Arbitration Agreement Enforced If Signed
October 15, 2010
The 1st District Appellate Court recently held that an employer was obligated to arbitrate a dispute over retrospective premiums for two policy years even though the arbitration agreement was contained in a document separate from the employer's policy and was not tendered to the employer until after the commencement of the second policy year, but that the employer had not bound itself to arbitrate disputes for two subsequent years. All American Roofing, Inc. v. Zurich American Insurance Co., 2010 WL 3339280 (1st Dist. Aug. 20, 2010).
The insured, All American, was represented by Shaw, Gussis, Fishman, Glantz, Wolfson & Towbin LLC. Locke Lord, Bissell & Liddell LLP represented the insurer, Zurich.
All American obtained workers' compensation and employer's liability coverage from Zurich for four policy years beginning in March 2001. The policies for the first three years were subject to retrospectively rated premiums, meaning that All American would reimburse Zurich from time to time after the policy year ended based on claims arising during the policy year.
About a month into the second policy year, Zurich asked All American to sign incurred loss retrospective rating agreements for the first two policy years, which agreements contained, among other things, arbitration clauses requiring the arbitration of disputes and New York choice-of-law provisions. All American signed.
Subsequently, Zurich asked All American to sign rating and deductible agreements for the third and fourth policy years, which similarly contained arbitration provisions. All American did not sign, not because it objected to the agreements at the time, but only because it wanted to meet with Zurich about claims handling, and it thought that withholding its signature would leverage an appointment.
Disputes later arose concerning retrospective premiums and deductibles, and Zurich obtained the issuance of a summons to All American for arbitration. All American responded by filing the instant declaratory judgment action, contending that the arbitration provisions were not enforceable and also contesting the New York choice-of-law provisions.
The trial court dismissed in favor of, or entered summary judgment for, Zurich and ordered the parties to arbitrate. All American brought this appeal.
In an opinion by Justice Margaret Stanton McBride, the 1st District affirmed in part and reversed in part. She initially addressed All American's argument that Zurich waived its right to compel arbitration for the 2001 and 2002 policies because it asked the trial court to declare the New York choice-of-law clause enforceable, rather than reserving the issue for arbitration.
McBride rejected the argument on the ground that Zurich had not in fact asked the court to declare the provision enforceable, but rather asked the court to dismiss All American's allegations that the clause was unenforceable. The trial court, moreover, came to the conclusion that the enforceability of the provision would be a matter to be decided in arbitration. In addition, Zurich's argument for dismissal of All American's choice-of-law allegations was consistent with Zurich's position in favor of arbitration, so there was no waiver.
All American next argued that Zurich's request that All American execute the rating agreements for the first two policy years was a material change in "coverage" for at least the first policy year and therefore contrary to statutory notice requirements for changes in coverage. See 215 ILCs 5/143.17a. McBride, however, construed the notice requirements of the statute as applying only to changes in premiums, deductibles and risks, and not to the kinds of agreements involved here, including their provisions for arbitration and choice of law.
She also noted that a contracting party is not obligated to advise the other party of the contents of the agreement they are signing. She thus rejected the proposition that Zurich violated a statutory duty to inform All American of changes in insurance coverage.
All American further argued that the choice-of-law provisions in the 2001 and 2002 rating agreements were unenforceable because of the absence of the element of consideration. McBride rejected this position by agreeing with Zurich that no basis existed for isolating an individual contract clause as being unsupported by consideration, and by further noting that All American received various benefits under the rating agreements, which provided adequate consideration.
In addition, All American argued that the trial court erred in granting Zurich's motion for summary judgment on the common law and fraud counts of its complaints, which were based on Zurich's supposed misrepresentation that the rating agreements "mirrored" the terms of the existing 2001 and 2002 insurance policies. McBride rejected this point because All American failed to come forward with any evidence of intent to deceive or with intent that All American relied on false or deceptive acts.
She also rejected All American's argument that the rating agreements were procedurally unconscionable based on the theories that All American was not adequately informed about their contents and the agreements were too difficult to read. She noted that the agreements were only six pages long, the arbitration language was prominently displayed, All American had at least two weeks in which to review them and it was unreasonable for a sophisticated business like All American to have believed that the agreements merely repeated the contents of the policies.
Finally, with respect to the rating agreements applying to the third and fourth policy years, McBride found that it was error for the trial court to have found those enforceable. The cases relied on by the trial court, she said, involved opponents to a written contract who not only failed to object to it but also took affirmative action consistent with its terms.
Here, by contrast, the agreements for these years were separate from the insurance policies and the parties consistently demonstrated their understanding that the agreements needed to be signed to become effective. Since All American did not sign these two agreements, the arbitration provisions they contained never became effective.
The court therefore affirmed the order directing the parties to arbitrate their disputes arising under the first two policy years, but it reversed the trial court as to the third and fourth years.
