ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF

Transcription

1 Case No CV ACCEPTED 225EFJ FIFTH COURT OF APPEALS DALLAS, TEXAS 12 March 27 A10:14 Lisa Matz CLERK In the Fifth District Court of Appeals Dallas, Texas American Modern Home Insurance Company, Appellant, v. Allstate Insurance Company, Appellee On Appeal from Cause No. CC C County Court at Law No. 3, Dallas County, Texas Judge Sally Montgomery, Presiding ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF Paul Vigushin State Bar No LAW OFFICES OF PAUL VIGUSHIN, P.C Greenville Ave., PMB 401 Dallas, TX (972) (tel.) (972) (fax) ATTORNEY FOR APPELLEE

2 TABLE OF CONTENTS TABLE OF CONTENTS... 1 TABLE OF AUTHORITIES... 2 STATEMENT OF THE CASE... 4 ISSUES PRESENTED... 5 ISSUE NO. 1: Can a trial court vacate a decision by an arbitration company to void an otherwise valid arbitration award, if the decision to void the arbitration award is based on a misrepresentation by one party to the arbitration and is contrary to the arbitration company s own rules? ISSUE NO. 2: Can a participant on the losing end of an arbitration claim a post-award policy limits defense if policy limits exceed the amount awarded and the entire policy is intact when the award is made? ISSUE NO. 3: Does Texas follow the majority first in time, first in right rule when it comes to demanding payment of arbitration awards and judgments in multiple-claimant situations? STATEMENT OF FACTS... 6 SUMMARY OF THE ARGUMENT... 7 ARGUMENT CONCLUSION PRAYER CERTIFICATE OF SERVICE ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 1

3 TABLE OF AUTHORITIES CASES City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 518 (Tex. App. Houston [1 st Dist.] 1994, writ denied) David v. Bauman, 196 N.Y.S.2d 746, 748 (N.Y. Sup. Ct. 1960) Goad v. Fisher, 257 A.2d 433, 437 (Md. 1969) Gulf Oil Corp. v. Guidry, 327 S.W.2d 515, 518 (Tex. 1959) Lumbermens Mut. Cas. Co. v. Yeroyan, 5 A.2d 39 (N.H. 1939) Scharnitzki v. Bienenfeld, 534 A.2d 825, 827 (Pa. Sup. Ct. 1960) Turk v. Goldberg, 109 A. 732, 733 (N.J. Ch. 1920) Ward Trucking Corp. v. Philadelphia Nat. Ins. Co. of Philadelphia, 67 A.2d 480, 483 (N.J. Super. Ct. App. Div. 1949) STATUTES TEX. CIV. PRAC. & REM. CODE (A)(2) AND (A)(2) TEX. CIV. PRAC. & REM. CODE (A)(1) TEX. CIV. PRAC. & REM. CODE (A)(3)(A) TEX. R. CIV. P ARBITRATION RULES RULE RULE ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 2

4 RULE , 12, 13, 16 RULE RULE PUBLICATIONS 12 STEVE PLITT, ET AL., 12 LEE R. RUSS, COUCH ON INSURANCE, 172:67 (3D ED. 1998) A.L.R. 2D 416 4[B] (1960 & SUPP. 2002) COMMENT, PRO-RATING AUTOMOBILE LIABILITY INSURANCE TO MULTIPLE CLAIMANTS, 32 U. CHI. L. REV. 337 (1965) ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 3

5 STATEMENT OF THE CASE Allstate prevailed in inter-company arbitration against American Modern and was awarded $18, (CR ). American Modern then made an ex parte request to void the arbitration award, claiming that the award exceeded its policy limits. (CR214-15). This was untrue. Nevertheless, the organization which oversaw the arbitration but not the actual arbitrator who issued the original award voided the award. (CR224-25). Allstate filed suit to vacate the decision which voided the original award and to confirm that award. (CR11-14). Following a hearing, the trial court agreed with Allstate, vacated the decision which voided the award, confirmed the original arbitration award and signed a final judgment in favor of Allstate. (CR ). American Modern appealed the trial court s ruling. (CR5-6). ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 4

6 ISSUES PRESENTED ISSUE NO. 1: Can a trial court vacate a decision by an arbitration company to void an otherwise valid arbitration award, if the decision to void the arbitration award is based on a misrepresentation by one party to the arbitration and is contrary to the arbitration company s own rules? ISSUE NO. 2: Can a participant on the losing end of an arbitration claim a post-award policy limits defense if policy limits exceed the amount awarded and the entire policy is intact when the award is made? ISSUE NO. 3: Does Texas follow the majority first in time, first in right rule when it comes to demanding payment of arbitration awards and judgments in multiple-claimant situations? ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 5

7 STATEMENT OF FACTS On April 27, 2009, fire damaged several apartment units in Lancaster, Texas. (CR ). The fire originated in the apartment occupied by Josephine Price, who fell asleep with the stove on. Id. Vercindy Taylor, who lived in a neighboring unit, lost most of her personal belongings in the fire. Id. At the time of the fire, Taylor had renters insurance with Allstate Insurance Company ( Allstate ). Id. Once Price s culpability for the fire became clear and after Allstate adjusted and paid Taylor for damage to her personal property under the terms of the renters policy Allstate demanded reimbursement from Price. Id. Allstate paid $18, for damage to Taylor s property, net of Taylor s $ deductible. Id. As it turned out, Price also had in place an insurance policy with American Modern Home Insurance Company ( American Modern ). Thus, on October 8, 2009, Allstate, as subrogee of its insured, sent American Modern a letter of representation and a demand for payment on its claim. (CR185). Months went by, with American Modern continuing to investigate the claim against its insured. (CR ). American Modern did not accept liability on behalf of its insured and did not indicate that it would. Id. Nor did it disclose to Allstate Price s policy limits or the number of claims being made against that policy. Id. Allstate eventually turned the claim over to its subrogation counsel, who filed a demand for arbitration with Arbitration Forums, Inc. ( AF ). (CR183). Why arbitration? Because both Allstate and American Modern are signatories to the Property Subrogation Arbitration Agreement ( Agreement ), which provides that signatory companies are bound to forego litigation and in place thereof submit to arbitration any questions or ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 6

8 disputes which may arise from (a) any fire subrogation or property damage claim not in excess of $100,000. (CR ) (emphasis added). Arbitration of disputes between carriers through Arbitration Forums is meant to be an inexpensive, expeditious process. No discovery is allowed. (CR ). No evidence is exchanged. Id. No oral testimony is permitted, without a submitted written statement. (CR200; Rule 3-7). No witnesses are examined. (CR ). The only requirement is that the other side be provided with a copy of the contentions and a list of evidence submitted to the arbitrator. (CR199). An arbitrator is not permitted to consider any evidence not specifically listed on the contention sheet. Id. Since Allstate s subrogation claim was under $100,000, and since both it and American Modern were signatories to the Agreement, Allstate had no choice but to file for arbitration. In fact, had Allstate foregone arbitration and filed suit, it would have been responsible for American Modern s costs and attorney s fees incurred in compelling arbitration. (CR195; Rule 1-2). An arbitration hearing was held on November 2, 2010, and an Arbitration Property Decision was published the same day. (CR183). American Modern chose to not participate in the underlying hearing and did not submit any evidence to counter Allstate s allegations. Id. The arbitrator Elizabeth A. Judd awarded Allstate a total of $18, Id. That same day, Allstate transmitted payment instructions to American Modern. (CR206). Rule 5-1 of the rules governing arbitrations between the carriers requires all awards to be honored within thirty days of their publication date. (CR201). The award Publication Date in the instant case was November 2, (CR183). The arbitration award went unpaid for thirty days, at which point Allstate sent a follow-up ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 7

9 letter to American Modern per Rule 5-2. (CR201; CR205). The follow-up letter from Allstate to American Modern was dated December 7, (CR205). Unbeknownst to Allstate, American Modern had written to Arbitration Forums ex parte and represented that Allstate s arbitration award exceeded American Modern s policy limits. (CR ). Allstate learned of this ex parte communication only after it received a letter dated December 20, 2010, from Arbitration Forums, with an enclosed copy of the ex parte correspondence from American Modern, which notified Allstate that its arbitration award had been voided. (CR225). The letter from Arbitration Forums is unsigned, but purports to be from Annette Boone, who is not the arbitrator assigned to the underlying case. (CR225). Under Rule 3-9, a company has 60-days after an award is published to invoke a policy limits defense, which is what American Modern did. (CR200; CR ). On November 23, 2010, American Modern sent a letter to Arbitration Forums, invoking Rule 3-9 and claiming that the arbitration award in favor of Allstate exceeded its policy limits. (CR ). In reality, what became clear after discovery was conducted in the underlying suit, was that when American Modern made its ex parte representation to Arbitration Forums, it had in place a $100,000 insurance policy which had yet to be diminished by a single penny. (CR ). In fact, American Modern made its first payment under Price s policy on February 11, 2011, nearly three months after it claimed that the arbitration award in favor of Allstate exceeded its policy limits, in order to void that award. Id. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 8

10 Once it received notice that the arbitration award in its favor had been voided, Allstate had absolutely no recourse under the rules of arbitration to challenge the voiding of the award. There is no possibility of appeal; nor any mechanism to request a review or reconsideration. In fact, Allstate s only recourse was to file suit in order to confirm the original arbitration award, which had improperly been voided based on American Modern s misrepresentation. Allstate subsequently filed suit to vacate the decision to void its award and to confirm that award. Following a July 1, 2011, hearing, the trial court entered an order confirming the original arbitration award in favor of Allstate. (CR246). Concurrently, the Court signed a Final Judgment in favor of Allstate based on the November 2, 2010, arbitration award. (CR ). ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 9

11 SUMMARY OF THE ARGUMENT On November 2, 2010, Allstate was awarded $18, against American Modern after an arbitration hearing. On November 2, 2010, American Modern had in place a $100,000 liability policy covering its insured, Josephine Price, the person alleged to be responsible for Allstate s damages. On November 23, 2010, American Modern made use of a post-award defense that should not have been available to it and misrepresented the state of affairs to Arbitration Forums in order to illicitly void the arbitration award in favor of Allstate. Arbitration Forums did not make an independent inquiry into American Modern s post-award defense and voided the arbitration decision based on solely on American Modern s misrepresentation that Allstate s arbitration award exceeded available policy limits. American Modern knew the falsity of its statement when it made it that much is clear on the face of its letter yet persisted in requesting that the arbitration award in favor of Allstate be voided. If an arbitrator is threatened, bribed, lied to or otherwise coerced into making an arbitration award, the aggrieved party must have the ability to turn to the courts for relief. The same goes for an arbitration award which is voided based on either a misrepresentation. Although there may have been many potential claimants against Price (and her insurance policy), the arbitration award in favor of Allstate made it first in time, which gave it first rights to collect. At the time Allstate prevailed against American Modern, American Modern had not made a single payment under what turned out to be a $100,000 policy; nor had it even accepted a single claim or promised payment to a single claimant. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 10

12 Under its very own rules, Arbitration Forums exceeded its authority when it voided the arbitration award in favor of Allstate. That it did so based on a false representation made by American Modern, leaving Allstate with no recourse but to ask the courts for relief, gave the trial court the ability to right a wrong. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 11

13 ARGUMENT Section of the Texas Civil Practice & Remedies Code gives the court authority to vacate an arbitration award if: (a)(1) the award was obtained by corruption, fraud, or other undue means; or.... (a)(3)(a) the arbitrators exceeded their powers. The only difference between the case sub judice and more typical cases that invoke the trial court s powers under is that, here, Allstate asked the trial court to vacate a ruling which, itself, vacated a valid arbitration award in favor of Allstate. A more typical case may ask the court to vacate the underlying award. If a court has jurisdiction to vacate an arbitration award obtained by undue means or one issued by arbitrators who exceeded their powers, the court must have jurisdiction to vacate an award which voids the original arbitration award on the same grounds finds repugnant. An arbitration award must be set aside on a showing the arbitrators exceeded their powers. TEX. CIV. PRAC. & REM. CODE (a)(3)(A). As stated by the Texas Supreme Court, the authority of arbitrators is derived from the arbitration agreement and is limited to a decision of the matters submitted therein either expressly or by necessary implication. Gulf Oil Corp. v. Guidry, 327 S.W.2d 406, 408 (Tex. 1959). Arbitrators therefore exceed their authority when they decide matters not properly before them. See id.; City of Baytown v. C.L. Winter, Inc., 886 S.W.2d 515, 518 (Tex. App. Houston [1 st Dist.] 1994, writ denied). Here, the trial court had the power to vacate the decision to void the arbitration award and to confirm that award both because American Modern ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 12

14 misrepresented the grounds for voiding the award and because the representative of Arbitration Forums exceeded her authority. First, American Modern was untruthful in its representations to Arbitration Forums that the arbitration award in favor of Allstate exceeded existing policy limits. While American Modern seems to acknowledge that the award in favor of Allstate does not exceed our insured s policy limits, it claims that the total damages suffered by other claimants exceed policy limits this, notwithstanding the fact that American Modern had not accepted a single claim, had not made a determination that it would accept a single claim and had made a single payment under the policy at the time it asserted its postaward defense under Rule 3-9. (CR ). Rule 3-9 is very clear: When an award exceeds policy limits, the filing company will have the option to accept the policy limits as final settlement and forego recovery of the claim against the insured directly or have the decision voided to pursue alternative means of full recovery. (CR200) (emphasis added). At the time it wrote its November 23, 2010, ex parte letter to Arbitration Forums asserting the post-award policy limits defense, the only party who truly knew that the arbitration award in favor of Allstate did not exceed policy limits was American Modern. Yet, American Modern persisted with the misrepresentation in the hopes of having the award voided and succeeded. Second, the representative of Arbitration Forums who voided the award in Allstate s favor did not have the power to do so. Rule 3-9 is clear the only time an award can be voided is when it exceeds policy limits. In its November 23, 2010, ex parte letter, American Modern acknowledges that Allstate s award does not exceed policy ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 13

15 limits; yet, Arbitration Forums voided the award anyway. From its correspondence notifying Allstate that its arbitration award has been voided, it does not appear that Arbitration Forums conducted any independent investigation or asked American Modern for additional supporting documents. Allstate was certainly not given any notice that its award was on the verge of being voided and was not given an opportunity to argue against this step or against the applicability of Rule 3-9. Rather, it appears that the representative of Arbitration Forums took the representations in American Modern s letter at face value and voided the award based on the fact that American Modern had identified a total of 8 parties to this loss with claims that total $604, and all parties were not a part of this arbitration filing, nor are all parties [sic] members of arbitration. (CR225). However, the fact that American Modern identified a total of eight parties to the loss has nothing to do with Allstate s award exceeding policy limits. The only ground for voiding an award, according to the clear language of Rule 3-9, is if the award exceeds policy limits. An $18,000 award does not exceed $100,000 policy limits which were the limits at the time of both the arbitration award and the time American Modern claimed that Allstate s award exceeded its policy limits. And the fact that American Modern identified other claimants none of whose claims had been paid at the time Allstate prevailed in the arbitration hearing has nothing to do with policy limits. If American Modern was concerned that the amount asserted by prospective claimants would potentially exceed policy limits leaving its insured exposed it could have filed an Interpleader, but chose not to. See TEX. R. CIV. P. 43. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 14

16 The question is: was Allstate entitled to be paid by American Modern since it was the first and only claimant with a valid judgment (arbitration award)? The majority rule says yes. In other words, on November 2, 2010, the day the arbitration award came down in its favor, Allstate was entitled to payment of the arbitration award under the well-settled doctrine of first in time, first in right. 1 Although it does not appear that Texas courts have addressed this very issue in a published opinion, the logic behind the rule is sound. Were it otherwise, Allstate would be at the complete mercy of American Modern having to wait for a liability and payment decision to be made and running the risk of having its claim extinguished by a statute of limitations. Prior to the arbitration being filed, American Modern had no independent obligation to Allstate, but only to its insured. Thus, Allstate must have the ability to assert its rights which, in this case 1 When several claims arise from a single event, but where judgments for those claims were obtained against an insured in different actions, the majority rule is that proceeds should be distributed on a firstcome-first-served basis according to priority of judgment. Goad v. Fisher, 257 A.2d 433, 437 (Md. 1969); Lumbermens Mut. Cas. Co. v. Yeroyan, 5 A.2d 39 (N.H. 1939); Ward Trucking Corp. v. Philadelphia Nat. Ins. Co. of Philadelphia, 67 A.2d 480, 483 (N.J. Super. Ct. App. Div. 1949); Turk v. Goldberg, 109 A. 732, 733 (N.J. Ch. 1920); David v. Bauman, 196 N.Y.S.2d 746, 748 (N.Y. Sup. Ct. 1960); Scharnitzki v. Bienenfeld, 534 A.2d 825, 827 (Pa. Sup. Ct. 1960); 12 Steve Plitt, et al., 12 Lee R. Russ, Couch on Insurance 172:67 (3d ed. 1998); V.H. Cooper, 70 A.L.R. 2d 416 4[b] (1960 & Supp. 2002); Comment, Pro-Rating Automobile Liability Insurance to Multiple Claimants, 32 U. CHI L. REV. 337, 337 (1965) (Noting that when more than one person is injured in an automobile accident, the rule by which claimants are paid is said to be first time, first in right. ). For instance, in David, 196 N.Y.S.2d at 748, plaintiffs sought to join their case with an action by other injured claimants, or in the alternative, to obtain a stay in the satisfaction of the other claimants judgments until their own pending joint action had been completed and a pro rata distribution of all claims effected. In denying the plaintiffs motion, the court noted that the first in time, first in right principle, whether the priority is by way of judgment or by settlement, had not been altered. Id. Furthermore, the Court stated: [w]ere the rule otherwise, an insurer could protect itself against being required to pay more than its policy limits only by refusing any payment until an equity action had been brought for the purpose of ratable apportionment among creditors. Id. In the instant case, American Modern never filed an Interpleader action. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 15

17 meant filing compulsory arbitration against American Modern and to then enforce those rights, without being subjected to capricious decisions unsupported by the facts. American Modern argues that Allstate could have appealed the decision that voided its award. This is false. First, nothing in the Agreement or the rules governing arbitrations in the Property Forum gives Allstate the right to appeal a post-award decision such as one voiding an arbitration award. This is precisely the reason Allstate checked the box next to I will accept policy limits on its P-Form (CR192). Because Allstate was not privy to the amount of policy limits at the time it filed for arbitration, if the arbitration award in favor of Allstate truly exceeded policy limits (for instance, if policy limits happened to be $10,000, instead of $100,000), Allstate made the election to accept policy limits rather than to have its award voided. Second, appeals are limited only to those issues decided in the original proceeding i.e., the original arbitration hearing. See Rule 2-12 (CR198). The issue to void the arbitration award in favor of Allstate came up, ex parte, long after the award was issued. Finally, even if the Court were to read Rule 2-12 as containing the right to appeal any decision issued by Arbitration Forums, the right to appeal is limited only to those cases where the claim amount exceeds $25,000. Id. Allstate s claim amount was less than $19,000. (CR192). Thus, for American Modern to argue that Allstate had a remedy to challenge the improper voiding of its arbitration award within the confines of Arbitration Forums is simply not the case. The Texas Arbitration Act ( TAA ) also does not provide independent grounds to Arbitration Forums to void the award in favor of Allstate. Under the TAA, arbitrators ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 16

18 may modify or correct an award on grounds stated in Section or to clarify the award. See TEX. CIV. PRAC. & REM. CODE (a)(1) and (a)(2). Voiding an entire award is neither a correction nor a modification. The only ground for voiding a valid award available to Arbitration Forums was Rule 3-9. But, even here, Arbitration Forums exceeded its authority when it voided an award that clearly did not exceed policy limits. Until payments are made under a policy, its limits are not diminished. Claims alleged against a policy holder, which are neither accepted nor paid, do not diminish those limits. Arbitration Forums exceeded its authority, and it was Allstate s right to seek redress in court. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 17

19 CONCLUSION The trial court did not err in vacating the decision by Arbitration Forums to void a valid arbitration award in favor of Allstate. Allstate had no choice but to file for arbitration against American Modern. After Allstate prevailed, it should have been paid in full, since the arbitration award in favor of Allstate was less than the policy limits remaining under an insurance policy covering Josephine Price. Following an apartment fire, Allstate was the only claimant with a valid award. No other claims had been accepted or paid. Rather than pay the arbitration award, American Modern claimed that Allstate s award exceeded policy limits and asked that the award be voided. This was done ex parte. Rather than investigate the facts or pay close attention to the language of American Modern s letter, Arbitration Forums voided the arbitration award in Allstate s favor, notwithstanding the fact that the award did not, then, exceed policy limits. American Modern did not pay any claim under the policy until months after Allstate demanded payment for the arbitration award. Arbitration Forums exceeded its powers when it voided an award on grounds which did not apply. The trial court correctly ruled in Allstate s favor by setting aside the decision voiding the arbitration award and by confirming the original award. ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 18

20 PRAYER Allstate prays that the Court affirm the trial court s judgment in its entirety and award it such other relief to which it may be entitled. Respectfully submitted, LAW OFFICES OF PAUL VIGUSHIN, P.C Greenville Ave., PMB 401 Dallas, TX (972) (tel.) (972) (fax) /s/ Paul Vigushin Paul Vigushin State Bar No ATTORNEY FOR APPELLEE CERTIFICATE OF SERVICE I do hereby certify that a true and correct copy of the above instrument has been forwarded to the following counsel of record by CM/RRR pursuant to Rule 21 and 21(a) of the Texas Rules of Civil Procedure on this the 27 th day of March, 2012: Jennifer S. Brownell, Esq. Kane Russell Coleman & Logan, P.C Thanksgiving Tower 1601 Elm St. Dallas, TX (214) (tel.) (214) (fax) Attorney for American Modern Home Ins. Co. /s/ Paul Vigushin ATTORNEY FOR PLAINTIFF ALLSTATE INSURANCE COMPANY S APPELLEE S BRIEF PAGE 19