Adir International v. The Travelers Indemnity CA2/7

Filed 12/30/20 Adir International v. The Travelers Indemnity CA2/7
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
ADIR INTERNATIONAL, LLC, B293415
Plaintiff and Respondent, (Los Angeles County
Super. Ct. No. BC575513)
v.
THE TRAVELERS INDEMNITY
CO.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Lisa Hart Cole, Judge. Affirmed.
Gordon & Rees, Asim K. Desai, Margaret M. Drugan;
Gibson, Dunn & Crutcher, Theodore J. Boutrous, Jr., Blaine H.
Evanson, and Samuel Eckman for Defendant and Appellant.
Klapach & Klapach and Joseph S. Klapach for Plaintiff and
Respondent.
_______________________
INTRODUCTION
The Travelers Indemnity Co. appeals from an order
granting a motion for reconsideration and declaring arbitration
provisions unenforceable and void. Travelers argues the trial
court did not have jurisdiction under Code of Civil Procedure
section 1008, subdivision (b), to reconsider its prior ruling
because case law cited in the motion was not “new” law.
Travelers also argues the trial court erred in ruling that the
Insurance Code required Travelers to file the arbitration
provisions with the Insurance Commissioner (Commissioner) for
the arbitration provisions to be effective and that, if California
required invalidation of the arbitration provisions, the Federal
Arbitration Act (FAA) preempted California law. We affirm.
FACTUAL AND PROCEDURAL HISTORY
A. Workers’ Compensation Insurance
1. The Policy
Adir International, LLC operates the Curacao chain of
retail department stores. From 2004 to 2011, on eight occasions,
Travelers issued a workers’ compensation insurance policy (the
policy) to Adir.1 The policy was a “guaranteed cost” policy with
standard language approved by the Commissioner.2 The policy
1 The policies contained substantially similar terms and
conditions.
2 According to the Commissioner, “Most California employers
receive workers’ compensation insurance coverage through
guaranteed cost policies. Under a guaranteed cost policy, the
insured pays a fixed annual premium for the policy term,
regardless of subsequent loss experience. The fixed premium is
the sum of the average losses and certain fees. Average losses
2
contained the rates it would charge Adir. In the policy, Travelers
warranted that the policy would apply to a single uniform loss
experience rating plan. Before issuing the policy to Adir, in
accordance with Insurance Code section 11658,3 Travelers filed
the policy with the Workers’ Compensation Insurance Rating
Bureau (Rating Bureau) for the Commissioner’s review.4 The
Commissioner did not object to the policy.
take into account the base rate for each classification assigned to
the policy and the employer’s experience modification factor. The
fees are the estimated costs of providing the insurance; that is
sales, underwriting, profit and other fixed costs. Thus, a
company with average losses of $500,000, may be charged
$750,000 in premium; $500,000 to cover expected loss payments
and $250,000 in fees.” (Matter of Adir International, LLC (Nov.
20, 2018) Cal. Insurance Commissioner, No. AHB-WCA-16-14,
pp. 7-8, fn. omitted (Matter of Adir).)
3 Undesignated statutory references are to the Insurance
Code.
4 Section 11658, subdivision (a), provides: “A workers’
compensation insurance policy or endorsement shall not be
issued by an insurer to any person in this state unless the insurer
files a copy of the form or endorsement with the [Rating Bureau]
pursuant to subdivision (e) of Section 11750.3 and 30 days have
expired from the date the form or endorsement is received by the
commissioner from the [Rating Bureau] without notice from the
commissioner, unless the commissioner gives written approval of
the form or endorsement prior to that time.” After performing an
initial review, the Rating Bureau transmits the policy or
endorsement to the Department of Insurance (Department) for
the Commissioner’s review. (See § 11750.3, subd. (e); Cal. Code
Regs., tit. 10, §§ 2218, 2509.30.)
3
With regard to dispute resolution, the policy provided, in a
section titled “Actions Against Us”: “There will be no right of
action against us under this insurance unless: . . . The amount
you owe has been determined with our consent or by actual trial
and final judgment.” The policy did not contain an arbitration
provision. The policy documents also included a “Policyholder
Notice” that contained information regarding sections 11737 and
11753.1. The notice provided that, pursuant to sections 11737
and 11753.1, an insured aggrieved by Travelers’ “decision
adopting a change in a classification assignment that results in
increased premium, or by the application of [Traveler’s] rating
system to [an insured’s] workers’ compensation insurance” could
send Travelers a written complaint, and if “dissatisfied” with
Travelers’ decision upon review, an insured may appeal to the
Commissioner.
The policy also contained an endorsement titled
“Retrospective Rating Plan Premium Endorsement - Large Risk
Alternative Rating Option.” The Retrospective Rating Plan
Endorsement provided: “This endorsement is issued because you
chose to have the cost of the insurance rated retrospectively.
This endorsement applies only to workers compensation and
employers liability insurance when rated under the provisions of
the Large Risk Alternative Rating Option that we have
negotiated with you.” The endorsement did not set forth its
premium calculation, definitions, terms, rates, or the parties’
obligations under the alternative rating option.5 The guaranteed
5 As described by the Commissioner, “A retrospective rating
plan, or loss sensitive plan, varies the premium an employer will
pay based on the employer’s actual losses during the coverage
period. A minimum program cost, or premium, covers the
4
cost rates were the only rates in the policy.
2. The Unfiled Agreement
As an annual condition for issuing the policy, Adir executed
a separate agreement with Travelers that contained the terms
and conditions for the Retrospective Rating Plan Endorsement.6
The agreement provided that Travelers issued the policy “based
upon [Adir’s] compliance with the terms and conditions set forth
in the [agreement].” Thus, the agreement set forth the manner
by which Travelers would retrospectively calculate the premium
and other charges for the policy based on Adir’s “incurred losses”
and “claims handling charges.” In addition, the agreement
introduced a requirement that Adir post collateral, permitted
Travelers to collect attorneys’ fees, altered the policy’s
cancellation terms, and required the binding arbitration of
disputes. If the terms of the policy and the agreement conflicted,
the agreement’s terms prevailed.
Regarding dispute resolution, the agreement stated: “The
parties recognize that disputes may arise between them . . . about
the parties’ rights and duties relative to payment of premium and
program’s basic costs. The premium then increases linearly with
respect to actual losses until it reaches a maximum plateau. A
large risk deductible option varies the program calculation even
further. Under most workers’ compensation insurance policies,
the insurer is statutorily obligated to pay an employee’s entire
claim, from the ‘first dollar’ to the last. With a large risk
deductible plan, the employer agrees to reimburse the insurer for
claim costs up to an agreed-upon amount.” (Matter of Adir,
supra, at pp. 10-11, fns. omitted.)
6 The terms and conditions of each agreement were
substantially the same.
5
other charges under this Agreement and the Policies. In
addition, disputes may arise regarding whether and how much
our claims handling practices (e.g., investigation, administration,
payments in connection with any claims under the Policies) may
impact the amount of premium and other charges which you may
owe to us under this Agreement and the Policies. . . . [I]n the
event such a dispute is not resolved, either party shall submit the
matter to arbitration and the other party shall be bound by such
submission, provided that you shall not submit to arbitration any
matter seeking to restrict our right to draw upon the Collateral
or which would have the effect of restricting our right to draw
upon the Collateral. [¶] Neither party shall submit to arbitration
(i) any coverage disputes which arise under or in connection with
claims or suits brought against the Polices . . . .” The agreement
further provided that it was “deemed made in the State of
Connecticut and involves interstate commerce. Accordingly, we
and you agree that any arbitration proceeding arising out of or
related to this Agreement shall be governed by the [FAA] . . . and,
to the extent not inconsistent with the FAA, Connecticut
arbitration law.” Travelers did not file the agreement with the
Rating Bureau.
B. The Commissioner’s 2011 Notice Regarding Side
Agreements
On February 14, 2011, the Commissioner issued a letter to
the Rating Bureau requesting it to “notify its member insurers”
that the Commissioner “has prohibited the use of collateral
agreements, which is synonymous with the term ‘side-
agreement,’ concerning workers’ compensation insurance unless
they are attached to the policy.” The Commissioner further
stated that an insurer’s attempted enforcement of unfiled side
6
agreements could constitute a violation of California law. The
Department’s letter quoted former California Code of Regulation,
title 10, section 2268 (regulation 2268). Regulation 2268, at that
time, provided: “No collateral agreements modifying the
obligation of either the insured or the insurer shall be made
unless attached to and made a part of the policy . . . .”7
On February 17, 2011, the Rating Bureau issued a notice to
its insurer members, including Travelers, stating that the
Commissioner was “particularly concerned with arbitration
provisions contained in unattached collateral agreements and
considers such terms unenforceable unless the insurer can
demonstrate that the arbitration agreement was expressly agreed
to by the insured at the time the policy was issued.” According to
the Commissioner, after Travelers received this notice, Travelers
issued the agreement for the final policy year to Adir, and
Travelers “knew that continued use of unfiled collateral
agreements would constitute a violation of California law.”
(Matter of Adir, supra, at pp. 45-46.)
7 In 2016, the Department amended regulation 2268 to
provide: “An insurer shall not use a policy form, endorsement
form, or ancillary agreement except those filed and approved by
the Commissioner in accordance with these regulations.” (Cal.
Code Regs., tit. 10, § 2268, subd. (b).) In addition, the
Department amended California Code of Regulations, title 10,
section 2250, to define an “[a]ncillary agreement” to include a
“dispute resolution agreements.” (Cal. Code Regs., tit. 10, § 2250,
subd. (f).) Unless otherwise stated, all references to regulation
2268 are to the version existing in 2011 when the parties entered
into the final policy and agreement.
7
C. Forum For the Parties’ Premium Dispute
When Adir’s insurance coverage expired on July 1, 2012,
Adir did not renew its workers’ compensation insurance with
Travelers. On August 25, 2014, Travelers sent Adir a letter
demanding arbitration pursuant to the agreement. Travelers
sought arbitration regarding “the amount of premium currently
owing to Travelers by Adir . . . for the period July 1, 2011 to July
1, 2012.” On March 13, 2015, Adir filed a complaint in the Los
Angeles County Superior Court against Travelers and Adir’s
insurance broker, Grosslight Insurance, Inc. Based on its
workers’ compensation insurance, Adir alleged causes of action
against Travelers for breach of contract, tortious breach of the
covenant of good faith and fair dealing, fraud based on
intentional misrepresentation and fraud based on concealment.8
Adir alleged: “Travelers failed to properly evaluate and set
appropriate reserves, failed to resolve claims timely and
efficiently, failed to disclose settlement offers/demands that
would have otherwise led to the resolution to workers’
compensation claims saving [Adir] millions of dollars in fees,
costs and expenses, failed to provide sufficient staff to overlook
claims, improperly delayed resolution of claims by engaging in a
pattern and practice of systematic ‘partial body part denials,’ and
failed to properly audit and evaluate reserves on the workers’
compensation claims made against [Adir].” Adir also sought a
declaration that the arbitration provisions in the agreement were
“void and unenforceable” because the arbitration provisions
modified the policy and Travelers failed to file the provisions with
8 Adir dismissed without prejudice a complaint it had filed
against Travelers on September 14, 2014.
8
the Rating Bureau as required by section 11658.
On March 25, 2015, Adir filed a complaint with the
Department based on Travelers’ practice of using unfiled
agreements in connection with its workers’ compensation
insurance policies. (Matter of Adir, supra, at p. 3.) Adir alleged
that “Travelers’ attempt to compel arbitration under the
[agreement] violated Insurance Code sections 11658 and
11750.3.” (Matter of Adir, at p. 3.) Adir requested that the
Commissioner issue an order to show cause and hold a public
hearing “to determine whether Travelers should be ordered to
cease and desist from enforcing and applying unfiled Side
Agreements.” (Ibid.) On May 13, 2015, the Department
issued a letter stating that the agreement, including the
arbitration provisions, were “void and unenforceable as they
were not filed with the [Department].” However, on June 3,
2015, the Department declined to take action “due to resource
constraints. . . .” (Id. at p. 4.)
D. The Arbitration Proceeds
1. The Trial Court’s Ruling
On May 21, 2015, Adir filed a motion asking the trial court
to declare the arbitration provisions in the agreement
unenforceable. Adir argued that the Department “has not
approved the arbitration clause at issue here, the arbitration
provision at issue is contrary to [section 11658] and case law, and
is therefore unenforceable.” According to Adir, the arbitration
provisions “expressly alter[ed] the fundamental terms of the
underlying insurance policies” and the arbitration provisions
were “void as a matter of law.” Travelers argued, “[S]tatutory
and legal precedent hold arbitrators resolve challenges based on
grounds that affect the entire agreement and courts decide
9
challenges directed specifically at arbitration clauses.”
Therefore, Travelers argued that the arbitration panel should
decide the question of whether the agreement was “void or
unenforceable.” Travelers also argued the agreement was not
subject to section 11658 because it was not a policy form or an
endorsement.
On August 21, 2015, the trial court denied Adir’s motion
without reaching the question of whether the arbitration
provisions were enforceable. Rather, the trial court concluded
that the arbitration panel should decide Adir’s challenge to the
arbitration provisions, not the trial court. Citing Rent-A-Center,
West, Inc. v. Jackson (2010) 561 U.S. 63 (Rent-A-Center) and
Preston v. Ferrer (2008) 552 U.S. 346 (Preston), the trial court
ruled: “Adir challenges the agreements by arguing they are
invalid because they have not been filed with the Insurance
Commission[er]. This challenge is to the entire agreements. This
challenge is for the arbitrator.” In rejecting Adir’s argument that
application of the FAA would invalidate section 11658, the trial
court ruled that section 11658 required insurers to submit
policies to the Rating Bureau before issuing the policies and that
section 11658 “does not address the issue of whether an
arbitrator may decide whether the insurer complied with its
requirements.”
2. The Arbitration Panel’s Ruling
Adir filed a motion with the arbitration panel maintaining,
because the agreement was not “filed or approved by the
Insurance Commissioner,” the agreement was “an illegal
agreement and therefore unenforceable.” On May 6, 2016, after
finding that Adir challenged the entire agreement and that its
challenge was “therefore subject to arbitration,” the arbitration
10
panel denied Adir’s motion to dismiss Travelers’ claims. Ruling
that the agreement was “independent” of the insurance policy,
the panel found: “The parties never intended that the agreement
be considered insurance or that it supplemented in any way the
coverage offered Adir and its employees under the policy. The
agreement was intended by the parties not to provide insurance
or describe insurance coverage but instead it was intended to
codify in a written form an agreed-upon formula that would be
used [to] calculate the fees and expenses incurred in
administering the policy.” The panel found that the agreement
was not subject to section 11658 because “it [was] not an
insurance policy nor an endorsement to an insurance policy.”
3. The Commissioner’s Shasta Linen Decision
On June 22, 2016, the Commissioner, in a precedential
administrative decision,9 concluded that a side agreement
executed between the insured and workers’ compensation
insurer, which “alter[ed] the underlying rates, costs and fees of
an insurance policy, as well as choice of law, dispute resolution
and cancellation terms,” was “illegal under section 11658 and
therefore void as a matter of law” because it was not filed with
the Rating Bureau. (Matter of Shasta Linen Supply, Inc. (June
20, 2016) Cal. Insurance Commissioner, No. AHB-WCA-14-31,
pp. 58, 65 (Matter of Shasta Linen).) The side agreement
provided for binding arbitration of disputes “in the British Virgin
9 Government Code section 11425.60, subdivision (b),
provides that an administrative agency can designate a decision
as “precedent” if the decision “contains a significant legal or
policy determination of general application that is likely to
recur.”
11
Islands using Nebraska law.” (Id. at p. 56.) The side agreement’s
dispute resolution provisions were “meant to replace those of the
[policy].” (Id. at p. 57.) The policy did not provide for arbitration
and applied California law. (Id. at p. 56.) The policy also
contained the mandatory notice regarding the resolution of rating
disputes under section 11737, subdivision (f). (Id. at pp. 12-13.)
The Commissioner found that regulation 2268 required the
insurer to file “any agreement” that modified or altered the
insured’s “arbitration obligation.” The Commissioner concluded:
“[The unfiled agreement] constitutes a collateral agreement
modifying the rates and obligations of the insured and the
insurer, and is void as a matter of law since it was required to be
filed with the [Rating Bureau] and filed with the Department of
Insurance before its use in the State of California . . . .” (Id. at
p. 69.)
4. The Interim Arbitration Award
The arbitration panel conducted hearings in January,
February, and March 2017. On July 20, 2017, the panel issued
an interim award of $2,709,280 in favor of Travelers and against
Adir. Although the agreement “require[d] each side to bear its
own legal fees and costs related to the arbitration,” the
arbitration panel found: “[T]he [a]greement allows for Travelers
to recover attorney’s fees and costs expended to enforce the
obligations to arbitrate prior to the arbitration and to enforce the
arbitration clause and defend itself from the diverse attempts by
Adir to avoid these obligations, both in the courts of California
and before the Department of Insurance.” Therefore, the
arbitration panel allowed Travelers to submit “a separate
application for all time expended in defending the action brought
by Adir in the state court of California and, as well, before the
12
Department of Insurance.”
E. Adir Renews Its Motion To Declare the Arbitration
Provisions Unenforceable
1. Nielsen Contracting, Inc. v. Applied
Underwriting, Inc.
Before the arbitration panel issued a final award, on May 3,
2018, the Fourth District Court of Appeal issued Nielsen
Contracting, Inc. v. Applied Underwriters, Inc. (2018) 22
Cal. App. 5th 1096 (Nielsen). In Nielsen, in connection with the
issuance of a workers’ compensation insurance policy, the insurer
required the insured to sign a side agreement that “modified and
supplanted” many of the policy’s terms. The insurer filed the
policy with the Rating Bureau, but did not file the side
agreement. The side agreement also contained an arbitration
provision requiring arbitration of disputes in the British Virgin
Islands and delegating to the arbitrators the authority to rule on
disputes concerning the enforceability of the arbitration
provision. (Id. at p. 1102.) The court in Nielsen held that, after
the insurer sought to compel arbitration, the insured properly
raised an adequate challenge to the arbitration provision’s
delegation clause to require judicial resolution of the challenge.
(Id. at p. 1109.) The court viewed the delegation clause “as a
separate agreement nested within the arbitration agreement.”
(Ibid.)
In rejecting the insurer’s argument that courts were
“precluded from ruling on specific contract defenses to a
delegation clause merely because the same defense is also
brought to invalidate other related contractual provisions,” the
court in Nielsen held: “[T]he focus of the court’s attention must
be on whether the particular challenge is directed at the
13
delegation clause, not whether the same challenges are also
directed at the agreement or agreements into which the
delegation clause is embedded or nested.” (Nielsen, supra, 22
Cal.App.5th at pp. 1110-1111.) Therefore, the court held that the
trial court, not the arbitrator, should determine the enforceability
of the specific arbitration provision at issue because the insured
had “asserted a specific, substantive challenge to the delegation
clause separate from the challenge to the arbitration clause and
the underlying contracts . . . .” (Id. at p. 1113.) The court in
Nielsen further held that the “arbitration provision and
delegation clause are endorsements and/or collateral agreements
to the [insurance] policies because they relate to and materially
alter the dispute resolution provisions in the earlier approved
policy.” (Id. at p. 1117.) The court therefore concluded, under
section 11658 and regulation 2268, the provisions “must be filed
to be effective” and an “unfiled agreement [is] unlawful and void
as a matter of law.” (Nielsen, at p. 1118.) The court affirmed the
trial court’s denial of the insurer’s motion to compel arbitration.
(Id. at p. 1101.)
2. Adir’s Motion
On June 18, 2018, under the trial court’s “inherent
authority to reconsider its prior rulings,” Adir filed a “renewed”
motion seeking to declare the arbitration provision in the
agreement “void and unenforceable for illegality.” Adir argued
that its “position has now been vindicated” by Nielsen and that
Nielsen was “controlling in this case and binding upon this
Court.” Adir argued that Nielsen “squarely addressed the exact
issue in this [case], concluding that a nearly identical arbitration
clause contained in a nearly identical side agreement to a nearly
identical worker’s compensation policy was void for illegality and
14
wholly unenforceable against the insured.” Adir further argued
that Nielsen established that the court “was the proper forum for
resolving the insured’s challenges to the legality of the
arbitration clause . . . .” According to Adir, “[T]he Nielsen Court
makes clear that [the trial court] got this issue wrong when he
entered the prior order denying Adir’s motion to declare the
arbitration agreement void and unenforceable. Adir further
asserted, “Because Travelers did not file the arbitration clause at
issue with the [Department], as required by California law,
Travelers cannot now enforce that arbitration clause against
Adir.”
3. Travelers’ Opposition
Travelers argued that Adir failed to present any “new or
different facts or law” regarding whether “its challenge to the
[agreement] should be before the court or the arbitrator.”
Travelers further argued: “[The trial] court made its [August
2015] Order referring this matter to arbitration because it found
. . . that Adir’s challenge was as to the contract as a whole and
under U.S. Supreme Court precedent that issue was to be
resolved by the arbitrator.” Travelers distinguished Nielsen
because the arbitration clause in Nielsen “included a delegation
clause”; while its arbitration provisions “include[d] no such
delegation language.” Thus, Travelers argued, “[B]ecause the
only reason that the court in [Nielsen] was able to decide the
issue of arbitrability, as opposed to the arbitrators, is because the
trial court found and the Court of Appeal agreed that Nielsen had
raised a sufficient challenge to the enforceability of the delegation
clause that was nestled within the arbitration clause to require
judicial resolution of the challenge.” Adir did “not make a direct
challenge to a delegation clause” because “there [was] no
15
delegation clause in the agreement.” Therefore, according to
Travelers, the “court should and must deny this motion because
it [was] not for this court to decide a matter that is within the
purview of the arbitration panel as previously ordered.”
4. Trial Court’s Ruling
Finding Adir’s motion “procedurally proper,” the trial court
granted Adir’s renewed motion on August 23, 2018. The trial
court ruled: “[T]he Court of Appeal [in Nielsen] determined that
an arbitration agreement in a workers’ compensation insurance
policy is unenforceable if the insurer did not file the policy with
the Insurance Commissioner. . . . The court [in Nielsen] further
noted that the court, not the arbitrator, should rule on this issue.
. . . This new law requires the court to reverse its August 21,
2015 order. The arbitration provisions in the side agreements
here are unenforceable.” The trial court reasoned that the
arbitration provisions were an “endorsement” because they
“modified the [policy] by requiring arbitration of specified
disputes.” Therefore, “Travelers should have submitted” the
agreement to the Rating Bureau. Rejecting Travelers’ argument
that Nielsen was distinguishable because of the absence of a
delegation clause in the agreement, the trial court ruled: “In
[Nielsen] the court stated, ‘challenges to the validity of the
arbitration clause itself are generally resolved by the court in the
first instance. An exception to this rule applies when the parties
have clearly and unmistakably agreed to delegate questions
regarding the validity of the arbitration clause to the arbitrator.
Such delegation clauses are generally enforceable according to
their terms.’ . . . Thus, the court in [Nielsen] noted that where, as
here, an arbitration agreement does not contain a delegation
clause, the court should resolve challenges to the arbitration
16
agreement.”
The trial court also ruled, based on Nielsen, “a court may
rule on a challenge to an arbitration clause even if the same
defense would invalidate other contractual provisions, because,
under the Federal Arbitration Act, courts must enforce
arbitration clauses in the same manner as other contractual
provisions.” Finally, the trial court acknowledged: “[T]he time
spent by the parties, the court, and the arbitration panel over the
past three years is rendered a complete waste as a result of this
ruling. The arbitration in this case is complete but for the
arbitration panel’s final award of attorneys’ fees to Travelers, the
prevailing party. [Adir] is unquestionably getting another bite at
the apple it has been repeatedly nibbling at for three years. [¶]
However, there is no authority for enforcing an arbitration
agreement in violation of a regulatory statute because the
arbitration is nearly complete.” The trial court recognized that
the rule voiding a “‘contract made in violation of a regulatory
statute’” was ‘“not an inflexible one to be applied in its fullest
vigor under any and all circumstances.’” Travelers timely
appealed.
F. The Commissioner Issues Matter of Adir
On November 20, 2018, the Commissioner issued a
precedential administrative decision in response to Adir’s
complaint. Pointing out that “an endorsement is an amendment
or modification to an existing policy that alters any term or
condition of the policy,” the Commissioner found that “[a]n
endorsement need not concern an insurer’s indemnity or
insurance obligations,” and “many endorsements relate solely to
administrative matters, unrelated to risk of loss or indemnity.”
(Matter of Adir, supra, at p. 35.) Therefore, the agreement “was
17
an endorsement” under section 11658 because it “modified
several provisions.” (Matter of Adir, at p. 38.) Also finding that
the agreement was a “collateral agreement” within the meaning
of regulation 2268, the Commissioner stated: “[T]he [agreement]
modified [Adir’s] reimbursement obligation, added choice of law
and arbitration provisions, altered the default and cancellation
terms, added indemnity and loss obligations, and added a
collateral requirement. Each of the provisions standing alone
modified [Adir’s] obligations under the policy. Taken together,
they wholly rewrote [Adir’s] insurance program. Thus, the
[agreement] was a collateral agreement under [regulation] 2268.”
(Matter of Adir, at p. 40.)10
Regarding dispute resolution, the Commissioner found:
“The [agreement] altered the parties’ dispute resolution
provisions. . . . The policy is silent on choice of law and binding
arbitration. On the other hand, the [agreement] includes a three-
page arbitration provision mandating the arbitration of premium
and claims-handling disputes. The [agreement] further requires
[Adir] to consent to Connecticut jurisdiction and dictates that
Connecticut law applies to the [agreement] and policies.
Travelers intended these provisions to supersede those of the
underlying policy. Indeed, the arbitration provision applies to
disputes that may arise . . . about the parties’ rights and duties
relative to the payment of premium and other charges under this
[agreement] and the Policies.” (Matter of Adir, supra, at p. 38.)
10 The Commissioner stated: “Since 1995, Insurance Code
section 11658 has required insurers to file all policies or
endorsements for approval prior to use. Since 1968, Regulations
section 2268 has prohibited the use of unfiled and unattached
collateral agreements.” (Matter of Adir, supra, at p. 46.)
18
Accordingly, because the agreement was an “endorsement”
and a “collateral agreement,” the Commissioner found that
Travelers violated section 11658 and regulation 2268 by failing to
file the agreement with the Rating Bureau. Therefore, the
agreement was “unlawful and void as a matter of law.” (Matter of
Adir, supra, at pp. 52, 58, 61.) The Commissioner explained:
“Because workers’ compensation insurance is usually mandatory,
the Commissioner is charged with closely scrutinizing insurance
plans to protect workers and employers alike. Sections 11658
and 11735’s filing requirements enable the Commission to
perform that duty. Insurers who use unfiled rates or unfiled side
agreements frustrate public policy. It would defeat the purpose
of Insurance Code sections 11658 and 11735 by allowing an
insurer to bypass the Commissioner’s mandatory review process
by simply adding or modifying the policy’s terms in a separate,
unexamined side agreement.” (Matter of Adir, at pp. 58-59, fns.
omitted.)
On March 20, 2019, Travelers filed a petition for a writ of
administrative mandamus in Los Angeles County Superior Court
challenging the Commissioner’s decision. On April 4, 2019,
Travelers moved to stay this appeal pending resolution of the
writ proceeding. This court denied Travelers’ motion to stay on
April 25, 2019.
DISCUSSION
A. The Trial Court Had Jurisdiction To Reconsider Its
Prior Order on Adir’s Renewed Motion
1. Applicable Law and Standard of Review
Code of Civil Procedure section 1008 governs
“reconsideration of court orders whether initiated by a party or
the court itself. ‘It is the exclusive means for modifying,
19
amending or revoking an order. That limitation is expressly
jurisdictional.’” (Gilberd v. AC Transit (1995) 32 Cal. App. 4th
1494, 1499; see Kinda v. Carpenter (2016) 247 Cal. App. 4th 1268,
1278 [“Code of Civil Procedure section 1008 places strict
jurisdictional limits on a litigant’s ability to seek reconsideration
of a prior ruling”].) “[B]ased upon new or different facts,
circumstances, or law,” a party’s motion for reconsideration of an
order must be made within ten days after service of notice of
entry of the order. (Code Civ. Proc., § 1008, subd. (a).) “A party
who originally made an application for an order which was
refused in whole or part . . . may make a subsequent application
for the same order upon new or different facts, circumstances, or
law.” (Id., § 1008, subd. (b).) The 10-day time limitation does not
apply to a party’s renewed motion, and the renewed motion may
be brought whether “the order deciding the previous matter or
motion is interim or final.” (Id., § 1008, subd. (e).)
Further, “[i]f a court at any time determines that there has
been a change of law that warrants it to reconsider a prior order
it entered, it may do so on its own motion and enter a different
order.” (Code Civ. Proc., § 1008, subd. (c); see Phillips v. Sprint
PCS (2012) 209 Cal. App. 4th 758, 768 [“‘[w]hen a trial court
concludes there has been a change of law that warrants
reconsideration of a prior order, it has jurisdiction to reconsider
and change its order’”].) “In addition, the court may consider a
number of factors in determining whether to exercise its
discretion [under Code of Civil Procedure section 1008,
subdivision (c)], including the importance of the change of law,
the timing of the motion, and the circumstances of the case.”
(Farmers Ins. Exchange v. Superior Court (2013) 218 Cal. App. 4th
20
96, 107 (Farmers Ins. Exchange); accord, Phillips v. Sprint PCS,
at p. 769.)
“Even without a change of law, a trial court has the
inherent power to reconsider its prior rulings on its own motion
at any time before entry of judgment.” (State of California v.
Superior Court (Flynn) (2016) 4 Cal. App. 5th 94, 100 (State of
California); accord, Le Francois v. Goel (2005) 35 Cal. 4th 1094,
1098, 1107 (Le Francois); Phillips v. Sprint PCS, supra, 209
Cal.App.4th at p. 768; Darling, Hall & Rae v. Kritt (1999) 75
Cal. App. 4th 1148, 1156.) In Le Francois, the Supreme Court held
that, while Code of Civil Procedure section 1008 limits “the
parties ability to file repetitive motions,” it does limit “not the
court’s ability, on its own motion, to reconsider its prior interim
orders so it may correct its own errors.” (Le Francois, at p. 1107.)
The Court held that it does “not matter whether the ‘judge has an
unprovoked flash of understanding in the middle of the night’
[citation] or acts in response to a party’s suggestion. If a court
believes one of its prior interim orders was erroneous, it should
be able to correct that error no matter how it came to acquire that
belief.” (Id. at p. 1108.) ‘“‘“Miscarriage of justice results where a
court is unable to correct its own perceived legal errors.’”’” (State
of California, at p. 100; accord, Kerns v. CSE Ins. Group (2003)
106 Cal. App. 4th 368, 389, fn. 18.) The court “should inform the
parties of this concern [of an erroneous ruling], solicit briefing,
and hold a hearing.” (Le Francois, at p. 1108.)
“A trial court’s ruling on a motion for reconsideration is
reviewed under the abuse of discretion standard.” (Farmers Ins.
Exchange, supra, 218 Cal.App.4th at p. 106; accord, Phillips v.
Sprint PCS, supra, 209 Cal.App.4th at p. 769; Ovitz v. Schulman
(2005) 133 Cal. App. 4th 830, 848; Glade v. Glade (1995) 38
21
Cal. App. 4th 1441, 1457.) “All exercises of discretion must be
guided by applicable legal principles, however, which are derived
from the statute under which discretion is conferred.” (Farmers
Ins. Exchange, at p. 106.) “If the court’s decision is influenced by
an erroneous understanding of applicable law or reflects an
unawareness of the full scope of its discretion, the court has not
properly exercised its discretion under the law.” (Ibid.; F.T. v.
L.J. (2011) 194 Cal. App. 4th 1, 15-16.) To the extent our inquiry
requires analysis of questions of law, we undertake independent
review. (Citizens of Humanity, LLC v. Applied Underwriters, Inc.
(2017) 17 Cal. App. 5th 806, 811.)
In Farmers Ins. Exchange, supra, 218 Cal. App. 4th 96, the
court held that the trial court abused its discretion in refusing to
reconsider an order granting class certification because of the
depublication of the decision on which it had relied to certify the
class. (Id. at p. 111.) The court explained that the “importance of
the change of law . . . cannot be understated” because the
depublished decision “provided the sole legal authority for the
trial court’s grant of class certification.” (Ibid.) In other words,
“the entire legal justification for the trial court’s certification
order disappeared with the depublication of the [decision].”
(Ibid.) The court further held that the “timing of the
reconsideration request was prompt” after the depublication and
that there was no prejudice because “nothing had occurred in the
case in reliance on the certification order.” (Ibid; see Phillips v.
Sprint PCS, supra, 209 Cal.App.4th at p. 769 [“[g]iven the
significance of the [AT&T Mobility LLC v.] Concepcion [(2011)
563 U.S. 333 (Concepcion)] decision, the absence of near-
readiness for trial, and the failure to make any showing of
22
prejudice, the trial court acted properly here in revisiting the
earlier order denying arbitration”].)
2. The Trial Court Did Not Abuse Its Discretion in
Granting Reconsideration
Travelers argues that “Nielsen did not announce ‘new or
different’ law” because “the Supreme Court in Rent-A-Center,
[supra, 561 U.S. 63] acknowledged that a defense to an
arbitration agreement may be grounded on a defense that applies
to the contract as a whole, so long as the challenge is directed to
the arbitration agreement specifically . . . .” Travelers further
argues that any purported “new law . . . was not relevant to the
question” the trial court decided in its August 2015 order.
According to Adir, prior to Nielsen, the law was “unsettled” as to
whether the court or an arbitrator should rule on a challenge to
“a specific arbitration provision on grounds that also invalidate
the entire contract.” Adir therefore argues that Nielsen was new
law because it “held that a court, not an arbitrator, must
determine an insured’s challenge to the legality of the arbitration
clause,” “regardless of ‘whether the challenge is the same as or
different from the challenge to other provisions of the arbitration
clause or underlying agreement.’” Adir further argues that
Nielsen established that an insurer’s unfiled arbitration
agreement was unenforceable and void. We conclude that
Nielsen constituted “new” law under Code of Civil Procedure
section 1008, subdivision (b).
Under Nielsen, not only was the arbitration provision at
issue “unlawful and void, as a matter of law,” but also, because
Adir asserted a specific challenge to the arbitration provision at
issue, the trial court “was the proper entity to rule on” that
23
challenge.11 (Nielsen, supra, 22 Cal.App.5th at pp. 1113, 1118.)
In Nielsen, as here, a workers’ compensation insurer sought to
collect premiums from an insured in arbitration based on an
unfiled arbitration agreement. Nielsen was relevant because it
clarified that, when a party asserts a defense to the ‘“precise
agreement to arbitrate at issue,”’ and the same defense may also
invalidate the entire contract, the court resolves the challenge to
the specific arbitration provision at issue. Further, as Adir points
out, “Before Nielsen, no California appellate court had considered
whether to enforce an unfiled arbitration clause contained in an
unfiled Side Agreement.” (See American Zurich Ins. Co. v.
Country Villa Service Corp. (C.D.Cal., July 9, 2015, No. 2:14-cv-
03779-RSWL-AS) 2015 U.S.Dist. Lexis 89452, pp. 11, 28, fn. 17,
32 [concluding that an unfiled collateral agreement “that alters
or adds to any term or condition of an insurance policy” was
11 Although Travelers argued in the trial court that Nielsen
was distinguishable because the arbitration clause in Nielsen
“included a delegation clause,” but the arbitration provisions here
did not contain a delegation clause, Travelers stated at argument
that the analysis was the same whether or not there was a
delegation clause in the arbitration provisions. (See Rent-A-
Center, supra, 561 U.S. at p. 70 [“[a]n agreement to arbitrate a
gateway issue is simply an additional, antecedent agreement the
party seeking arbitration asks the federal court to enforce, and
the FAA operates on this additional arbitration agreement just as
it does on any other”]; Jackpot Harvesting, Inc. v. Applied
Underwriters, Inc. (2019) 33 Cal. App. 5th 719, 730, fn. 11 (Jackpot
Harvesting) [“[t]he same legal test governs the inquiries whether
an arbitration agreement is severable from the rest of the
contract such that a court should decide its validity and whether
a court or an arbitrator should review the enforceability of a
delegation clause”].)
24
invalid under section 11658, but stating that “no published
California opinion controls” and there was only one “California
[unpublished] opinion on the issue”].)
Because the facts in Nielsen so closely resembled the facts
here, the trial court correctly concluded that Nielsen “binds this
court.” (See Auto Equity Sales, Inc. v. Superior Court (1962) 57
Cal. 2d 450, 455 [“[d]ecisions of every division of the District
Courts of Appeal are binding upon all the justice and municipal
courts and upon all the superior courts of this state”]; Cuccia v.
Superior Court (2007) 153 Cal. App. 4th 347, 353 [‘“[c]ourts
exercising inferior jurisdiction must accept the law declared by
courts of superior jurisdiction”’]; Gwartz v. Superior Court (1999)
71 Cal. App. 4th 480, 481-482 [“sometimes it seems as though we
have to remind the lower court there is a judicial pecking order
when it comes to the interpretation of statutes”]; Walsh v. West
Valley Mission Community College Dist. (1998) 66 Cal. App. 4th
1532, 1542, fn. 4 [“all tribunals exercising inferior jurisdiction are
required to follow decisions of courts exercising superior
jurisdiction”].)
The trial court acted within its discretion in granting Adir’s
motion for reconsideration. In granting reconsideration, the trial
court reasonably could have considered that the ruling in Nielsen
effectuated important public policy. The court in Nielsen pointed
out that “workers’ compensation insurance (or an adequate
substitute) is mandatory” and that the “Commissioner is charged
with closely scrutinizing insurance plans to protect both workers
and their employers.” (Nielsen, supra, 22 Cal.App.5th at p. 1118.)
By failing to file the arbitration provisions, Travelers
“prevent[ed] crucial regulatory oversight” by the Commissioner.
(Ibid.) The court in Nielsen held that section 11658 and
25
regulation 2268 “would have no meaning if the insurer could
enforce contracts despite having violated the disclosure and
approval requirements. Allowing the insurer to make material
modifications to the filed and approved dispute resolution
mechanism without the knowledge of the Rating Bureau or the
Insurance Commissioner would effectively remove any
regulatory oversight of this process.” (Nielsen, at p. 1118.)
Moreover, the trial court also reasonably could have considered
Adir’s loss of its constitutional right to a jury trial through an
arbitration provision that the court in Nielsen held was unlawful
and void. (Cal. Const., art. I, § 16 [“[t]rial by jury is an inviolate
right . . . .”]; Lawrence v. Walzer & Gabrielson (1989) 207
Cal. App. 3d 1501, 1507 [right to a jury trial is a “substantial” and
“valuable” right].)
Although Adir promptly filed its motion for reconsideration
within a month after the court of appeal issued Nielsen, the
arbitration panel had issued an interim award in favor of
Travelers in July 2017. In evaluating whether to reconsider its
ruling, the trial court acknowledged that “the time spent by the
parties, the court, and the arbitration panel over the past three
years” would be rendered “a complete waste” if it vacated the
August 2015 order denying Adir’s motion to declare the
arbitration provisions unenforceable and declared the arbitration
provisions unenforceable. However, “[t]he progress of the
arbitration is not material when considering a change in the law
affecting whether the arbitral forum was a correct one.” (Malek
v. Blue Cross of California (2004) 121 Cal. App. 4th 44, 60.)
Further, Adir had raised the same illegality challenge to the
arbitration provision in the trial court in 2015 and before the
arbitration panel in 2016. Travelers also knew since 2011 that
26
the Commissioner contended the use of unfiled arbitration
provisions violated California law. Nonetheless, Travelers failed
to file the arbitration provisions for Adir’s final policy year with
the Rating Bureau for the Commissioner’s review.
Under these circumstances, the trial court acted within its
discretion in reconsidering the August 2015 decision based on
Nielsen. (See State of California, supra, 4 Cal.App.5th at p. 100
[“[a]n appellate decision published during an action’s pendency
may be a change of law under [Code of Civil Procedure] section
1008, subdivision (c), and requires a trial court to reconsider its
earlier ruling if the decision materially changed the law”]; Valdez
v. Himmelfarb (2006) 144 Cal. App. 4th 1261, 1275 [an appellate
ruling on the correct statute of limitations was a change in the
law that mandated reconsideration of sanctions imposed on a
plaintiff for violating the statute of limitations]; Blake v. Ecker
(2001) 93 Cal. App. 4th 728, 739 [the Supreme Court’s resolution
of a previously disputed issue constituted a change in the law
mandating reconsideration]; International Ins. Co. v. Superior
Court (1998) 62 Cal. App. 4th 784, 788 [“we think [Code of Civil
Procedure section 1008, subdivision (c)] means exactly what it
says−when a trial court concludes there has been a change of law
that warrants reconsideration of a prior order, it has jurisdiction
to reconsider and change its order”].)
Travelers’ argument that “[t]his case is on all fours with
Ovitz v. Schulman (2005) 133 Cal. App. 4th 830” is misguided. In
Ovitz, a party sought reconsideration, arguing that there was
“new law” based on a Ninth Circuit decision. In holding that the
trial court did not abuse its discretion in denying the
reconsideration motion, the court held that the Ninth Circuit
decision was not new law because it “relied on earlier decisions
27
from other circuits that ‘invoked [the same principle].”’ (Id. at
p. 848.) The court held that the party seeking reconsideration
“could have relied on these decisions [from the other circuits] to
raise the issue earlier.” (Ibid.) The court pointed out that
“[d]ecisions by the Ninth Circuit have no greater persuasive force
on California courts than those of other circuits.” (Ibid.) Here, in
contrast, Nielsen was binding new authority because there was
no previous published California authority regarding the issues
raised by Adir’s motion.12
B. The Trial Court Properly Ruled It, Not the Arbitration
Panel, Should Decide Adir’s Challenge to the
Arbitration Provisions
1. Applicable Law and Standard of Review
“‘[A]rbitration is a matter of contract and a party cannot be
required to submit to arbitration any dispute which he [or she]
has not agreed so to submit.’” (AT&T Technologies, Inc. v
12 Although Travelers did not cite Malone v. Superior Court
(2014) 226 Cal. App. 4th 1551 in its briefing, at argument,
Travelers relied on Malone to argue that Nielsen was not new
law. In Malone, an employee “argued both that the arbitration
agreement was unconscionable generally, and that the delegation
clause was unconscionable under” three California appellate
decisions, “which held such clauses to be unenforceable.”
(Malone, at pp. 1555, 1560.) The employee’s unconscionability
challenge to the delegation clause “stood alone” because it was
“distinct” from the challenge to the agreements’ other clauses.
(Id. at p. 1558, fn. 4.) Thus, Malone did not involve a situation in
which the same defense equally applied to the specific arbitration
provision at issue and the entire agreement. In contrast, in
Nielsen, the same illegality defense also invalidated the entire
agreement. (Nielsen, supra, 22 Cal.App.5th at p. 1110.)
28
Communications Workers (1986) 475 U.S. 643, 648; see Rent-A-
Center, supra, 561 U.S. at p. 67; First Options of Chicago, Inc. v
Kaplan (1995) 514 U.S. 938, 943.) Section 2 of the FAA provides:
“A written provision in . . . a contract evidencing a transaction
involving commerce to settle by arbitration a controversy
thereafter arising out of such contract . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist at
law or in equity for the revocation of any contract.” (9 U.S.C. § 2.)
The “FAA thereby places arbitration agreements on an equal
footing with other contracts [citation] and requires courts to
enforce them according to their terms.” (Rent-A-Center, at p. 67;
accord, Buckeye Check Cashing, Inc. v. Cardegna (2006) 546 U.S.
440, 443-444 (Buckeye).) Section 2 of the FAA “states that a
‘written provision’ ‘to settle by arbitration a controversy’ is ‘valid,
irrevocable, and enforceable’ without mention of the validity of
the contract in which it is contained.” (Rent-A-Center, at p. 70.)
Therefore, “as a matter of substantive federal arbitration law, an
arbitration provision is severable from the remainder of the
contract.” (Buckeye, at p. 445; accord, Nitro-Lift Technologies,
L.L.C. v. Howard (2012) 568 U.S. 17, 21 (Nitro-Lift Technologies).
“A recurring question under § 2 [of the FAA] is who should decide
whether ‘grounds . . . exist at law or in equity’ to invalidate an
arbitration agreement.” (Preston, supra, 552 U.S. at p. 353.)
As the United States Supreme Court has held, “Challenges
to the validity of arbitration agreements . . . can be divided into
two types,” namely, “challenges specifically the validity of the
agreement to arbitrate” and the “other challenges the contract as
a whole, either on a ground that directly affects the entire
agreement (e.g., the agreement was fraudulently induced), or on
the ground that the illegality of one of the contract’s provisions
29
renders the whole contract invalid.” (Buckeye, supra, 546 U.S. at
p. 444, fn. omitted; accord, Rent-A-Center, supra, 561 U.S. at
p. 70.) The Supreme Court has held that a court only decides the
first type of challenge to the validity of the “arbitration clause
itself” because the arbitration clause is severed under section 2 of
the FAA. (Buckeye, at p. 445.) “Thus, a party’s challenge to
another provision of the contract, or to the contract as a whole,
does not prevent a court from enforcing a specific agreement to
arbitrate.” (Rent-A-Center, at p. 70; see Preston, supra, 552 U.S.
at p. 353 [“attacks on the validity of an entire contract, as distinct
from attacks aimed at the arbitration clause, are within the
arbitrator’s ken”].) “[C]ourts treat an arbitration clause as
severable from the contract in which it appears and enforce it
according to its terms unless the party resisting arbitration
specifically challenges the enforceability of the arbitration clause
itself.” (Granite Rock Co. v. Int’l. Bhd. Of Teamsters (2010) 561
U.S. 287, 301; see New Prime Inc. v. Oliveira (2019) ___ U.S. ___,
___, 139 S. Ct. 532, 538; Nitro-Lift Technologies, supra, 568 U.S.
at p. 21; Rent-A-Center, at p. 71; Buckeye, at p. 445.)
The Supreme Court has also held that “parties can agree to
arbitrate ‘gateway’ questions of ‘arbitrability’” in a “delegation”
clause. (Rent-A-Center, supra, 561 U.S. at pp. 68-69; see Buckeye,
supra, 546 U.S. at p. 445.) The rule of severability extends to
delegation clauses, which are severable from larger arbitration
provisions. (See Rent-A-Center, at pp. 71-72; Henry Schein, Inc.
v. Archer & White Sales, Inc. (2019) ___ U.S. ___, ___, 139 S. Ct.
524, 529.) Thus, where a contract contains a valid delegation to
the arbitrator of the power to determine arbitrability, such a
clause will be enforced absent a specific challenge to the
30
delegation clause by the party resisting arbitration. (Rent-A-
Center, at pp. 71-72.)
When the issue of arbitrability turns on a question of law,
we review the superior court’s decision de novo. (Avila v.
Southern California Specialty Care, Inc. (2018) 20 Cal. App. 5th
835, 839; accord, Citizens of Humanity, LLC v. Applied
Underwriters, Inc., supra, 17 Cal.App.5th at p. 811; Ramos v.
Westlake Services LLC (2015) 242 Cal. App. 4th 674, 686.)
2. The “Who Decides” Issue
In Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967)
388 U.S. 395 (Prima Paint), the Supreme Court held: “[I]f the
claim is fraud in the inducement of the arbitration clause
itself−an issue which goes to the ‘making’ of the agreement to
arbitrate−the federal court may proceed to adjudicate it. But the
statutory language does not permit the federal court to consider
claims of fraud in the inducement of the contract generally.” (Id.
at pp. 403-404.) The Court explained why a specific challenge to
an arbitration clause is for the court: “To immunize an
arbitration agreement from judicial challenge on the ground of
fraud in the inducement would be to elevate it over other forms of
contract−a situation inconsistent with the ‘saving clause.’” (Id. at
p. 404, fn. 12.) In Prima Paint, because the alleged fraudulent
inducement that the party was “solvent and able to perform its
contractual obligations” went to the contract as a whole, the
Court held that the matter was properly referred to the
arbitrators. (Id. at p. 398.) Subsequently, in Buckeye, supra, 546
U.S. 440, a borrower alleged that a check cashing company
charged usurious interest rates, rendering the entire agreement
with the check cashing company “illegal and void abinitio.” (Id.
at p. 443.) The Supreme Court held “Prima Paint’s rule of
31
severability required that the arbitrator decide the challenge to
the arbitration provision contained in the parties’ agreement
because the challenge was “to the validity of the contract as a
whole, and not specifically to the arbitration clause . . . .”
(Buckeye, at p. 449.) The Supreme Court stated that the “Prima
Paint rule permits a court to enforce an arbitration agreement in
a contract that the arbitrator later finds to be void.” (Buckeye, at
p. 448.)
Further, in Preston, supra, 552 U.S. 346, a performer
sought to avoid arbitration by asserting that a California statute
required an administrative agency to decide whether an
agreement with the performer’s attorney was void because the
attorney acted as an unlicensed talent agent. (Id. at p. 350.) The
arbitration provision provided that any dispute relating to the
validity or legality of the agreement shall be submitted to the
arbitrator. (Ibid.) After framing the “question [as] simply who
decides whether [the performer’s attorney] acted as a personal
manager or as talent agent,” the Supreme Court in Preston held
that its decision in “Buckeye largely, if not entirely, resolves the
dispute” because the performer “sought invalidation of the
contract as a whole” and “made no discreet challenge to the
validity of the arbitration clause.” (Preston, at pp. 352, 354.) The
Court observed that by “‘agreeing to arbitrate a statutory claim, a
party does not forgo the substantive rights afforded by the
statute; it only submits to their resolution in an arbitral . . .
forum.’” (Id. at p. 359.) Therefore, the Court held the performer
could not “escape resolution of [his statutory] rights in an arbitral
forum.” (Ibid.)
In Rent-A-Center, supra, 561 U.S. 63, the Supreme Court
held that the delegation clause in the arbitration agreement was
32
“simply an additional, antecedent agreement” that was severed
under section 2 of the FAA. (Id. at p. 70.) Because the employee
challenged the arbitration agreement as a whole and did not
specifically challenge the severed delegation clause, the Supreme
Court in Rent-A-Center held “any challenge to the validity of the
Agreement as a whole [was] for the arbitrator.” (Id. at pp. 70,
72.) The Supreme Court suggested that, “had [the employee]
challenged the delegation provision by arguing that these
[alleged unconscionable] procedures as applied to the delegation
provision rendered that provision unconscionable, the challenge
should have been considered by the court.” (Id. at p. 74.) The
Court stated that such an unconscionability challenge to the
delegation clause would have been “a much more difficult
argument to sustain” than the same unconscionability argument
made regarding the arbitration agreement as a whole. (Ibid.)
The Court in Rent-A-Center also noted that, if in Prima Paint
“the claim had been ‘fraud in the inducement of the arbitration
clause itself,’ then the court would have considered it.” (Rent-A-
Center, at p. 71.) Further, in Nitro-Lift Technologies, supra, 568
U.S. 17, employees alleged in court noncompetition agreements
were “null and void” under a state statute that limited the
enforceability of noncompetition agreements. (Id. at p. 18.)
Relying on Buckeye, the Supreme Court held that under section 2
of the FAA, it was “for the arbitrator to decide in the first
instance whether the covenants not to compete are valid as a
matter of applicable state law.” (Nitro-Lift Technologies, at
p. 22.) The Supreme Court held: “an ‘arbitration provision is
severable from the remainder of the contract’ [citation], and its
validity is subject to initial court determination; but the validity
33
of the remainder of the contract (if the arbitration provision is
valid) is for the arbitrator to decide.” (Id. at p. 21.)
3. The Trial Court Did Not Err in Ruling It
Should Resolve the Enforceability Issue
In its renewed motion, Adir asserted a challenge
specifically against the arbitration provisions that were
“‘severable from the remainder of the contract.’” (Rent-A-Center,
supra, 561 U.S. at p. 71; accord, Buckeye, supra, 546 U.S. at
p. 445.) Adir argued the arbitration provisions constituted an
“endorsement” under section 11658 because they altered the
dispute resolution provisions in the policy. Adir maintained that
the severed provisions were “void and unenforceable for
illegality” because Travelers failed to file the provisions with the
Rating Bureau as required by section 11658. Adir’s challenge to
the arbitration provisions did not depend on the illegality of the
agreement as a whole or any other part of the agreement; Adir
argued that the arbitration provisions were unenforceable and
void because they constituted an endorsement and section 11658
required Travelers to file the provisions. Thus, Adir made a
direct challenge to the severed arbitration provisions by arguing
the arbitration provisions were void, independent from the
legality of any other part of the agreement. (See Bridge Fund
Capital Corp. v. Fastbucks Franchise Corp. (9th Cir. 2010) 622
F.3d 996, 1000 [“when a plaintiff argues that an arbitration
clause, standing alone, is unenforceable−for reasons independent
of any reasons the remainder of the contract might be
invalid−that is a question to be decided by the court”].)
Adir’s challenge to the arbitration provisions was
distinguishable from the challenges to the contracts as a whole at
issue in Preston, supra, 552 U.S. 346, Buckeye, supra, 546 U.S.
34
440, and Nitro-Lift Technologies, supra, 568 U.S. 17. In Preston,
Buckeye, and Nitro-Lift Technologies, the party opposing
arbitration argued that the entire agreement was unenforceable
based on illegality concerning a provision other than the
arbitration clause. Without a discrete challenge to the
arbitration clause, the Supreme Court in those cases held that
the question of the agreements’ legality as a whole was for the
arbitrator. However, as the Supreme Court contemplated in
Rent-A-Center, supra, 561 U.S. 63 and Prima Paint, supra, 388
U.S. 395, when a challenge is asserted against the arbitration
provision itself, the court decides the challenge. (Rent-A-Center,
at p. 74; Prima Paint, at pp. 403-404; see Lynch v. Cruttenden &
Co. (1993) 18 Cal. App. 4th 802, 810 [“[h]ere, it is alleged the
parties were misled as to the very existence of the arbitration
clause. In Prima Paint the fraud went to the making of the
contract generally, not to the making of the arbitration clause”].)
The Supreme Court in Rent-A-Center observed that if the
unconscionability argument also had been asserted against the
severed delegation clause, “the challenge should have been
considered by the court,” although it would have been “a much
more difficult argument to sustain.” (Rent-A-Center, supra, 561
U.S. at p. 74.) Here, the situation is unique because the
agreement contained policy modifications on several subjects (for
example, a collateral requirement, indemnity and loss
obligations, and default and cancellation terms), each of which
sufficiently modified the policy to qualify as an “endorsement.”
Each would be subject to the same illegality challenge because
Travelers failed to file the agreement with the Rating Bureau
under section 11658. However, Adir’s assertion that other
provisions in the agreement were also void based on Travelers’
35
failure to file the agreement, or even that the entire agreement
was likewise void on that ground, does not change the analysis.
Adir asserted a discrete and independent challenge to the
arbitration provisions regardless of the legality of the remaining
parts of the agreement. (Minnieland Private Day School, Inc. v.
Applied Underwriters Captive Risk Assurance Co., Inc. (4th Cir.
2017) 867 F.3d 449, 455 [“Rent-A-Center makes clear, however,
that ‘[i]f a party challenges the validity under [section 2 of the
FAA] of the precise agreement to arbitrate at issue, the federal
court must consider the challenge before ordering compliance
with that agreement”]; see Gibbs v. Haynes Investments, LLC
(4th Cir. 2020) 967 F.3d 332, 338 [“the borrowers argued that the
‘delegation clause[s] [are] unenforceable for the same reason as
the underlying arbitration agreement−the . . . wholesale waiver
of the application of federal and state law[.]’ . . . And as Rent-A-
Center observed, such a challenge is all that is required to dispute
the viability of the delegation provisions”]; MacDonald v.
CashCall, Inc. (3d Cir. 2018) 883 F.3d 220, 226-227 [“[i]n
specifically challenging a delegation clause, a party may rely on
the same arguments that it employs to contest the enforceability
of other arbitration agreement provisions”].)
In Jackpot Harvesting, supra, 33 Cal. App. 5th 719, Luxor
Cabs, Inc. v. Applied Underwriters Captive Risk Assurance Co.
(2018) 30 Cal. App. 5th 970 (Luxor Cabs), and Nielsen, supra, 22
Cal. App. 5th 1096, the courts held that the trial court properly
determined challenges to unfiled arbitration clauses under
section 11658 because the insureds had asserted a specific
illegality challenge to the pertinent arbitration provisions.
(Luxor Cabs, at pp. 980-981 [“the trial court properly determined
that it was the proper forum for determining arbitrability”
36
because “it is beyond serious dispute that [the insured] directed a
specific challenge to the delegation clause of the [arbitration
agreement] as mandated by Rent-A-Center”]; Jackpot Harvesting,
at p. 733 [the insured “asserted a specific challenge to the
arbitration agreement . . . that was distinct from other claims
it made with respect to other elements of the [insurance] program
. . . In light of this specific challenge to the arbitration agreement,
the trial court was obligated to consider its validity ”]; Nielsen, at
p. 1113 [the insured “asserted a specific, substantive challenge to
the delegation clause separate from the challenge to the
arbitration clause and the underlying contracts, and this
challenge was not merely a device to challenge other provisions in
the contract”].)
Although Travelers does not argue that challenge to the
arbitration agreement must be different from a challenge
directed to the agreement as a whole, the courts in Jackpot
Harvesting, supra, 33 Cal. App. 5th 719, Luxor Cabs, supra, 30
Cal. App. 5th 970, and Nielsen, supra, 22 Cal. App. 5th 1096
rejected such an argument. The court in Nielsen held: “If we
were to accept defendants’ argument that courts are precluded
from ruling on specific contract defenses to a delegation clause
merely because the same defense is also brought to invalidate
other related contractual provisions, we would be treating
delegation clauses differently than other contractual clauses, a
determination that would be inconsistent with the FAA, as
interpreted by the United States Supreme Court.” (Nielsen, at
p. 1110; see Luxor Cabs, at p. 981 [“to reject a legitimate
contractual challenge to a severed delegation clause merely
because similar grounds are suggested as a basis for invalidating
the related arbitration provision or entire contract is nonsensical
37
and violates the FAA’s mandate that courts ‘must “place[ ]
arbitration agreements [such as delegation clauses] on an equal
footing with other contracts”’”]; Jackpot Harvesting, at p. 732
[“[w]hile the United States Supreme Court has repeatedly
emphasized that for a court (rather than an arbitrator) to
determine the validity of the arbitration agreement, the party
opposing arbitration must “‘challenge[ ] specifically the validity of
the agreement to arbitrate,”’ [citation] it has nowhere required
that the legal argument upon which the challenge is based must
relate solely to the arbitration agreement”].) The trial court
properly determined that it was the correct forum for
determining the enforceability of the arbitration provisions.
C. The Trial Court Did Not Err in Concluding that
the Arbitration Provisions Were Unenforceable
and Void
Travelers argues, “The arbitration agreement here is not a
policy, endorsement, or collateral agreement because it does not
materially alter the dispute-resolution provisions of the Policy.”
Therefore, Travelers argues that it was not required to file the
arbitration provision with the Rating Bureau. Relying on
Jackpot Harvesting, supra, 33 Cal. App. 5th 719, Luxor Cabs,
supra, 30 Cal. App. 5th 970, and Nielsen, supra, 22 Cal. App. 5th
1096, Adir argues that, because “Travelers’ unfiled arbitration
agreement modified Adir’s right to initiate a civil action to resolve
disputes under the policy,” “Travelers was required to file and
obtain approval of its arbitration agreement.” According to Adir,
“an insurer’s unfiled arbitration agreement is void and
unenforceable against the insured.” The trial court correctly
concluded that the arbitration provisions in the agreement were
38
an “endorsement” because they “modified the [policy] by
requiring arbitration of specific disputes.”
1. Applicable Law and Standard of Review
Under section 11658, subdivision (a), an insurer cannot
issue a workers’ compensation policy or an endorsement to a
policy “unless the insurer files a copy of the form or endorsement
with the [Rating Bureau] . . . and 30 days have expired from the
date the form or endorsement is received by the commissioner
from the [Rating Bureau] . . . .” ‘“An endorsement is an
amendment to or modification of an existing policy of insurance.’”
(Luxor Cabs, supra, 30 Cal.App.5th at p. 982; accord, Nielsen,
supra, 22 Cal.App.5th at p. 1117; Adams v. Explorer Ins. Co.
(2003) 107 Cal. App. 4th 438, 451.) Further, an endorsement
‘“may be attached to a policy at its inception or added during the
term of the policy’” and ‘‘“‘may alter or vary any term or condition
of the policy.’’’” (Luxor Cabs, at p. 982; accord, Jackpot
Harvesting, supra, 33 Cal.App.5th at p. 736.) Regulation 2268
provided: “No collateral agreements modifying the obligation of
either the insured or the insurer shall be made unless attached to
and made part of the policy . . . .” “A collateral agreement is a
‘secondary,’ ‘accompanying,’ or ‘auxiliary’ agreement.” (Nielsen,
at pp. 1114, 1117.)
“Generally a contract made in violation of a regulatory
statute is void.” (MW Erectors, Inc. v. Niederhauser Ornamental
& Metal Works Co., Inc. (2005) 36 Cal. 4th 412, 435; accord, Malek
v. Blue Cross of California, supra, 121 Cal.App.4th at p. 70; Arya
Group, Inc. v. Cher (2000) 77 Cal. App. 4th 610, 615.) However,
“‘the rule is not an inflexible one to be applied in its fullest
vigor under any and all circumstances.’” (Arya, supra, at p. 615.)
“[T]here are exceptions to this rule if the unenforceability would
39
result in unjust enrichment, forfeiture, or other form of unfair
outcome.” (Nielsen, supra, 22 Cal.App.5th at p. 1118; accord,
Malek v. Blue Cross of California, at pp. 70-71.) Courts have held
that arbitration provisions were unenforceable and void when the
workers’ compensation insurer violated section 11658 by failing
to file the provisions with the Rating Bureau. (Jackpot
Harvesting, supra, 33 Cal.App.5th at p. 734; Luxor Cabs, supra,
30 Cal.App.5th at pp. 986-987; Nielsen, at pp. 1119-1120.)
“Whether the arbitration agreement . . . is invalid because
it violates section 11658 is a question of law subject to de novo
review.” (Jackpot Harvesting, Inc., supra, 33 Cal.App.5th at
p. 735; see Association for Los Angeles Deputy Sheriffs v. County
of Los Angeles (2015) 234 Cal. App. 4th 459, 467.)
2. The Trial Court Did Not Err in Concluding that
the Arbitration Provisions Were an
“Endorsement” and a “Collateral Agreement”
An insured under a workers’ compensation insurance policy
can file a judicial action against its insurer to dispute the
premiums owing under the policy, “including a challenge that the
amount of the premium was too high as a result of the insurer’s
wrongful conduct.” (State Comp. Ins. Fund v. ReadyLink
Healthcare, Inc. (2020) 50 Cal. App. 5th 422, 460.) Although the
“Policyholder Notice” provided that, based on sections 11737 and
11753.1, Adir could appeal certain of Travelers’ rating
classification decisions to the Commissioner, “[n]either of these
provisions indicates that the Insurance Commissioner has the
authority to consider the common law breach of contract and
other collection claims raised by [the insurer] in this action, or to
consider the equitable and other affirmative defenses to [the
insurer’s] claims asserted by [the insured].” (State Comp. Ins.
40
Fund, at p. 459; see id. at p. 460 [“courts have rejected the idea
that an insured must first exhaust administrative remedies
through an appeal to the Insurance Commissioner before
asserting claims of breach of contract against its insurer,
including breaches that place the amount of premium in
dispute”].)
The policy did not diminish Adir’s right to litigate premium
disputes against Travelers in court. Even if the policy provision
titled “Actions Against Us,” which provided that there will be no
right of action against Travelers unless the “amount you owe has
been determined . . . by actual trial and final judgment,” applies
to coverage disputes as Travelers suggests, the provision did not
impact Adir’s ability to maintain an action in court regarding
premium disputes. Thus, under the policy, Adir could litigate in
court disputes regarding the premiums owing to Travelers,
including the disputes at issue in this action. (See Jackpot
Harvesting, supra, 33 Cal.App.5th at p. 736 [the policy “does not
provide for arbitration but rather allows for administrative
review by the Insurance Commissioner for certain disputes and
otherwise leaves [the insured’s] rights to judicial review intact”];
Luxor Cabs, supra, 30 Cal.App.5th at p. 983 [“[o]ther than this
right to administrative review under specified circumstances, the
CIC Policy is silent as to the resolution of disputes, leaving intact
all of the insured standard rights to judicial review”].)
The arbitration provisions in the agreement materially
changed how disputes concerning premiums would be resolved.
By providing for arbitration concerning the “premium and other
charges” due under the policy, the arbitration provisions
eliminated Adir’s right to sue Travelers in court. As Adir points
out, the arbitration provisions also purported to restrict Adir’s
41
ability under section 11737 to appeal to the Commissioner a
rating reclassification that “results in an increased premium”
because the arbitration provisions covered disputes “about the
parties rights and duties relative” to premiums and provided that
Connecticut law would govern the resolution of such disputes. By
requiring the arbitration of certain disputes and providing for the
application of Connecticut law, the arbitration provisions
materially modified the policy. The provisions were an
endorsement under section 11658 and a collateral agreement
under regulation 2268. Accordingly, California law required
Travelers to file the arbitration provisions with the Rating
Bureau for the Commissioner’s review for the provisions to be
effective. (Jackpot Harvesting, supra, 33 Cal.App.5th at p. 737
[“[b]ecause the arbitration agreement . . . materially changed the
dispute resolution terms of the [policy], the provision constitutes
‘a collateral agreement that should have been filed and endorsed
to the Policy’ under section 11658”]; Luxor Cabs, supra, 30
Cal.App.5th at pp. 983, 985 [because the unfiled arbitration
provision “alters or adds to the dispute resolution provisions of
the [policy],” the arbitration provision was a “collateral
agreement under section 11658 and Regulations former section
2268 [and] should have been filed and endorsed to the Policy”];
Nielsen, supra, 22 Cal.App.5th at p. 1117 [the “arbitration
provision and delegation clause are endorsements and/or
collateral agreements to the [policy] because they relate to and
materially alter the dispute resolution provisions in the earlier
approved policy”].)
In Matter of Adir, the Commissioner found that the
arbitration provision “modified [Adir’s] obligations under the
policy” because the policy was “silent” regarding “choice of law
42
and binding arbitration,” while the “three-page arbitration
provision mandate[ed] the arbitration of premium and claim-
handling disputes. . . . and dictate[d] that Connecticut law
applie[d] to the [agreement] and [the policy].” (Matter of Adir,
supra, at p. 38.) Further, the Commissioner in Matter of Shasta
Linen found that regulation 2268 was “clear on its face” that
“unendorsed side agreements are prohibited” and an “arbitration
obligation” comes within the definition of a “side agreement” that
must be filed before it was effective. (Matter of Shasta Linen, at
p. 43.) The Commissioner’s reasoning is sound. (See generally
Yamaha Corp. of America v. State Board of Equalization (1998)
19 Cal. 4th 1, 7 [“the binding power of an agency’s interpretation
of a statute or regulation is contextual: Its power to persuade is
both circumstantial and dependent on the presence or absence of
factors that support the merit of the interpretation”]; Association
for Retarded Citizens v. Department of Developmental
Services (1985) 38 Cal. 3d 384, 391 [“the construction of a statute
by officials charged with its administration, including their
interpretation of the authority invested in them to implement
and carry out its provisions, is entitled to great weight”’].)
Travelers has not argued that the arbitration provisions
should be excepted from the rule that a contract made in
violation of a regulatory statute was void. Accordingly, because
Travelers did not file the arbitration provisions as required by
section 11658 and regulation 2268, the arbitration provisions
were unenforceable and void. (Jackpot Harvesting, supra, 33
Cal.App.5th at p. 788; Luxor Cabs, supra, 30 Cal.App.5th at
pp. 986-987; Nielsen, supra, 22 Cal.App.5th at pp. 1118-1120; see
Malek v. Blue Cross of California, supra, 121 Cal.App.4th at
pp. 71-72.)
43
D. The FAA Does Not Preempt Section 11658
Travelers contends that the FAA preempts section 11658
because, although section 11658 and regulation 2268 “do not
‘single out’ arbitration agreements for unfavorable treatment,
they also do not provide for the ‘revocation of any contract,’ as the
FAA’s savings clause unambiguously requires.” Adir argues that
the “FAA does not preempt” section 11658 because “[s]ection
11658 establishes a state-law contract defense that applies
equally to both arbitration agreements and other types of
contracts. Section 11658 does not single out arbitration
agreements for negative treatment.” We conclude that the FAA
does not preempt section 11658.13
1. Applicable Law and Standard of Review
As stated, the FAA’s “saving clause” provides that
contractual arbitration provisions are “valid, irrevocable, and
enforceable, save upon such grounds as exist at law or in equity
for the revocation of any contract.” (9 U.S.C. § 2.) “This saving
clause permits agreements to arbitrate to be invalidated by
13 Although Adir argues that Travelers forfeited the
preemption argument by failing to raise it in the trial court, we
decline to find forfeiture. (See Town of Atherton v. California
High-Speed Rail Authority (2014) 228 Cal. App. 4th 314, 331
[“[t]he Authority may raise the issue of federal preemption for the
first time on appeal”]; Rental Housing Assn. of Northern Alameda
County v. City of Oakland (2009) 171 Cal. App. 4th 741, 755
[considering preemption argument raised for the first time on
appeal]; see generally Francies v. Kapla (2005) 127 Cal. App. 4th
1381, 1386 [exercising discretion to address new arguments on
appeal involving “pure questions of law that turn on undisputed
facts”].)
44
‘generally applicable contract defenses, such as fraud, duress, or
unconscionability,’ but not by defenses that apply only to
arbitration or that derive their meaning from the fact that
agreement to arbitrate is at issue.” (Concepcion, supra, 563 U.S.
at p. 339.) In Allied-Bruce Terminix Cos. v. Dobson (1995) 513
U.S. 265, the Supreme Court held: “What States may not do is
decide that a contract is fair enough to enforce all its basic terms
(price, service, credit), but not fair enough to enforce its
arbitration clause. The Act makes any such state policy
unlawful, for that kind of policy would place arbitration clauses
on an unequal ‘footing,’ directly contrary to the Act’s language
and Congress’ intent.” (Id. at p. 281.) The Supreme Court has
explained that the saving clause “explicitly retains an external
body of [state] law governing revocation.” (Arthur Andersen LLP
v. Carlisle (2009) 556 U.S. 624, 630.) “‘State law,’ therefore, is
applicable to determine which contracts are binding . . . and
enforceable under” the FAA, “‘if that law arose to govern issues
concerning the validity, revocability, and enforceability of
contracts generally.’” (Arthur Anderson LLP, at pp. 630-631.)
“Courts may not . . . invalidate arbitration agreements
under state laws applicable only to arbitration provisions.”
(Doctor’s Associates, Inc. v. Casarotto (1996) 517 U.S. 681, 687
(Doctor’s Associates); see Perry v. Thomas (1987) 482 U.S. 483,
492, fn. 9 [the FAA preempts statute court decisions that take
their “meaning precisely from the fact that a contract to arbitrate
is at issue”].) In Doctors Associates, the Supreme Court struck
down a state law that impacted the enforceability of arbitration
agreements by requiring “special notice” for arbitration
provisions on the first page of contracts because the law “singl[ed]
out arbitration provisions for suspect status.” (Doctor’s
45
Associates, at p. 687.) In Concepcion, supra, 563 U.S. 333, the
Supreme Court held that the FAA preempted the California rule
that a contract’s class-arbitration waiver was unenforceable
because the rule “‘stands as an obstacle to the accomplishment
and execution of the full purposes and objectives’” of the FAA.
(Concepcion, at p. 352.) The “defense [in Concepcion] failed to
qualify for protection under the saving clause because it
interfered with a fundamental attribute of arbitration . . . by
effectively permitting any party in arbitration to demand class-
wide proceedings despite the traditionally individualized and
informal nature of arbitration.” (Epic Systems Corp. v. Lewis
(2018) ___ U.S. ___, ___, 138 S. Ct. 1612, 1622-1623.) “In line with
these principles courts must place arbitration agreements on an
equal footing with other contracts, [citation], and enforce them
according to their terms.” (Concepcion, at p. 339.) In Concepcion,
the Supreme Court added that the FAA preempts even a
“generally applicable” state law contract defense if that defense
(1) is “applied in a fashion that disfavors arbitration” (Id. at
p. 341), or (2) “interferes with fundamental attributes of
arbitration” (Id. at p. 344), such as “‘lower costs, greater
efficiency and speed, and the ability to choose expert adjudicators
to resolve specialized disputes.’” (Id. at p. 348.)
In McGill v. Citibank, N.A. (2017) 2 Cal. 5th 945 (McGill),
the California Supreme Court held that an arbitration provision
was “invalid and unenforceable under state law insofar as it
purports to waive” Civil Code section 3513’s right to “public
injunctive relief.” (McGill, at p. 961.) Rejecting the bank’s
argument that “precluding enforcement of the waiver” was
“preempted by the FAA,” the Supreme Court held that Civil Code
section 3513 was a “generally applicable contract defense, i.e., it
46
[was] a ground under California law for revoking any contract.”
(McGill, at pp. 961-962.) The Supreme Court explained: “It is
not a defense that applies only to arbitration or that derives its
meaning from the fact that an agreement to arbitrate is at issue.
. . . [A] provision in any contract−even a contract that has no
arbitration provision−that purports to waive, in all fora, the
statutory right to seek public injunctive relief under the [Unfair
Competition Law], the [Consumer Legal Remedies Act], or the
false advertising law is invalid and unenforceable under
California law. The FAA does not require enforcement of such a
provision, in derogation of this generally applicable contract
defense, merely because the provision has been inserted into an
arbitration agreement. To conclude otherwise would, contrary to
Congress’s intent, make arbitration agreements not merely ‘as
enforceable as other contracts, but . . . more so.’” (McGill, at
p. 962.)
In Mitchell v. American Fair Credit Assn., Inc. (2002) 99
Cal. App. 4th 1345 (Mitchell), the court held that the FAA did not
preempt the California statutory requirement that consumers
sign credit services agreements for the agreement to be effective.
The court held, “the FAA does not preempt a neutral state law
contract formation requirement simply because it can be applied
to invalidate an arbitration agreement.” (Mitchell, at p. 1357, fn.
omitted.) Although the statutory signature requirement only
applied to credit services agreements, the court further held that
the “signature requirement [was] a neutral contract principle”
because “all contract provisions covered by [the statutory
requirement] are subject to this formality” and “conditioning the
enforcement of a contract on a party’s signature . . . is certainly
widespread in this state.” (Ibid.) The court in Mitchell
47
concluded: “Applying the [statute’s] signature requirement to
arbitration clauses does not reflect hostility to such provisions or
interfere with any purpose of the FAA. Manifestly, we have not
established a different set of requirements for enforcing a
contract’s ‘basic terms (price, service, credit) . . . [and] its
arbitration clause.’ [Citation] Our interpretation . . . accords
arbitration clauses an identical status with other clauses in
original credit services agreements or agreements as modified
and so is not preempted by the FAA.” (Mitchell, at pp. 1359-
1360, fn. omitted.)
Resolution of “issues regarding federal preemption
involve[ ] questions of law which we independently review on
appeal.” (Hood v. Santa Barbara Bank & Trust (2006) 143
Cal. App. 4th 526, 535; accord, Washington Mutual Bank v.
Superior Court (2002) 95 Cal. App. 4th 606, 612.)
2. The FAA Does Not Preempt Section 11658
As Travelers concedes, section 11658 does “not ‘single out’
arbitration agreements for unfavorable treatment.” Section
11658’s filing requirement enables the Commissioner to protect
employers and employees by “closely scrutinizing” workers’
compensation insurance plans. (Jackpot Harvesting, supra, 33
Cal.App.5th at p. 738.) Section 11658 requires that an insurer
file with the Rating Bureau for the Commissioner’s review not
only the insurance policy, but also any endorsement, which
purports to modify the insurance policy. Section 11658 is not
concerned with arbitration or even dispute resolution. The filing
requirement applies regardless of the endorsement’s subject
matter. Section 11658’s filing requirement is a neutral contract
formation requirement that is generally applicable to all
provisions in any workers’ compensation policy, endorsement, or
48
collateral agreement. Section 11658 is not a defense that applies
only to arbitration or that derives its meaning from the fact that
an agreement to arbitrate is at issue. Section 11658 does not
prohibit arbitration; it only requires that an insurer file an
arbitration provision, as any other endorsement, for the provision
to be effective. Indeed, the Insurance Code does not prohibit
arbitration under insurance contracts. (Jackpot Harvesting, at
p. 736; see § 11658.5, subd. (a)(1).) By applying section 11658’s
filing requirement, there is no hostility to arbitration, and section
11658 is not being applied in a way that disfavors arbitration.
Because section 11658 imposed “a neutral state law
contract formation requirement,” section 11658 was not “an
obstacle to the accomplishment of the FAA’s objectives.”
(Concepcion, supra, 563 U.S. at p. 343.) Accordingly, the FAA did
not preempt section 11658. (Jackpot Harvesting, supra, 33
Cal.App.5th at p. 736 [“‘[section] 11658 does not even address
arbitration or dispute resolution, and application of the FAA does
not impair or supersede [section] 11658’”]; see McGill, supra, 2
Cal.5th at p. 964 [in Concepcion, the Supreme Court “reaffirmed
that the ‘saving clause permits agreements to arbitrate to be
invalidated by “generally applicable contract defenses’” under
state law”]; Mitchell, supra, 99 Cal.App.4th at p. 1357 [“the FAA
does not preempt a neutral state law contract formation
requirement simply because it can be applied to invalidate an
arbitration agreement”].)
Travelers relies on Bradley v. Harris Research, Inc. (9th
Cir. 2001) 275 F.3d 884 (Bradley) and Ting v. AT&T (9th Cir.
2003) 319 F.3d 1126 (Ting) to argue that, for a state law to be
“saved” under section 2 of the FAA, the law must apply to “any
contract.” In Bradley, the Ninth Circuit held that a California
49
franchise statute, which specified where disputes could be
resolved, was “not a generally applicable contract defense that
applies to any contract, but only to forum selection clauses in
franchise agreements.” (Id. at pp. 890, 892.) Relying on Bradley,
because the Consumer Legal Remedies Act (CLRA) (Civ. Code,
§ 1750 et seq.) only applied to consumer and noncommercial
contracts, the Ninth Circuit in Ting held that the FAA preempted
the CLRA’s anti-class action waiver provisions. (Ting, at
p. 1148.) Bradley and Ting are distinguishable because they did
not involve neutral contract formation requirements. (See
Mitchell, supra, 99 Cal.App.4th at p. 1359.) Rather, the forum
selection clause in Bradley and the anti-class action waiver in
Ting interfered with arbitration.14 Further, in declining to follow
Bradley and Ting, the Ninth Circuit in Sakkab v. Luxottica Retail
North America, Inc. (9th Cir. 2015) 803 F.3d 425 held that
Concepcion “cuts against” Ting and Bradley’s “construction of the
saving clause.” (Sakkab, at p. 433.) The Ninth Circuit added
that the Supreme Court “appear[ed] to clarify” that the saving
14 In Sanchez v. Valencia Holdings Co., LLC (2015) 61 Cal. 4th
899, the California Supreme Court held: “We conclude that the
CLRA’s anti-waiver provision is preempted insofar as it bars
class waivers in arbitration agreements covered by the FAA.
Sanchez’s argument that enforcing the CLRA’s anti-waiver
provision merely puts arbitration agreements on an equal footing
with other contracts is unavailing. Concepcion held that a state
rule can be preempted not only when it facially discriminates
against arbitration but also when it disfavors arbitration as
applied. [Citation.] Concepcion further held that a state rule
invalidating class waivers interferes with arbitration’s
fundamental attributes of speed and efficiency, and thus
disfavors arbitration as a practical matter.” (Sanchez, at p. 924.)
50
clause’s “‘any contract’ language refers to whether a state law
places arbitration agreements on equal footing with non-
arbitration agreements, not whether it applies to all types of
contracts.” (Id. at p. 434, fn. 8; see Epic Systems Corp. v. Lewis,
supra, ___ U.S. ___, ___, 138 S. Ct. 1622, [“[u]nder our precedent,
this means the saving clause does not save defenses that target
arbitration either by name or by more subtle methods, such as by
‘interfer[ing] with fundamental attributes of arbitration’”];
Kindred Nursing Centers Ltd. Partnership v. Clark (2017) ___
U.S. ___, ___, 137 S. Ct. 1421, 1426 [“[t]he FAA thus preempts any
state rule discriminating on its face against arbitration−for
example, a ‘law prohibit[ing] outright the arbitration of a
particular type of claim.’ [Citation.] And not only that: The Act
also displaces any rule that covertly accomplishes the same
objective by disfavoring contracts that (oh so coincidentally) have
the defining features of arbitration agreements. In Concepcion,
for example, we described a hypothetical state law declaring
unenforceable any contract that ‘disallow[ed] an ultimate
disposition [of a dispute] by a jury’”].)
Here, the filing requirement in section 11658 is a neutral
contract formation requirement. Applying section 11658’s filing
requirement to an arbitration endorsement does not reflect
hostility to arbitration or interfere with any purpose of the
FAA.15
15 Given our conclusion that section 11658 falls within the
FAA’s saving clause, we do not reach Adir’s argument that the
FAA is subject to reverse preemption under the McCarran-
Ferguson Act. (15 U.S.C. §§ 1011-1015.) (See Citizens of
Humanity, LLC v. Applied Underwriters, Inc., supra, 17
Cal.App.5th at pp. 817-819.)
51
DISPOSITION
The trial court’s order dated August 23, 2018 is affirmed.
Adir shall recover its costs on appeal.
DILLON, J.*
We concur:
PERLUSS, P. J.
FEUER, J.
* Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
52