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BCS Insurance Co. v. Independence Blue Cross

January 15, 2009

BCS INSURANCE COMPANY, PETITIONER,
v.
INDEPENDENCE BLUE CROSS, ET AL., RESPONDENT.



The opinion of the court was delivered by: Charles P. Kocoras, District Judge

MEMORANDUM OPINION

This matter comes before the court on the petition of Plaintiff BCS Insurance Company ("BCS") to compel arbitration of a bad faith claim against Defendant Independence Blue Cross ("IBC"). For the following reasons, the petition is granted.

BACKGROUND

The court has jurisdiction on the basis of diversity of citizenship; BCS is an Ohio corporation with its principal place of business in Illinois and IBC is a Pennsylvania corporation with its principal place of business in Pennsylvania. See 28 U.S.C. § 1332. Moreover, the amount in controversy exceeds $75,000.

According to the allegations contained in the petition, BCS issued IBC a Directors and Officers Liability Insurance Policy effective July 1, 2001, to July 1, 2002.*fn1 During the period of coverage, a third party sued IBC for alleged improper negotiation and performance of contracts.*fn2 The lawsuit eventually settled; afterwards, IBC filed a claim with BCS seeking indemnity for its incurred defense expenses. BCS subsequently denied coverage of IBC's claim. In the insurance policy at issue, the parties agreed to binding arbitration. The arbitration provision states in relevant part:

Any controversy arising out of or relating to this Policy or the breach thereof shall be settled by binding arbitration in accordance with the rules but not the authority or jurisdiction of the American Arbitration Association (herein "AAA") then in effect....

Arbitration shall take place in Chicago, Illinois unless otherwise agreed to by the parties.

After learning that BCS refused to cover the claim, IBC issued notice on September 29, 2008, demanding arbitration of the coverage claim and stated its intent to assert a claim against BCS for bad faith. In its demand for arbitration, IBC seeks defense expenses in the amount of $7,427,136.04, including interest, attorney fees, and costs. On October 24, IBC served BCS with a revised demand for arbitration and identified its arbitrator.*fn3 BCS later inquired whether the bad faith claim would be pursued in court or as part of the arbitration, and IBC expressly stated its intent to pursue the bad faith claim in Pennsylvania state court.

On November 5, BCS filed the instant petition to compel arbitration of the bad faith claim, perceiving it to be a controversy arising out of the policy and thus falling within the scope of the arbitration clause. It seeks an order that IBC resolve the bad faith claim as part of the pending arbitration. IBC opposes BCS's petition on the basis that the issues raised in the bad faith claim are separate and distinct and therefore it does not arise out of the policy.

LEGAL STANDARD

The Federal Arbitration Act ("FAA") provides that an arbitration clause in a "contract evidencing a transaction involving commerce... shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or equity for the revocation of any contract." 9 U.S.C. § 2. It is axiomatic that arbitration is a favored means of resolving disputes, and the FAA has established a policy favoring arbitration. See Kiefer Specialty Flooring, Inc. v. Tarkett, Inc. 174 F.3d 907, 909 (7th Cir. 1999). Courts liberally construe contractual language regarding arbitration and resolve doubt in favor of arbitrability. See Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983).

A party contesting the submission of a claim to arbitration must prove that the presumption of arbitrability does not apply. See Int'l Union Operating Eng'rs, Local Union 103 v. Ind. Constr. Corp., 13 F.3d 253, 255-56 (7th Cir. 1994). When deciding whether a particular issue is arbitrable, the court turns to general principles of contract interpretation, as "a party cannot be required to submit to arbitration any dispute which he has not agreed so to submit." United Steelworkers v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582, 80 S.Ct. 1347, 1353 (1960). A claim will be deemed arbitrable if an arbitration clause is capable of any interpretation that a claim is covered. See Ind. Constr. Corp., 13 F.3d at 255-56. With these principles in mind, we turn to the petition.

DISCUSSION

I. Scope of the Arbitration ...


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