On June 26, 2015, the Supreme Court of Alabama upheld the validity of an arbitration clause in an insurance policy despite the fact the insureds swore they never received the policy forms containing and/or explaining the arbitration provision. American Bankers Ins. Co. of Fla. v. Tellis, Appeal No. 1131244 (S.Ct. Ala., decided June 26, 2015.) One of the relevant forms required a policyholder signature. It was undisputed that American Bankers never received signatures from any of the five policyholder plaintiffs whose actions against American Bankers were consolidated for purposes of the appeal regarding the validity of the arbitration provision.
Despite conceding the policyholders never signed any form containing or explaining the arbitration agreement, American Bankers argued the policyholders nevertheless consented to the arbitration provisions by accepting and acting upon the policies “containing” the arbitration provision. It is questionable whether the policies actually “contained” the provision. The Alabama Supreme Court found the evidence was:
unclear [as to] exactly what parts of the insurance policy the policyholders acknowledge receiving in this case; however, they have stated in their affidavits only that they did not receive the two identified forms specifically discussing arbitration or any other document purporting to be an arbitration agreement. Thus, they presumably received the rest of the policy American Bankers submits was issued to them, including the declarations page and the written insuring agreement, which provides that ‘[t]his policy is not complete without the declarations page.’ The declarations page lists forms AJ9821EPC-0608 and N1961-0798 as part of the included ‘forms and endorsements.’ Although the policyholders claim not to have received forms AJ9821EPC-0608 and N1961-0798, they had some duty to investigate the contents of those forms because the declarations page indicated that the forms were part of the policy.
The Court also noted it has enforced arbitration provisions in insurance policies where plaintiffs claimed never to have received the policies, citing Ex parte Southern United Fire Ins. Co., 843 So.2d 151, 156 (Ala. 2002) and Philadelphia Am. Life Ins. Co. v Bender, 893 So.2d 1104, 1109 (Ala. 2004).
Accordingly, the Court held as follows:
In sum, although the policyholders did not execute stand-alone arbitration agreements or necessarily even read or receive the insurance policies containing the arbitration provisions, they have nevertheless manifested their assent to those policies and, necessarily, the arbitration provisions in them, by accepting and acting upon the policies, inasmuch as they all affirmatively renewed their policies and paid their premiums, thus ratifying the policies.
As the dissent points out:
Moreover, nothing in plain English on the declarations page indicates that the policyholders were waiving their rights to trial by jury. As the main opinion notes, the declarations page made a brief reference to forms AJ9821EPC-0608 and N1961-0798. These combinations of letters and numbers appear among eight other similar references in a small space. There were only three words in English adjacent to these 10 mysterious combinations of letters and numbers: 1131244, 1131245, 1131264, 1131384, 1131514 “FORMS AND ENDORSEMENTS.” (Capitalization in original.) The main opinion reasons that this should have prompted the policyholders to investigate further, but nothing on the declarations page necessarily indicates that the referenced forms constitute part of the policy. There is no explanation of what these “forms and endorsements” are, or even whether they are part of the policy. Regardless of whatever American Bankers was thinking, I cannot agree that those references on the declarations page were sufficient to constitute a knowing, willing or voluntary waiver of the policyholders’ inviolate right to a jury trial.
American Bankers is sharply contrasted by another case decided in June of 2015, across the country in Hawaii. In Narayan v. Ritz-Carlton Dev. Co., Inc., 2015 WL 3539805, ___ P.3d ___ (2015), the Supreme Court of Hawaii declared an arbitration provision in a condominium declaration unenforceable under circumstances similar to those in American Bankers. The condo owners in Narayan were not obligated to arbitrate with the developer for the following reasons: 1) the developer was considered to have superior bargaining strength; 2) the condominium declaration (the “Declaration”) containing the arbitration provision was recorded prior to execution of the purchase agreements giving owners no choice but to arbitrate if they wanted to buy a condo; 3) a provision precluding discovery and mandating confidentiality was unconscionable; and 4) a provision precluding an award of punitive damages was unconscionable and unenforceable as against public policy.
The Narayan circumstance most closely related to that of American Bankers is that the arbitration provision is contained not in the purchase agreement but rather in the Declaration. The Declaration is both incorporated into the purchase agreement and referenced more than twenty times. Yet unlike the Alabama Supreme Court which found that vague numerical references to an untitled endorsement constituted an agreement to arbitrate, the Hawaii Supreme Court placed no duty whatsoever on the condo owners to examine the Declaration and abide by the arbitration provision therein. Two courts, similar circumstances, very different results.
Jessica F. Pardi is a partner in Morris, Manning & Martin, LLP’s Insurance and Reinsurance Practice. Ms. Pardi’s practice includes complex coverage disputes, bad faith matters, managing general agency disputes, and life settlement controversies. Ms. Pardi graduated from Boston University summa cum laude and the University of Virginia School of Law.
1 * Jessica F. Pardi is a partner in Morris, Manning & Martin, LLP’s Insurance and Reinsurance Department. Her practice includes complex coverage disputes, bad faith matters, managing general agency disputes, and life settlement controversies. Ms. Pardi graduated from Boston University summa cum laude and the University of Virginia School of Law.