Friday, June 1, 2012

If you want to arbitrate, rely on your own contract!

Labor leader Samuel Gompers had a view of arbitration that I share:
Do I believe in arbitration? I do. but not in arbitration between the lion and the lamb, in which the lamb is in the morning found inside the lion.

The Maryland Court of Special Appeals echoed that sentiment in the recent decision Griggs v. Evans, reported May 2, 2012. The Specials reversed a trial court decision to compel arbitration between a credit life insurance company and the widow of it's insured, Helen Griggs.  Mr. Griggs expired from lung cancer, and...surprise...the credit life insurance company denied Widow Griggs' claim for the $150,000 benefit.
Which does remind me that I thoroughly enjoyed Matt Damon in Grisham's The Rainmaker, where Matt plays first year lawyer Rudy Baylor, suing a health insurance company for failing to pay for necessary treatement, which leads to the death of Rudy's client. The cross-examination of Great Benefit's CEO, Wilfred Keeley, played by Roy Scheider, and his interpretation of a policy manual that says "deny all claims" when first submitted, is classic. But I digress- Great Benefit is a fictional insurance company, and Matt Damon is not really a lawyer, and Matt's fictional client is not really dead.

But Mr. Griggs is dead.  And Household Life Insurance Company refused to pay. It's not a stretch that Widow Griggs and the Estate of her husband sued for the policy benefit.

They also sued individuals employed by the company. And it was the individuals who moved the trial court for an order compelling arbitration. Now, the key fact is that the arbitration clause was nowhere to be found in the insurance contract between Widow Griggs, her husband and Household.  The arbitration clause resides only in the financing agreement, with Beneficial Mortgage--a separate company.

Imagine that, the employees of Company A sought to impose on Widow Griggs the arbitration clause found in the loan documents between Widow Griggs and Company B.  And the trial court bought it. As I read these facts, I could just envision the court's panel of jurists during oral argument, leaning back, arms folded, and eyes closed, knowing their opinion was already typed and awaiting signature on their desks. A no-brainer.

I do a fair amount of arbitration for individuals and companies. I advise clients regularly that disputes arising out of contracts, and reasonably related to the subject matter of those contracts often gets caught up in the broadly construed web of a standard arbitration clause.

But such was definitely not the case for Widow Griggs.  The appellate court found that the credit life insurer was bound by it's singular contract.  It could not reach out and "borrow" Beneficial Mortgage's arbitration clause. The case has been sent back to the trial court.

Enter Matt Damon, as insurance company hunter Rudy Baylor?