(Article from Insurance Law Alert, April 2016)
For more information, please visit the Insurance Law Alert Resource Center. A South Carolina appellate court granted defendant insurers’ motion to compel arbitration against non-signatories to the arbitration agreement. Wilson v. Willis, 2016 WL 806063 (S.C. Ct. App. Mar. 2, 2016).
Several lawsuits alleging fraud and unfair trade practices were brought by policyholders and competing insurance agents against two insurance agents and their agency. Plaintiffs also named several insurers as defendants, arguing that they were liable under respondeat superior for failing to investigate or supervise the agents. The insurers moved to compel arbitration and dismiss the suits, relying on an arbitration provision in the agency agreement they had executed with the agency. A trial court denied the insurers’ motion to compel, noting that the agency had not signed the agency agreement and that the plaintiffs were not parties to the agreement. The appellate court reversed.
First, the court ruled that South Carolina law does not require both parties to sign an agreement for it to be enforceable. Therefore, although the agency never signed the agency agreement, the court deemed it valid and enforceable based on the course of conduct (i.e., that the agency sold insurance policies on behalf of the insurers pursuant to the agency agreement). The court rejected a statute of frauds argument, noting that performance of the agency agreement was possible within a year because either party could terminate at will within ninety days’ notice.
Second, the court held that the arbitration provision was sufficiently broad so as to encompass plaintiffs’ tort claims. The provision required arbitration of any dispute that “arises in connection with the interpretation of this Agreement. . . .” The court reasoned that the tort claims were “premised on rights and duties that would not exist but for” the agency agreement, and were thus “inextricably linked” to the agreement.
Third, the court ruled that compelling arbitration against non-signatories (the plaintiff policyholders and agencies) was appropriate. The court held that the non-signatories were equitably estopped from arguing that their status as non-signatories preluded enforcement of the arbitration provision because their complaints sought to benefit from the enforcement of other provisions in the agency agreement. Although the plaintiffs did not expressly rely on any provisions in the agency agreement, the court held that the plaintiffs received a “direct benefit” from that agreement because their claims were based on duties that arose from that contract.
Fourth, the court held that the insurers did not waive the right to compel arbitration. Although the insurers did not assert arbitration as a defense in their answers, they did not delay in moving to compel arbitration (actions had been pending for six to eleven months when the motion to compel was filed). In addition, limited discovery had occurred before to the motion to compel. The court therefore concluded that the plaintiffs were not prejudiced by the motion to compel.
Finally, the court rejected the argument that the agreement to arbitrate (governed by the Federal Arbitration Act) was reverse-preempted by state statutory law which exempts “any insured or beneficiary under any insurance policy from arbitration.” The court explained that the South Carolina statute did not apply because the operative contract was an agency agreement rather than an insurance policy.