Atl. Specialty Ins. Co. v. Anthem, Inc.

ORDER ON MOTIONS RELATING TO ARBITRATION

This matter is before the Court on Plaintiffs' Motion to Stay Arbitration [Dkt. 24] and Defendant's Motion for a Stay and to Compel Arbitration [Dkt. 42]. For the reasons set forth below, the Court GRANTS IN PART Plaintiffs' motion and DENIES Defendant's motion.

Defendant Anthem, Inc., ("Anthem") is a defendant in a series of antitrust class action suits that have been consolidated into a multi-district litigation action pending in the Northern District of Alabama ("the MDL"). Anthem has sought coverage for the MDL from its Errors and Omissions ("E&O") insurers, which include Plaintiffs Atlantic Specialty Insurance Company ("Atlantic") and Bedivere Insurance Company ("OneBeacon"). Atlantic and OneBeacon have denied coverage.

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The Atlantic and OneBeacon policies are part of a "tower" of $175 million in E&O insurance purchased by Anthem for the period of January 31, 2012, to January 31, 2013. The primary policy in the tower was issued by ACE American Insurance Company (the "ACE Primary Policy"). The Atlantic Policy is an excess policy that sits right above the ACE Primary Policy in the tower. The OneBeacon Policy is an excess policy that sits at the top of the tower.

On April 19, 2019, at the request of Anthem, the parties, along with other insurers in the tower, participated in a mediation proceeding in an attempt to resolve their coverage dispute. By agreement, the mediation was conducted in Bermuda by Layn Philips of Phillips ADR, a retired federal judge who also has conducted multiple mediation sessions between the parties in the MDL. The mediation (hereinafter referred to as the "Philips Mediation") was unsuccessful.

On August 7, 2019, Anthem initiated arbitration proceedings in Indianapolis against Atlantic and OneBeacon pursuant to the Alternative Dispute Resolution provision in the ACE Primary Policy (hereinafter referred to as the "ADR Provision"). In response, Plaintiffs filed this declaratory judgment action, in which they seek declaratory judgment that Anthem is not entitled to coverage for the MDL under either the Atlantic Policy or the OneBeacon Policy for various reasons and that the April 19, 2019, mediation satisfied the ADR Provision.

In the instant motions, Plaintiffs seek to stay arbitration indefinitely, arguing that the proper forum to resolve the parties' coverage dispute is this court, not arbitration, while Anthem seeks to stay this case and compel arbitration pursuant to the ADR Provision.

Pursuant to the Federal Arbitration Act ("FAA"), "arbitration should be compelled if three elements are present: (1) an enforceable written agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a refusal to arbitrate." Scheurer v. Fromm Family

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Foods LLC, 863 F.3d 748, 752 (7th Cir. 2017) (citations omitted). The party seeking to compel arbitration has the burden of proof regarding these elements. A.D. v. Credit One Bank, N.A., 885 F.3d 1054, 1063 (7th Cir. 2018); see also Wilson Fertilizer & Grain, Inc. v. ADM Mill. Co., 654 N.E.2d 848, 849 (Ind. Ct. App. 1995) ("A party seeking to compel arbitration must satisfy a two-prong burden of proof. First, the party must demonstrate an enforceable agreement to arbitrate the dispute.").

"Generally, federal policy favors arbitration, and once an enforceable arbitration contract is shown to exist, questions as to the scope of arbitrable issues should be resolved in favor of arbitration." Scheurer, 863 F.3d at 752 (citing Moses H. Cone Mem. Hosp. v. Mercury Const. Corp., 460 U.S. 1, 24-25 (1983)). "At bottom, however, arbitration is contractual. A party 'cannot be required to submit to arbitration any dispute which he has not agreed so to submit.'" Id. (quoting United Steelworkers of America v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582 (1960) (additional citations omitted)). As the Supreme Court has stated on "numerous occasions," "the central or 'primary' purpose of the FAA is to ensure that 'private agreements to arbitrate are enforced according to their terms.'" Stolt-Nielsen S.A. v. AnimalFeeds Int'l Corp., 559 U.S. 662, 682 (2010) (citations omitted). To that end, "the FAA imposes certain rules of fundamental importance, including the basic precept that arbitration 'is a matter of consent, not coercion.'" Id. at 681 (quoting Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 479 (1989)).

Before addressing the merits of the parties' arguments, the Court must determine the standard that applies to the instant motions. Both motions raise the fundamental issue of whether

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arbitration should be compelled. The Court's power to compel arbitration is set forth in the FAA as follows:

A party aggrieved by the alleged failure, neglect, or refusal of another to arbitrate under a written agreement for arbitration may petition any United States district court which, save for such agreement, would have jurisdiction under title 28, in a civil action or in admiralty of the subject matter of a suit arising out of the controversy between the parties, for an order directing that such arbitration proceed in the manner provided for in such agreement. Five days' notice in writing of such application shall be served upon the party in default. Service thereof shall be made in the manner provided by the Federal Rules of Civil Procedure. The court shall hear the parties, and upon being satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue, the court shall make an order directing the parties to proceed to arbitration in accordance with the terms of the agreement. The hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed. If the making of the arbitration agreement or the failure, neglect, or refusal to perform the same be in issue, the court shall proceed summarily to the trial thereof. If no jury trial be demanded by the party alleged to be in default, or if the matter in dispute is within admiralty jurisdiction, the court shall hear and determine such issue. Where such an issue is raised, the party alleged to be in default may, except in cases of admiralty, on or before the return day of the notice of application, demand a jury trial of such issue, and upon such demand the court shall make an order referring the issue or issues to a jury in the manner provided by the Federal Rules of Civil Procedure, or may specially call a jury for that purpose. If the jury find that no agreement in writing for arbitration was made or that there is no default in proceeding thereunder, the proceeding shall be dismissed. If the jury find that an agreement for arbitration was made in writing and that there is a default in proceeding thereunder, the court shall make an order summarily directing the parties to proceed with the arbitration in accordance with the terms thereof.

9 U.S.C.A. § 4 (emphasis added).

It is clear, then, that the Court must be "satisfied that the making of the agreement for arbitration or the failure to comply therewith is not in issue" in order to compel arbitration without a trial. Plaintiffs do not articulate the standard by which they believe the Court should make that determination. Anthem states, in a footnote, that "[w]hile the FAA does not specifically identify the evidentiary standard required of a party opposing a motion to compel

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arbitration, courts have analogized this burden to one of a party opposing summary judgment." [Dkt. 43 at 10 n.4] (citing Tinder v. Pinkerton Sec., 305 F.3d 728, 735 (7th Cir. 2002)). Tinder does, indeed, hold that the party opposing a motion to compel arbitration "must demonstrate that a genuine issue of material fact warranting a trial exists." 305 F.3d at 735 (citing Doctor's Associates, Inc. v. Distajo, 107 F.3d 126, 129-30 (2d Cir. 1997); Great Western Mortgage Corp. v. Peacock, 110 F.3d 222, 231 n. 36 (3d Cir. 1997); Dillard v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 961 F.2d 1148, 1154 (5th Cir. 1992)). This, however, must be read in conjunction with the fact that, as noted above, the party seeking to compel arbitration has the burden of proving that an agreement to arbitrate the dispute exists. A.D., 885 F.3d at 1063. Thus, the question before the Court in this case is whether, based on the record before it, it can resolve the issue of the existence of an arbitration agreement as a matter of law, or whether there are questions of fact that must be resolved in order to make that determination. If the latter, the issue must proceed to trial as set forth in 9 U.S.C. § 4.

Anthem argues that both Atlantic and OneBeacon are subject to the ADR Provision,¹ which reads as follows:

1. In the event that any disputes or differences arise under or in connection with this Policy or the breach, termination or invalidity thereof, whether arising before or after termination of this Policy, the Insured and Insurer shall make a good faith attempt to resolve the disputes or differences through informal negotiations.

2. If such disputes or differences remain unresolved, the Insured and Insurer shall submit such disputes or differences to an alternative dispute resolution

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("ADR") process as described in paragraph 3 below. Either the Insured or the Insurer may select the type of ADR process; provided, however, the Insured shall have the right to reject the Insurer's choice of the type of ADR process at any time prior to its commencement, in which case the Insured's choice of ADR process shall control.