Boghos v. Lloyd's of London 5/19/03 CA6

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: H024481

Case Date: 06/30/2003

Preview:Filed 5/29/03; pub. order 6/30/03 (see end of opn.)

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SIXTH APPELLATE DISTRICT ANTONE BOGHOS, Plaintiff and Respondent, v. LLOYD'S OF LONDON et at., Defendants and Appellants. H024481 (Santa Clara County Super. Ct. No. CV803331)

Certain Underwriters at Lloyd's, International Risk Management Group, and Petersen International Underwriters (collectively "Lloyd's") petitioned to compel arbitration of Antone Boghos's claims for denial of long-term disability benefits. The trial court denied the petition. On appeal, Lloyd's argues (1) the insurance policy unambiguously requires arbitration of Boghos's claims; and (2) the arbitration clause was not unconscionable. We will affirm. FACTS AND PROCEDURAL BACKGROUND Antone Boghos owned and operated a plumbing business. In 1998, he applied for a long-term disability insurance policy. Petersen International Underwriters handled the application. Certain Underwriters at Lloyd's underwrote the policy. On January 8, 1999, the policy took effect. The certificate of insurance includes a "Service of Suit Clause." It provides, in pertinent part: "In the event of the failure of Underwriters to pay any amount claimed to be due under the insurance described herein, Underwriters have agreed that, at the request

of Assured (or Reinsured) they will submit to the jurisdiction of a court of competent jurisdiction within the United States."1 The declaration of insurance contains an arbitration clause. It provides, in pertinent part: "BINDING ARBITRATION: Not withstanding any other item setforth herein, the parties hereby agree that any dispute which arises shall be settled in Binding Arbitration."2

The first paragraph of the service of suit clause provides: "Service of Suit Clause. In the event of the failure of Underwriters to pay any amount claimed to be due under the insurance described herein, Underwriters have agreed that, at the request of Assured (or Reinsured) they will submit to the jurisdiction of a court of competent jurisdiction within the United States. Nothing in this clause constitutes or should be understood to constitute a waiver of Underwriters' rights to commence an action in any court of competent jurisdiction in the United States, to remove an action to a United States District Court, or to seek a transfer of a case to another Court as permitted by the laws of the United States or of any State in the United States. In any suit instituted against any one of them upon the insurance described herein. Underwriters have agreed to abide by the final decision of such Court or of any Appellate Court in the event of an appeal." The full text of the arbitration clause is as follows: "BINDING ARBITRATION: Not withstanding any other item setforth herein, the parties hereby agree that any dispute which arises shall be settled in Binding Arbitration. By agreeing to Binding Arbitration, all parties acknowledge and agree that they waive their right to a trial by jury. Binding Arbitration will be held before a neutral arbitrator who will be agreed to by all parties. If the parties cannot agree as to the arbitrator, or believe that a single arbitrator cannot adequately settle the dispute, then an arbitration panel made up of three arbitrators shall be formed. One arbitrator shall be appointed by Us. The second arbitrator shall be appointed by You. The third arbitrator shall be agreed by the two appointed arbitrators. The venue shall be in Los Angeles County or at another location if agreed by all parties. The arbitration will be governed by the commercial arbitration rules of the American Arbitration Association. Costs for the arbitration shall be equally split among the parties." Boghos's insurance application also contained an arbitration provision that provides that disputes concerning the insurance be submitted to arbitration if the disputed amount exceeds the jurisdictional amounts for small claims courts and is not resolved after an Underwriters' review. This arbitration provision also contained a waiver of the right to jury trial. In its argument, Lloyd's focuses upon the insurance policy arbitration clause. 2
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In May 2000, Boghos suffered injury to his neck and head. The injury resulted in constant headaches, vertigo, loss of concentration, diminished work strength and an inability to continue his plumbing business. Boghos applied for long-term disability benefits. Lloyd's commenced payments to Boghos. However, in December 2000, Lloyd's notified Boghos that they were discontinuing payments to him. In November 2001, Boghos filed suit against Lloyd's, arguing that Lloyd's wrongfully refused to pay disability benefits. Boghos's complaint included claims for bad faith denial of insurance, breach of contract, breach of the implied covenant of good faith and fair dealing, and intentional infliction of emotional distress. In February 2002, Lloyd's moved to compel arbitration of Boghos's claims. The trial court denied the petition to compel arbitration. It found that Lloyd's consented, under the service of suit clause, to the court's jurisdiction to resolve failure to pay claims, and that any ambiguity in the policy resulting from conflicting provisions should be resolved in Boghos's favor. The trial court also found that the arbitration clause was unconscionable. Lloyd's appeals. STANDARD OF REVIEW Whether an arbitration agreement applies to a controversy is a question of law. If no conflicting extrinsic evidence to aid interpretation was introduced, then the appellate court exercises its independent judgment. (Brookwood v. Bank of America (1996) 45 Cal.App.4th 1667, 1670.) If the trial court resolved disputed facts to reach its decision, then we review that decision to see if it is supported by substantial evidence. (Engineers & Architects Assn. v. Community Development Dept. (1994) 30 Cal.App.4th 644, 653.)

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DISCUSSION According to Lloyd's, the service of suit clause constitutes a consent to the court's jurisdiction only for the purpose of enforcing arbitration awards. Because Boghos's lawsuit against Lloyd's is not an action to enforce an arbitration award, Lloyd's claims the arbitration provision clearly applies, and therefore the trial court erred in refusing to compel arbitration. For five reasons, we disagree. First, the plain language of the service of suit clause contradicts Lloyd's argument. There is nothing in the clause limiting its applicability to the enforcement of arbitration awards. There is nothing in the clause even referring to arbitration. The only limitation upon the clause's applicability is the requirement that the insurer fail "to pay any amount claimed to be due under the insurance described herein. . . ." To say that the phrase "failure . . . to pay any amount claimed to be due under the insurance described herein" really means only actions to enforce arbitration awards turns the plain language of the clause upon its head. Second, Lloyd's interpretation would either render the service of suit clause surplusage or make it unlawful. Specifically, if the service of suit clause is construed to only apply to actions to enforce arbitration awards, the clause would be surplusage. This is because the California Arbitration Act already gives parties an independent right to petition courts for enforcement of arbitration awards. (Code Civ. Proc.,

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