Travelers Indemnity Company v. Texas Municipal League Joint Self-Insurance Fund, for Itself and as Subrogee of the City of Bunker Hill Village

  Opinion issued July 17, 2008  

In The  

Court of Appeals

For The  

First District of Texas

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NO. 01-08-00062-CV

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TRAVELERS INDEMNITY COMPANY, Appellant

V.

TEXAS MUNICIPAL LEAGUE JOINT SELF-INSURANCE FUND, FOR ITSELF AND AS SUBROGEE OF THE CITY OF BUNKER HILL VILLAGE, Appellee

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On Appeal from the 125th District Court

Harris County, Texas

Trial Court Cause No. 2007-67880

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MEMORANDUM OPINION

Appellant, Travelers Indemnity Company ("Travelers"), appeals the trial court's order denying its motion to compel arbitration in its dispute with appellee, Texas Municipal League Joint Self-Insurance Fund, for itself and as subrogee of the City of Bunker Hill Village ("TML-JSIF"). In its sole issue, Travelers argues that the trial court erred in denying Travelers's motion to compel arbitration.

We affirm.

Background

In November 2002, Travelers entered into a reinsurance agreement with TML-JSIF, a joint self-insurance fund providing property, boiler and machinery, and automobile physical damage insurance for participating self-insured political subdivisions of the State of Texas. The City of Bunker Hill Village ("Bunker Hill") is a participant in the TML-JSIF. On July 31, 2003, Bunker Hill discovered damage to one of its water wells. TML-JSIF paid Bunker Hill for the damaged water well and made a claim under the reinsurance agreement with Travelers. Travelers denied that the claim was covered by its reinsurance agreement with TML-JSIF. In November 2007, TML-JSIF filed suit against Travelers, asserting claims for declaratory judgment, breach of contract, and violations of the Texas Insurance Code.

Travelers filed a motion to compel arbitration under section 171.021 of the Texas Civil Practice and Remedies Code and Article XIV of the reinsurance agreement, entitled "Dispute Resolution." ⁽¹⁾ Article XIV of the agreement between Travelers and TML-JSIF states, in part:

Either party may, by written request to the other party, seek to arbitrate any dispute arising out of, or related in any way to this Contract or the transactions hereunder, including its formation, termination, and validity, other than disputes with the Property Reinsurer(s) under Article XI, "Joint or Disputed Loss[,]" which will be arbitrated pursuant to the mandatory binding arbitration provisions of that Article.

. . . Following receipt of a request for arbitration, the non-requesting party shall, within thirty (30) days by written response, accept or reject such a request. Once such a written response has been delivered, the parties may not, except by mutual agreement, revoke the decision to proceed with arbitration. Within thirty (30) days after delivery of a written response accepting a request for arbitration, each party shall appoint an arbitrator.

Article XIV then outlines the procedure to be followed in the event of an arbitration under that article. Article XIV provides that arbitration shall take place in Travis County, Texas and that the arbitration panel shall apply the substantive law of the State of Texas. TML-JSIF filed a response opposing the motion to compel arbitration. ⁽²⁾

A hearing on Travelers's motion to compel arbitration was held on January 10, 2008, and the trial court denied the motion to compel arbitration.

Standard of Review

To compel arbitration, a party must show that there is a valid arbitration agreement and that the claims raised fall within the agreement's scope. In re Kellogg Brown & Root, Inc., 166 S.W.3d 732, 737 (Tex. 2005) (orig. proceeding). Because there is a presumption favoring agreements to arbitrate, doubts regarding an agreement's scope are resolved in favor of arbitration; however, the presumption arises only after the party seeking to compel arbitration proves that a valid arbitration agreement exists. Id.

Whether a valid arbitration agreement exists is a legal question that we review de novo. In re D. Wilson Constr. Co., 196 S.W.3d 774, 781 (Tex. 2006). We determine the validity of an arbitration agreement by applying state contract law principles. J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 227 (Tex. 2003). We must ascertain the intent of the parties as expressed in the instrument. Id. at 229. Although an arbitration agreement does not have to assume any particular form, the language of the agreement must clearly indicate an intent to arbitrate. Wachovia Securities, L.L.C. v. Emery, 186 S.W.3d 107, 113 (Tex. App.--Houston [1st Dist.] 2006, no pet.). Without an agreement to arbitrate, arbitration cannot be compelled. Id. (citing Freis v. Canales, 877 S.W.2d 283, 284 (Tex. 1994) (orig. proceeding)). We examine the entire writing as a whole and give effect to all its provisions. Davidson, 128 S.W.3d at 229.

Analysis

Here, Travelers has not proven that a valid binding arbitration agreement exists. ⁽³⁾ The agreement uses permissive language, stating that "[e]ither party may, by written request to the other party, seek to arbitrate any dispute," and the agreement further provides that "[f]ollowing receipt of a request for arbitration, the non-requesting party shall, within thirty (30) days by written response, accept or reject such a request." It is clear that the parties intended that one party could reject the other party's request to seek arbitration. If we were to hold that the arbitration provision here is mandatory, the language allowing a party to reject a request for arbitration would be meaningless, and we would be failing to give effect to all of the provisions of the agreement. See Davidson, 128 S.W.3d at 229.

Travelers argues that the arbitration clause requires the parties to submit to arbitration once one of the parties requests it and cites In re U.S. Home Corporation in support of its contention. See 236 S.W.3d 761 (Tex. 2007). In In re U.S. Home, two contracts governed the relationship between the parties. Id. at 765. The parties signed a sales agreement that clearly required arbitration and a warranty agreement that provided that either party "may request" arbitration. Id. The Texas Supreme Court stated,

We must construe the parties' contracts together if we can, rather than allowing one to cancel the other. . . . While the warranty's clause allowed either party to request arbitration, nothing in it suggests arbitration was optional if either did; to the contrary, the clause constituted a binding promise to arbitrate if either party requested it.

Id. (internal citations omitted).

Here, the agreement between the parties is clearly distinguishable from that in In re U.S. Home. The parties had no agreement similar to the sales agreement in In re U.S. Home, which required the parties to arbitrate their claims. Furthermore, unlike the warranty agreement in In re U.S. Home, the reinsurance agreement between Travelers and TML-JSIF does contain language suggesting that arbitration was optional if either party requested arbitration. The agreement between Travelers and TML-JSIF clearly states that one party can reject the other party's request to seek arbitration.

Travelers also argues that an interpretation that construes the arbitration language as optional would render Article XIV of the reinsurance agreement meaningless. Travelers cites several cases from other jurisdictions in which courts have held that arbitration clauses that use permissive language should still be interpreted as requiring arbitration once a party requests arbitration. See United States v. Bankers Ins. Co., 245 F.3d 315, 320-21 (4th Cir. 2001); Am. Ital. Pasta Co. v. Austin Co., 914 F.2d 1103, 1103 (8th Cir. 1990); Ceres Marine Terminals, Inc. v. Int'l Longshoremen's Assoc., Local 1969, 683 F.2d 242, 246 (7th Cir. 1982); Local 771, I.A.T.S.E., AFL-CIO v. RKO Gen., Inc., 546 F.2d 1107, 1115-16 (2nd Cir. 1977); J.C. Bonnot v. Congress of Indep. Unions Local No. 14, 331 F.2d 355, 359 (8th Cir. 1964); Deaton Truck Line, Inc. v. Local Union 612, 314 F.2d 418, 421 (5th Cir. 1962); TM Delmarva Power, L.L.C. v. NCP of Va., L.L.C., 557 S.E.2d 199, 201 (Va. 2002); Orthopedic Phys. Therapy Ctr. v. Sports Therapy Ctrs., Ltd., 621 A.2d 402, 403 (Me. 1993); City of Louisa v. Newland, 705 S.W.2d 916, 917 (Ky. 1986). However, those cases are also distinguishable because none of the arbitration clauses in those cases contains language that indicates a party may reject a request to seek arbitration. See, e.g., Bankers Ins. Co., 245 F.3d at 318 ("[A] misunderstanding or dispute may be submitted to arbitration for a determination [that] shall be binding upon approval by the FIA."); Am. Ital. Pasta Co., 914 F.2d at 1103-04 (providing that the parties should first attempt to settle disputes "in a manner that is fair and equitable to both parties before either party can exercise the right of any legal action," and concluding, "If both parties agree that a dispute or disagreement is of such a nature that it cannot be settled as provided for above, then such dispute or disagreement may be submitted to arbitration[.]"); TM Delmarva Power, 557 S.E.2d at 201 ("If any material dispute, disagreement or controversy concerning this Agreement is not settled in accordance with the provisions [for resolution by conciliators,] then either Party may commence arbitration hereunder by delivering to the other Party a notice of arbitration.").

Here, if we were to hold that arbitration was required once Travelers requested it, we would render meaningless the provision that the parties could choose to reject a request to arbitrate. Furthermore, Article XIV still has meaning under our interpretation because it requires the parties to follow through with the arbitration process once they have agreed to seek arbitration, and it provides the procedure that the parties must follow in the event that an arbitration ever actually takes place. Our interpretation of the reinsurance agreement between Travelers and TML-JSIF gives meaning to all portions of the agreement. See Davidson, 128 S.W.3d at 229.

We conclude that the parties did not express an intent to arbitrate in Article XIV of the reinsurance agreement. In fact, they clearly expressed the intent that either party be able to reject the other party's request to seek arbitration. See Wachovia Securities, 186 S.W.3d at 113 (holding that language of agreement must clearly indicate intent to arbitrate before parties can be compelled to arbitrate). Travelers has failed to prove that a valid arbitration agreement exists, and, therefore, we hold that the trial court did not err in denying Travelers' motion to compel arbitration. See Kellogg Brown & Root, 166 S.W.3d at 737; Wachovia Securities, 186 S.W.3d at 113 (holding that a party cannot be compelled to arbitrate without an agreement to arbitrate).

We overrule Travelers's sole issue.

Conclusion

We affirm the order of the trial court.

Evelyn V. Keyes

Justice

Panel consists of Chief Justice Radack and Justices Keyes and Higley.

1. Travelers is seeking to compel arbitration under the Texas Arbitration Act. See Tex. Civ. Prac. & Rem. Code Ann. §§ 171.001-.098 (Vernon 2005), which is undisputed by appellee.. Therefore, an interlocutory appeal may be taken from the trial court's denial of the motion to compel arbitration. Id. § 171.098(a)(1).

2. The only "written request" for arbitration that was given in this case was Travelers's motion to compel arbitration. Therefore, TML-JSIF's response opposing Travelers's motion to compel arbitration serves as a clear rejection of Travelers's "written request."

3. Both parties agree that this is not a dispute "with the Property Reinsurer(s) under Article XI, 'Joint or Disputed Loss.'"