Alabama Legal Updates – January 2016

Always Arbitration

Federal Insurance Company v. Kert Reedstrom
Alabama Supreme Court again reverses denial of Motion to Compel Arbitration.

Plaintiff entered into a written employment agreement whereby he would serve as executive director of a Mental Health Board. While Plaintiff was employed, the Mental Health Board held an insurance policy that protected certain officers and employees from loss for actions committed in the course of their employment. The policy contained an arbitration provision providing that any disagreement related to coverage would be resolved in arbitration and not in a court of law.

Plaintiff was subsequently terminated by the Mental Health Board and filed claims for breach of the employment agreement. The Mental Health Board filed counterclaims against Plaintiff based on his alleged misconduct while serving as executive director. Plaintiff gave the insurer notice of the claims asserted against him and requested coverage under the policy, which was denied.

At trial, Plaintiff was awarded a verdict of $150,000 on his claim against the Mental Health Board and the Mental Health Board was awarded $60,000 on their claims against Plaintiff. Plaintiff subsequently filed suit against the insurer seeking $72,000 in damages — $60,000 based on the judgment entered against him and $12,000 for the attorney fees he incurred in defending those claims. The insurer moved to compel arbitration, and that motion was denied. The insurer appealed.

On appeal the Plaintiff argued that the insurer waived its right to invoke the arbitration provision and that the Plaintiff was not a signatory to the insurance policy containing the provision. The insurer responded that even if those arguments had merit, issues of arbitrability were to be decided by the arbitrators.

In its analysis, the Alabama Supreme Court noted that “a trial court considering a motion to compel arbitration should resolve both waiver and nonsignatory issues unless the subject arbitration provision clearly and unmistakably indicates that those arguments should instead be submitted to the arbitrator.” The Court noted that the provision in this case called for proceedings to be conducted pursuant to the American Arbitration Association (AAA) rules. The Court cited AAA Rule 7(a) which provides “[t]he arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.” The Court thus found that the trial court erred in denying the Motion to Compel as, pursuant to Rule 7(a), both the issues of waiver and the issue of enforcement had been delegated to the arbitrators for decision.

For a copy of the decision, see:

Stay Inside the Lines

Sandra Henley v. State Farm Mutual Automobile Insurance Company
Judgment as a Matter of Law improper where defense of release was not before the Court.

In an uninsured motorist case, both the plaintiff and the uninsured motorist had policies with State Farm. After settling with the uninsured motorist, the plaintiff filed a separate action against State Farm for UIM benefits. In that action the plaintiff filed a motion for partial summary judgment arguing that the only issues to be tried were whether the plaintiff’s claimed damages were caused by the uninsured driver’s negligence and whether those damages exceed the sum total tendered by State Farm, on behalf of the uninsured driver. The trial court entered partial summary judgment finding “that a third party motorist was the at fault party as a matter of law, and also that [Plaintiff] was not contributorily negligent. The only issues which remain outstanding for the trier of fact are that of causation and damages.”

At trial, State Farm moved for entry of judgment as a matter of law based on a release executed by the Plaintiff in favor of State Farm at the time of settlement of the initial action against the tortfeasor. The trial court entered the JML in favor of State Farm and the plaintiff appealed. Plaintiff argued “that the effect of the release was not an issue to be determined during the jury trial and that she had not been prepared to address the effect of the release because the holding of the partial summary judgment limited the issues to be addressed at trial.”

In reversing the trial court, the Alabama Court of Civil Appeals noted, “In this case, the interlocutory partial summary judgment specifically limited the issues to be addressed during the jury trial to (1) the extent of Henley’s damages and (2) whether those damages had been caused by Barbour. State Farm did not move to modify or vacate the partial summary judgment in any manner. Consequently, pursuant to Rule 56(d), the effect of the release was not an issue to be determined during the jury trial.” The Court further noted that the plaintiff “was not afforded the opportunity to be ‘fully heard” at the jury trial on the issue whether the release absolved State Farm of liability for the payment of underinsured-motorist benefits because that was not an issue the trial court identified as triable in the partial summary judgment and because Henley was not permitted to present evidence regarding the effect of the release before the trial court entered the JML.”

For a copy of the decision, see: