id. Here, the parties unambiguously agreed
to arbitration of disputes at the option of the insured. This
clear language cannot be overridden by a “presumption of
No. 04-2575                                                   5

arbitration” to force mandatory arbitration upon the in-
sured where only optional arbitration was specified.
  BCS’s argument about the operation of the 1997 policy’s
“relation back” clause is also unavailing. That clause, ap-
pearing in the policy’s “Limits of Liability” section, provides:
    All Claims based upon, arising out of, directly or indir-
    ectly resulting from, in consequence of, or in any way
    involving the same Wrongful Act or Interrelated
    Wrongful Acts shall be deemed to be a single Claim
    made at the time the earliest such Claim is made.
BCS asserts that the claim made under the 1997 policy is
related to the other claims dating back to 1994 and there-
fore the 1997 claim must be deemed a single claim under the
1994 policy. Because the 1994 policy contains a mandatory
arbitration clause, BCS argues that the district court should
have ordered arbitration of the 1997 claim along with the
claims against the 1994-1996 policies.
   The district court construed the so-called “relation back”
provision as applying to “claims arising from several inter-
related wrongful acts within the 1997 policy period, not
across policy periods.” Based on this interpretation, the
court refused to “rewrite the unambiguous language of the
1997 policy’s optional arbitration clause to make [the 1997]
claim arbitrable against Wellmark’s wishes.” BCS argues
that this interpretation of the “relation back” clause was
“far out of bounds” because it constituted an impermissible
ruling on the merits of the underlying claim in the context
of deciding arbitrability. AT&T Techs., 475 U.S. at 649-50
(“[I]n deciding whether the parties have agreed to submit a
particular grievance to arbitration, a court is not to rule on
the potential merits of the underlying claims.”); Indep. Lift
Truck Builders Union v. Hyster Co., 2 F.3d 233, 236 (7th Cir.
1993) (“In other words, we judges may not peek.”).
  We agree that the district court should not have engaged
in an interpretation of the “relation back” clause in deciding
6                                                No. 04-2575

whether to compel arbitration of the 1997 claim. That does
not mean that BCS’s argument prevails. BCS is itself
urging an interpretation of the “relation back” clause that
implicates the merits of the underlying dispute. We need
not weigh in. There are circumstances in which a court’s
decision on arbitrability “collapse[s] into the same inquiry”
as a decision on the merits. Indep. Lift Truck, 2 F.3d at 235.
In those circumstances the court cannot avoid the duty to
decide arbitrability because the decision necessarily impli-
cates a decision on the substantive merits of the dispute. Id.
at 236 (citing Litton Fin. Printing Div. v. NLRB, 501 U.S.
190, 209 (1991)). This is not such a circumstance.
  Whatever effect the “relation back” clause might have on
the existence of coverage, the application of deductibles, and
the limits of liability, it does not modify the arbitration
clause. That clause provides that “[a]ny controversy arising
out of or relating to” the 1997 policy is arbitrable, but only
at the insured’s option. The only possible question is
whether this dispute is a “controversy arising out of or
relating to” the 1997 policy; clearly, it is.
  Wellmark cannot be compelled to arbitrate the claim
against the 1997 policy when that policy provides for arbi-
tration at its sole option. The decision of the district court
is AFFIRMED.

A true Copy:
       Teste:

                        ________________________________
                        Clerk of the United States Court of
                          Appeals for the Seventh Circuit

                    USCA-02-C-0072—6-1-05