SCOTX Agrees to Consider Whether Crop Insurance Dispute Was Properly Submitted to Arbitration

Originally published by Beth Graham.

The Supreme Court of Texas has agreed to consider whether a crop insurance dispute was properly submitted to arbitration.  In Jody James Farms, JV v. The Altman Group, Inc. and Laurie Diaz, No. 17-0062, Jody James Farms (“JJF”) purchased crop insurance from Rain & Hail through an insurance agency, the Altman Group, in 2010.  The insurance policy contained a lengthy arbitration provision which stated any disputes related to a claim determination made by the insurer must be resolved using arbitration.

Not long after purchasing the policy, JJF suffered a sorghum crop loss.  Although the farm notified an agent who was employed by the Altman Group, Diaz, via telephone, JJF did not submit a claim directly to Rain & Hail until much later.  Once JJF’s notice of loss was finally submitted to Rain & Hail, the insurer denied the claim as untimely.  Because JJF disagreed with the insurer’s decision, the issue was submitted to arbitration.  An arbitrator ultimately ruled in favor of Rain & Hail.

Next, JJF filed a lawsuit against the Altman Group and Diaz in Floyd County, Texas.  According to JJF, the insurance agency and Diaz “breached a fiduciary duty and violated the Texas Deceptive Trade Practices Act when they failed to submit the claim in a timely fashion.”  In response, the Altman Group and its agent filed a motion to compel arbitration which was granted by the trial court.  Next, an arbitrator denied JJF’s motion to dismiss the arbitration and ordered that the farm take nothing.

On appeal to Texas’s Seventh District Court of Appeals in Amarillo, JJF claimed the trial court improperly compelled its dispute with the Altman Group and Diaz to arbitration because there was no agreement to arbitrate between the parties.  In addition, JJF argued the farm’s claims against the appellees were beyond the scope of any arbitral agreement that may have existed.

The Amarillo appellate court first discussed relevant case law before holding:

We will apply the majority view to this federal crop insurance policy, and thus find its incorporation of the AAA rules constitutes clear and unmistakable evidence the parties to the policy intended the arbitrator to decide whether JJF’s agreement to arbitrate is binding on it as against its effort to litigate its claims against Altman and Diaz in court. Petrofac, 687 F.3d at 675; In re Weekley Homes, 180 S.W.3d at 130-31. 16 In its motion to dismiss the arbitration, JJF contended both that it had no agreement to arbitrate with Altman and Diaz, and that its claims against them were outside the scope of the policy’s arbitration agreement. As noted, the arbitrator denied JJF’s motion by written order.

JJF’s brief on appeal contends the arbitrator exceeded his authority “by entering an award where no agreement to arbitrate existed and the scope of the arbitration agreement did not cover the disputes.” JJF gives no other reason for its assertion the arbitrator exceeded his authority. Because we conclude JJF agreed in the policy that an arbitrator would have authority to determine the question of arbitrability, the arbitrator did not exceed his authority by resolving the question contrary to JJF’s position. And, under the narrow and deferential review standard applied to arbitration awards, JJF’s arguments give us no basis to conclude the arbitrator acted outside his powers in his resolution of the merits of the issues presented to him, whether issues of arbitrability or those relating to appellees’ asserted liability to JJF. See Forsythe Int’l, S.A. v. Gibbs Oil Co., 915 F.2d 1017, 1020 (5th Cir. 1990); Petrobras, 2012 Tex. App. LEXIS 2458 at *30-31, *46 (standard of review of awards under FAA). The trial court did not err by affirming the arbitration award over JJF’s contrary argument.

In response to the Seventh District Court of Appeals’ decision affirming the trial court’s order compelling arbitration, JJF filed a petition for review with the Supreme Court of Texas.  According to JJF’s petition, the Issues Presented in the case are:

1.  Can a non-signatory third party invoke the proverbial guilty by association doctrine and force arbitration when no agreement to do so exists?

2. Whether the arbitration agreement can be enforced by Altman and Diaz through estoppel (unbriefed).

3. Whether Altman and Diaz were third-party beneficiaries who can enforce the arbitration agreement (unbriefed).

4. Whether a non-party to an arbitration agreement can compel arbitration of claims that are not within the scope of the arbitration agreement (unbriefed).

5. Whether the trial court abused its discretion in enforcing the arbitration award that the arbitrator had no authority to enter (unbriefed).

On February 16^th, the Texas Supreme Court granted JJF’s petition for review and scheduled oral argument in the case for March 20^th at 9 am.

Photo credit:  Claus Rebler on Foter.com / CC BY-SA

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