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Brayman Construction Corporation v. Home Insurance Company

February 12, 2003

BRAYMAN CONSTRUCTION CORPORATION
v.
HOME INSURANCE COMPANY; ZURICH NORTH AMERICA INSURANCE COMPANY, APPELLANTS



Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civil Action No. 01-cv-00762) District Judge: Honorable William L. Standish

Before: Barry and Ambro, Circuit Judges, Ackerman *fn1, District Judge

The opinion of the court was delivered by: Ambro, Circuit Judge

PRECEDENTIAL

Argued November 20, 2002

OPINION OF THE COURT

This case requires us to decide whether a dispute between an insurance company and its insured must be arbitrated. In light of the strong federal policy favoring arbitration, we hold that the dispute is arbitrable and therefore reverse the District Court's decision.

I. Background

Plaintiff Brayman Construction Corp. ("Brayman") purchased a workers' compensation insurance policy (the "Policy"), effective January 1, 1995, from The Home Insurance Co. ("Home"). The parties subsequently entered into a separate retrospective premium agreement (the "RPA"), which required Brayman to pay Home an additional premium on the Policy whenever a covered claim led to a judgment or settlement. While the underlying Policy was silent as to arbitration, the RPA contained an arbitration clause, which read, in relevant part:

If any dispute shall arise between the Company and Insured with reference to the interpretation of this Agreement, or their rights with respect to any transaction involved, whether such dispute arises before or after termination of this Agreement, such dispute, upon the written request of either party, shall be submitted to three arbitrators, one to be chosen by each party, and the third by the two so chosen . . .. The decision in writing of any two arbitrators, when filed with the parties hereto, shall be final and binding on both parties.

The RPA also contained a provision that "[n]othing in this Agreement shall modify, alter, or amend any of the terms or conditions of the Policies relating to the insurance afforded thereunder."

This dispute arose because of a workers' compensation claim submitted by a former Brayman employee. Brayman believed that the claim was meritless. It alleges that it so informed Home, but that Home and its defense counsel never investigated whether the employee's alleged injuries existed before her employment with Brayman. As a result, Home improperly paid her compensation benefits.

Dissatisfied with this outcome, Brayman eventually persuaded Home to retain new defense counsel, who hired independent experts to assess the employee's claim and confirmed Brayman's suspicion that she had received treatment for her alleged injury before Brayman hired her. A workers' compensation judge then allowed Brayman to terminate her benefits.

Home assessed Brayman $195,100 under the RPA to account for the previous payment of the employee's claim. When Brayman refused to pay Home the retrospective premium, Home demanded arbitration in accordance with the RPA. In response to Home's demand to arbitrate, Brayman brought three claims before the District Court: (1) compensatory and punitive damages for Home's bad faith, for which 42 Pa. Cons. Stat. S 8371 *fn2 provides a cause of action; (2) punitive and compensatory damages for Home's alleged breach of its contractual obligation under the Policy to provide Brayman with a competent defense to the employee's claim and of Home's contractually implied duty of good faith; and (3) a declaratory judgment that Brayman has no obligation to pay Home $195,110. Brayman alleges that it has sustained approximately $270,000 in injuries due to Home's mishandling of the employee's claim. *fn3 Along with its complaint, Brayman filed a motion to stay the arbitration. Home opposed Brayman's motion to stay arbitration and filed a cross-motion to compel arbitration and to dismiss or, in the alternative, to stay proceedings.

A magistrate judge issued a Report and Recommendation concluding that Brayman's motion to stay arbitration should be granted. The District Court issued an order adopting the ...


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