Little v. Allstate Insurance Co.

Little v. Allstate Insurance Co.  (95-063); 167 Vt. 171; 705 A.2d 538

[Filed 10-Oct-1997]


       NOTICE:  This opinion is subject to motions for reargument under
  V.R.A.P. 40 as well as formal revision before publication in the Vermont
  Reports.  Readers are requested to notify the Reporter of Decisions,
  Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of
  any errors in order that corrections may be made before this opinion goes
  to press.


                            No. 95-063


Don and Joan Little                          Supreme Court

                                             On Appeal from
    v.                                       Windsor Superior Court

Allstate Insurance Company                   April Term, 1997


Alan W. Cheever, J.

Bruce M. Lawlor of Lawlor & Koitto, Springfield, for plaintiffs-appellants

Michael J. Gannon and Joshua L. Simonds of Affolter Clapp Gannon, Ltd., 
  Burlington, for defendant-appellee


PRESENT:  Gibson, Dooley, Morse and Johnson, JJ., and Allen, C.J. (Ret.), 
          Specially Assigned


       DOOLEY, J.   This case presents the single issue of whether the
  Federal Arbitration Act (FAA) preempts the Vermont Arbitration Act (VAA)
  and makes irrevocable an agreement to arbitrate an uninsured motorist
  coverage dispute.  This issue was left open in Preziose v. Lumbermen's Mut.
  Casualty Co., 152 Vt. 604, 607, 568 A.2d 397, 398-99 (1989) because the
  arbitration agreement in that case was entered into before the effective
  date of the VAA.  We now decide that the FAA does preempt the VAA, and the
  agreement to arbitrate is irrevocable. We affirm.

       Plaintiffs Don and Joan Little have a dispute with defendant Allstate
  Insurance Co. over uninsured motorist coverage for injuries sustained in an
  automobile accident.  Pursuant to a provision in the policy, defendant
  seeks to submit the dispute to arbitration.  Plaintiffs want the Windsor
  Superior Court to resolve the dispute.  That court sided with defendant and
  dismissed this action.

       The single issue involves the interrelationship of three statutes. 
  The first is § 2 of the

 

  FAA which provides:

          A written provision in . . . a contract evidencing a
     transaction involving commerce to settle by arbitration a
     controversy thereafter arising out of such contract . . . or the
     refusal to perform the whole or any part thereof, or an agreement
     in writing to submit to arbitration an existing controversy arising
     out of such a contract, transaction, or refusal, shall be valid,
     irrevocable, and enforceable, save upon such grounds as exist at
     law or in equity for the revocation of any contract.


  9 U.S.C. § 2.

       The second statute is the provision of the VAA that excludes from its
  coverage "arbitration agreements contained in a contract of insurance."  12
  V.S.A. § 5653(a) (Cum. Supp.1996).  The effect of this provision is to
  leave the law governing such arbitration agreements to the common law,
  which allows revocation of such an agreement at any time up to the
  publication of an award.  See Fairchild v. West Rutland Sch. Dist., 135 Vt.
  282, 286, 376 A.2d 28, 31 (1977).

       If these two statutes were the only ones involved in this litigation,
  the result would be obvious.  The insurance contract between plaintiffs and
  defendant evidences "a transaction involving commerce" and, therefore, § 2
  of the FAA applies to the arbitration provision.  See Allied-Bruce Terminix
  Cos. Inc. v. Dobson, 115 S. Ct. 834, 841 (1995).  Plaintiffs raise no
  grounds "as exist at law or in equity for the revocation of any contract"
  to revoke their agreement to arbitrate their dispute with defendant.  Thus,
  § 2 of the FAA mandates that the arbitration agreement is "valid,
  irrevocable, and enforceable."  Under the Supremacy Clause of the United
  States Constitution, U.S. Const. art. VI, cl. 2, the FAA would govern over
  the Vermont common law as the supreme law of the land.  See Southland Corp.
  v. Keating, 465 U.S. 1, 11 (1984).

       The complication is introduced by the third statute, the
  McCarran-Ferguson Act, a federal statute intended to leave most regulation
  of the insurance industry to the states.  Section 2 of that Act provides,
  in part:

 


          (b) No Act of Congress shall be construed to
     invalidate, impair, or supersede any law enacted by any State for
     the purpose of regulating the business of insurance . . . unless
     such Act specifically relates to the business of insurance.

  15 U.S.C. § 1012(b).

       Since the FAA does not specifically relate to the business of
  insurance, this statute prevents the FAA from preempting the exclusion of
  the VAA if that exclusion, or the underlying common law, was enacted "for
  the purpose of regulating the business of insurance."  Id. Whether this is
  so is the narrow question before us.

       In Union Labor Life Ins. Co. v. Pireno, the United States Supreme
  Court identified three main factors to determine whether a state law
  involved the business of insurance:

     ([F]irst), whether the practice has the effect of transferring or
     spreading a policyholder's risk;(second), whether the practice is an
     integral part of the policy relationship between the insurer and the
     insured; and (third), whether the practice is limited to entities
     within the insurance industry.

  458 U.S. 119, 129 (1982).  These factors are consistent with the Court's
  view that Congress was concerned with regulation of the business of
  insurance:  the "relationship between insurer and insured, the type of
  policy which could be issued, its reliability, interpretation, and
  enforcement . . . ."  Securities & Exch. Comm'n v. National Sec., Inc., 393 U.S. 453, 460 (1969). Regulation of payment of claims fits within the
  business of insurance.  United States Dep't of Treasury v. Fabe, 113 S. Ct. 2202, 2209 (1993).

       We agree with plaintiffs that the business of insurance includes
  whether disputes between insurer and insured are resolved in litigation or
  in arbitration.  This issue meets the three-part test of Pireno and
  involves the relationship of insured and insurer with respect to
  enforcement of the insurance contract.

       The more difficult hurdle for plaintiffs is whether the VAA
  "regulates" the business of insurance.  Implied in our resolution of
  Preziose is the holding that our common-law rule making arbitration
  agreements revocable up to the time of award is not a state law regulating

 

  the business of insurance.  See Miller v. National Fidelity Life Ins. Co.,
  588 F.2d 185, 187 (5th Cir. 1979) (plaintiff could not identify any state
  insurance statute that would be impaired, invalidated, or superseded by
  FAA); Hart v. Orion Ins. Co., 453 F.2d 1358, 1360 (10th Cir. 1971) (laws of
  general applicability pertaining to methods of handling contract disputes
  are not laws enacted for purpose of regulating the business of insurance);
  Hamilton Life Ins. Co. v. Republic Nat'l Life Ins. Co., 408 F.2d 606, 611
  (2d Cir. 1969) (same); Ainsworth v. Allstate Ins. Co., 634 F. Supp. 52,
  56-57 (W.D. Mo. 1985) (enforcement of arbitration clauses pursuant to FAA
  would not invalidate, impair or supersede any state law regulating the
  business of insurance).  All the insurance contract exclusion from the VAA
  has done is to allow insurance arbitration agreements to continue to be
  governed by the common law.  Thus, the VAA regulates those arbitration
  agreements subject to its terms.  Those that are excluded are not regulated
  by the VAA.

       We emphasize that the Vermont Legislature has not specifically acted
  to make insurance arbitration agreements revocable.  See Mutual Reinsurance
  Bureau v. Great Plains Mut. Ins. Co., 969 F.2d 931, 934 (10th Cir. 1992)
  (provision of Kansas Arbitration Act that made arbitration agreements
  irrevocable, but specifically excluded provisions in insurance contracts,
  is law enacted for purpose of regulating business of insurance).  Instead,
  the Legislature has chosen not to regulate insurance arbitration agreements
  at all.  We cannot conclude that the VAA is a law enacted for the purpose
  of regulating the business of insurance.

       Affirmed.

                              FOR THE COURT:


                              _______________________________________
                              Associate Justice