Court Opinion

ID: 6764729
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:35:25.950746+00
Date Added: 2024-06-11T16:02:40.588294
License: Public Domain

Douglas, J.
*711I

Schaefer et al. v. Allstate Ins. Co.

Case Nos. 91-764 and 91-1042
In determining that its decision was in conflict with Trupp, supra, Said, supra, and Roen, supra, the court of appeals requested that we answer the following questions:
“(1) whether a binding arbitration clause in an automobile insurance policy providing that an award not exceeding the limits of the Financial Responsibility Law of Ohio will not be subject to a trial de novo, is so fundamentally unfair as to be unconscionable; and
“(2) what effect a finding of unconscionability will have upon enforcement of an award made under a binding arbitration clause.”
Before answering either certified question, we discuss several other matters which will help to clarify the issues presented in this case.
A
Arbitration
In reviewing the questions presented to us for resolution, the policy provisions at issue and the various decisions of the courts which have, before us, pronounced judgments on these matters, we find that the real problem lies in the imprecise use of the term “arbitration.” “Binding arbitration” is a redundancy. “Nonbinding arbitration” is a contradiction in terms. For a dispute resolution procedure to be classified as “arbitration,” the decision rendered must be final, binding and without any qualification or condition as to the finality of an award whether or not agreed to by the parties. The decision may only be questioned pursuant to the procedure set forth in R.C. 2711.13 on grounds enumerated in R.C. 2711.10 and 2711.11. This is so even if a qualification on the finality of the award is mutually agreed to by the parties. When parties agree to make an award rendered in an “arbitration” procedure appealable, the proceeding is no longer an “arbitration.”
A number of our cases decided over the course of many years reflect this court’s dedication to the strong public policy favoring arbitration. See, e.g., Brennan v. Brennan (1955), 164 Ohio St. 29, 57 O.O. 71, 128 N.E.2d 89, paragraph one of the syllabus; Mahoning Cty. Bd. of Mental Retardation v. Mahoning Cty. TMR Edn. Assn. (1986), 22 Ohio St.3d 80, 22 OBR 95, 488 N.E.2d 872; and Findlay City School Dist. Bd. of Edn. v. Findlay Edn. *712Assn. (1990), 49 Ohio St.3d 129, 551 N.E.2d 186. Arbitration is favored because it provides the parties thereto with a relatively expeditious and economical means of resolving a dispute. As we stated in Mahoning, supra, at 83, 22 OBR at 98, 488 N.E.2d at 875, arbitration “ * * * provides the parties with a relatively speedy and inexpensive method of conflict resolution and has the additional advantage of unburdening crowded court dockets.” Given the favored status of the arbitration system of dispute resolution in this state, it is important to understand what is meant by the term “arbitration.”
A definition for the term “arbitration” can be derived from a number of sources. In Ohio Council 8, AFSCME v. Ohio Dept. of Mental Health (1984), 9 Ohio St.3d 139, 142, 9 OBR 388, 391, 459 N.E.2d 220, 222, we defined “arbitration” as a proceeding for the hearing and determining of a dispute between parties in controversy by a person or persons chosen by the parties instead of by a judicial tribunal. In Mahoning, supra, we stated that “[arbitration occurs when disputing parties contractually agree to resolve their conflict by submitting it to a neutral third party for resolution." (Emphasis added.) Id., 22 Ohio St.3d at 83, 22 OBR at 98, 488 N.E.2d at 875. Black’s Law Dictionary (6 Ed.1990) 105, defines “arbitration” as:
“A process of dispute resolution in which a neutral third party (arbitrator) renders a decision after a hearing at which both parties have an opportunity to be heard. Where arbitration is voluntary, the disputing parties select the arbitrator who has the power to render a binding decision.
“An arrangement for taking and abiding by the judgment of selected persons in some disputed matter, instead of carrying it to established tribunals of justice, and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation.” (Emphasis added.)
Additionally, reference to treatises on the arbitration system of dispute resolution provides insight into the general meaning of the term “arbitration.” For instance, it has been stated by one expert on the arbitration system of dispute resolution that:
“The function of arbitration is to destroy disputes. * * *
“An arbitration is a final determination of the respective claims or rights of the parties in controversy on the basis of proofs. Other forms of settlement may dispose of the disputes without these rights being determined or proofs being submitted, or a final adjudication being made. Arbitration is not this kind of a proceeding.
a * * *
“Arbitration * * * actually destroys the cells that cause the dispute by a final determination of whatever claims these cells of controversy give rise to. *713It goes deep into the causes, sifts the facts and, unhampered by legal technicalities, sees that justice is administered. This use of arbitration has established the principle that only the administration of justice finally and fully destroys a dispute.
“The fact that arbitration is final, expeditious, private and inexpensive puts it in a class by itself, for while other processes may possess some of these characteristics, they rarely possess all of them — especially finality. For it is only in arbitration that arbitration law accords the high privilege of giving the decision of an arbitrator the same legal effect as a judgment of the court.
“The purpose of arbitration is, therefore, to determine a difference or dispute amicably, privately and finally and, in so doing, to exclude a court of law from such determination. * * * ” (Emphasis added.) Kellor, Arbitration in Action (1941), at 3-4.
Other treatises are equally instructive. Professor Martin Domke, in his treatise on commercial arbitration, states that arbitration “ * * * is based on a voluntary agreement of the parties, made before the arbitration process is instituted, to submit a dispute for the binding decision of the arbitrator.” (Emphasis added.) Domke, The Law and Practice of Commercial Arbitration (1968) 3, Section 1.02. Similarly, it has been said that one of the defining characteristics of the arbitration system of dispute resolution is that it results in a final and binding disposition of a controversy or dispute. Oehmke, Commercial Arbitration (1987) 15, Section 2:1.
The General Assembly has also provided some guidance as to the meaning of the term “arbitration.” In R.C. Chapter 2711, the General Assembly has not only provided that agreements to settle a controversy by arbitration are valid, irrevocable, and enforceable,2 but that a court may, upon motion,3 confirm an arbitrator’s award4 and, thus, reduce the award to judgment.5 Additionally, the General Assembly has provided that an arbitrator’s award may, upon motion,6 be modified, corrected, or vacated only under certain conditions,7 which conditions represent the rarest of circumstances. A review *714of these sections of R.C. Chapter 2711 clearly indicates that arbitration is intended to be an alternate method of dispute resolution which is final (and must be accorded finality) in all circumstances except those specifically set forth in the statute. Further evidence of the intended effect of the arbitration system of dispute resolution can be found in amended R.C. 2711.21(C), which adds confusion by permitting “nonbinding arbitration” of certain claims. While “nonbinding arbitration” is an oxymoron, R.C. 2711.21 also implies that other relevant provisions of R.C. Chapter 2711 pertain to a method of dispute resolution which is to be given final and binding effect.
With the foregoing discussion in mind, we believe that the policy provision at issue in this case, which provision provides that an “arbitration” award is binding if below a designated amount, but nonbinding if it exceeds such amount, does not provide for the “arbitration” of disputes as we have heretofore understood that term. While the provision purports to make an award binding in some instances, “arbitration” of a dispute, by definition, requires that the dispute be submitted to a neutral and independent “arbitrator” for a decision which is final and binding regardless of the outcome.
B
Policy Provisions
We gather from the record before us which is, at best, less than a model of clarity, that the automobile insurance policy which was originally issued to appellees by appellant contained the following arbitration provision:
“If any person making claim hereunder and Allstate do not agree that such person is legally entitled to recover damages from the owner or operator of an uninsured automobile because of bodily injury to the insured, or do not agree as to the amount of payment which may be owing under this coverage, then, upon written demand of either, the matter or matters upon which such person and Allstate do not agree shall be settled by arbitration in accordance with the rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof. Such person and Allstate each agree to consider itself bound and to be bound by any award made by the arbitrators pursuant to this coverage.”
This provision clearly provided a dispute resolution procedure which was “arbitration.” Any decision rendered by the arbitrators would be final and binding.
We also glean from the information which has been provided to us that sometime after the issuance of the policy, but before the 1985 automobile *715accident, the arbitration provision was amended (by an “endorsement”) and that the amendment is applicable in this case. However, the parties have presented us with differing versions of the amendment,8 and both parties are apparently confused concerning its effect upon the original arbitration provision contained in the policy. Specifically, in merit briefs submitted to this court, both parties cite the original arbitration provision contained in the policy claiming that the dispute between them concerning the cause of appellees’ injuries was required to be submitted to arbitration. The parties then cite to their respective versions of the amendment regarding the binding effect of the panel’s award.
We believe that the obvious purpose and effect of either version of the amendment was to completely replace the terms of the original arbitration *716provision contained in the policy with the verbiage of the amendment so that the terms of the original provision were no longer applicable. This conclusion is supported by the fact that both versions of the amendment set forth a comprehensive procedure for the hearing of claims and the appealability of awards. The language of both versions of the amendment is inconsistent with, or repetitive of, or both, of all relevant terms of the original arbitration clause contained in the policy. Therefore, the parties are clearly incorrect in relying upon the original arbitration provision contained in the policy in representing to us that “arbitration” was required in this case.
In any event, the relevant portion of the amendment which is at issue here provides that an arbitration award not exceeding the limits of Ohio’s financial responsibility law is binding upon the insurer and the insured, but that an award exceeding such limits is nonbinding and the issues between the parties may be tried de novo in a court of competent jurisdiction. From other cases pending before us and those cited to us as being in conflict, it is apparent that similar provisions have been added by endorsement to many automobile insurance policies throughout the state with the effect of modifying the arbitration provision of the underlying or basic policy of automobile insurance. It is also apparent that similar provisions have been written into many basic policies of automobile insurance issued in this state.
Accordingly, a simple analysis of the policy provision now before us based upon our discussion of “arbitration” in Part I A, supra, leads to the inevitable conclusion that whatever alternative-dispute-resolution procedure is provided for, that procedure is not arbitration. The procedure does not make any and all awards final and binding. Furthermore, it is apparent that the insurance provision in question here represents a clear attempt to bypass R.C. Chapter 2711 by setting up an “escape hatch” for any party disappointed with an award exceeding a specified amount. In doing so, the provision completely frustrates the purposes of “arbitration” and every public policy reason favoring the arbitration system of dispute resolution. By permitting a trial de novo in some instances, the provision unnecessarily subjects the parties to multiple proceedings in a variety of forums, increases costs, extends the time consumed in ultimately resolving a dispute, and eviscerates any advantage of unburdening crowded court dockets. Accordingly, since the provision is not a provision providing for true arbitration, the entire agreement to “arbitrate” clause is unenforceable.
In reaching the above conclusion, we have also reviewed the decisions of the highest courts in several of our sister states. See Mendes v. Automobile Ins. Co. of Hartford (1989), 212 Conn. 652, 563 A.2d 695; Schmidt v. Midwest *717Family Mut. Ins. Co. (Minn.1988), 426 N.W.2d 870; and Pepin v. American Universal Ins. Co. (R.I.1988), 540 A.2d 21. Additionally, we have noted Justice Sweeney’s analysis of a similar insurance provision in his often-cited concurring opinion in Nationwide Mut. Ins. Co. v. Marsh (1984), 15 Ohio St.3d 107, 110-111, 15 OBR 261, 263-264, 472 N.E.2d 1061, 1063-1064.
Finally, in concluding this portion of our discussion, it is important to note that the courts of appeals in Said, supra, and Roen, supra, cited our decision in Ohio Council 8, supra, to support the proposition that parties are free to contract not to be bound by an arbitrator’s decision. We move now to dispel any notion that Ohio Council 8 supports the proposition that parties may agree to “nonbinding arbitration.” In Ohio Council 8, we clearly distinguished between “arbitration” on the one hand and “mediation” on the other hand, and our decision in that case does not support the proposition for which it was cited in Said, supra, and Roen, supra.
II

Nationwide Mut. Ins. Co. v. Fallon-Murphy

Case Nos. 91-2105 and 91-2333
In today deciding that policy provisions like the one before us herein are unenforceable, we are keenly aware that our decision cuts both ways. The Fallon-Murphy case was also certified to us by the Tenth District Court of Appeals. It is now pending before us both on an allowance'of a motion to certify the record (case No. 91-2105) and upon certification of conflict (case No. 91-2333).
Fallon-Murphy involves a policy provision that is, in all material respects, the same as the provision at issue in the case at bar. A dispute between the insurance carrier, appellee Nationwide Mutual Insurance Company, and its insureds, appellants Janie Fallon-Murphy and Michael Murphy, was submitted to “arbitration.” The arbitration panel awarded the policyholders over $1,000,000. Exercising its right under the policy provision, the carrier “appealed” the award and sought a trial. The policyholders moved for summary judgment contending that the clause permitting the carrier to “appeal” was “unconscionable” and against public policy. The trial court granted summary judgment to the insureds and held against the insurance company. The carrier appealed and the Tenth District Court of Appeals reversed the trial court and found that portion of the clause permitting appeal if the award exceeded the Ohio limits of financial responsibility to be valid and enforceable.
*718In deciding as we have today that such provisions like the one now before us do not, by their own terms, constitute an arbitration provision, the carrier in Fallon-Murphy had an absolute right to seek a determination of the issues by a court of competent jurisdiction and, thus, the judgment of the court of appeals is, for that reason, affirmed. The policyholders lose their “arbitration” award and will be required to go to trial.
While the sword has two edges, all parties are treated equally. If parties want to arbitrate, a practice we strongly encourage, then the rules are clear as to the requirements. An award rendered in an arbitration proceeding is final and binding since the parties have freely entered into such an agreement. Short of this, the procedure is not arbitration and either party has the right to have the issues heard at a trial regardless of the amount of an award.
Ill

Conclusion

We have determined that an insurance provision like the one at issue is violative of the policy of this state favoring arbitration as an alternative method of dispute resolution. An award rendered pursuant to “arbitration” is final and binding — otherwise, the proceeding is not arbitration. Our response to the first certified question in Schaefer, supra, is that a provision or an endorsement in a policy of automobile insurance which provides that any award not exceeding the limits of the financial responsibility law of Ohio is binding, but is nonbinding if the award exceeds such limits, is not “arbitration” and is, therefore, unenforceable as such.9
Given our conclusion that the provision is unenforceable, our specific response to the second certified question is that whether the invalid provision is contained in the policy of insurance, or whether the provision has been added to the policy by way of endorsement to modify an otherwise enforceable arbitration clause, the insurer and insured(s) are left with no valid alternative-dispute-resolution procedure and either party may seek access to the courts for the settlement of their disputes.
For the reasons stated herein, rather than those advanced by the appellate court, we affirm, in case Nos. 91-764 and 91-1042, the judgment of the court of appeals. For like reasons, we affirm the judgment of the court of appeals *719in case Nos. 91-2105 and 91-2333. Our decisions permit all parties to now pursue their claims in the trial court.

Judgment affirmed in case Nos. 91-764 and 91-1042.

Judgment affirmed in case Nos. 91-2105 and 91-2333.

Sweeney and Resnick, JJ., concur.
Moyer, C.J., Wright and H. Brown, JJ., concur in judgment only.
Holmes, J., dissents.

. See former R.C. 2711.01.

. See R.C. 2711.09.

. Id.

. See R.C. 2711.12.

. See R.C. 2711.13.

. See R.C. 2711.11 (modification and correction) and R.C. 2711.10 (vacating award).

. Appellant claims that the amendment contained the following language:
“If the person insured or we don’t agree on that person’s right to receive any damages or the amount, then upon the written request of either the disagreement will be settled by arbitration. Arbitration will take place under the rules of the American Arbitration Association unless the person insured or we object.
“If either party objects, the following alternative method of arbitration will be used. The person insured will select one arbitrator and we will select another. The two arbitrators will select a third. If they can’t agree on a third arbitrator within 30 days, the judge of the court of record in the county of jurisdiction where arbitration is pending will appoint the third arbitrator. The written decision of any two arbitrators will determine the issues. Regardless of the method of arbitration, any award not exceeding the limits of the financial responsibility law of Ohio will be binding and may be entered as a judgment in a proper court.
“Regardless of the method of arbitration, when any arbitration award exceeds the Financial Responsibility limits of the State of Ohio, either party has a right to trial on all issues in a court of competent jurisdiction. This right must be exercised within 60 days of the award. Costs, including attorney fees, are to be paid by the party incurring them.”
Appellees claim that the amendment provides:
“If the insured person or we don’t agree on that person’s right to receive any damages or the amount, then upon the mutual consent of the insured person and Allstate, the disagreement may be settled by arbitration. The insured person and we must mutually agree to arbitrate the disagreements. If the insured person and we do not agree to arbitrate, then the disagreement will be resolved in a court of competent jurisdiction.
“Unless the insured person or we object, arbitration will take place under the rules of the American Arbitration Association. If either party objects, the following alternative method of arbitration will be used. The insured person will select one arbitrator and we will select another. The two arbitrators will select a third. If they can’t agree on a third arbitrator within 30 days, the judge of the court of record in the county of jurisdiction where arbitration is pending will appoint the third arbitrator. The written decision of any two arbitrators will determine the issues.
“Regardless of the method of arbitration, any award not exceeding the limits of the Financial Responsibility law of Ohio will be binding and may be entered as a judgment in a proper court.
“Regardless of the method of arbitration, when any arbitration award exceeds the Financial Responsibility limits of the State of Ohio, either party has a right to trial on all issues in a court of competent jurisdiction. This right must be exercised within 60 days of the award. Costs, including attorney fees, are to be paid by the party incurring them.”

. We specifically reject appellant’s argument that the Federal Arbitration Act, Section 1 et seq., Title 9, U.S.Code requires a different result. Ohio’s statutory framework for the enforcement and modification of arbitration awards governs the dispute resolution procedure of arbitration in Ohio: See R.C. 2711.01 et seq.