African Methodist Episcopal Church, Inc. v. Smith
217 So. 3d 816
Ala.2016Background
- The AME Church’s Ninth Episcopal District purchased a group life-insurance policy from Lincoln National; individual certificates were issued for members (Smith’s mother; Levins’s father).
- Both insureds died in 2013; Lincoln National denied benefits, prompting Smith and Levins to sue the Ninth District, Bishop Davis, and Lincoln National in separate state-court actions.
- Defendants moved to compel arbitration relying on an arbitration amendment (form GL-AMEND.ARBITR) attached to the group policy and a certificate notice (AL ARB NOTICE-CERT); trial courts denied the motions and defendants appealed.
- Plaintiffs argued the arbitration forms were void because they were not approved by the Alabama Department of Insurance (ADOI) and because insurer failed to follow ADOI arbitration-disclosure guidelines.
- Plaintiffs also challenged enforceability on unconscionability grounds (confidentiality clause; lack of mutuality), asserted they hadn’t agreed to arbitrate, and alleged defendants waived arbitration by litigating.
- Supreme Court of Alabama reversed the trial courts, holding the arbitration provision enforceable and ordering the trial courts to compel arbitration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether arbitration forms were invalid for lack of ADOI approval | Smith/Levins: forms not filed/approved by ADOI, so void under §27-14-8 and precedent (Word) | Defendants: forms were approved when filed by predecessor company (Guarantee), and approvals transferred through mergers to Lincoln National | Held: Forms were approved via predecessor filings and transfers; not void for lack of ADOI approval |
| Whether failure to follow ADOI arbitration-disclosure guidelines voids arbitration | Plaintiffs: application lacked separate signed disclosure as ADOI bulletin required, so arbitration invalid | Defendants: ADOI bulletin is an impermissible state rule singling out arbitration; federal law forbids special treatment of arbitration clauses | Held: ADOI guideline requirement is preempted/unenforceable; arbitration need not have separate disclosure |
| Whether arbitration clause is unconscionable (confidentiality, asymmetry) | Plaintiffs: confidentiality gag and one-sided requirement to arbitrate make clause substantively unconscionable | Defendants: confidentiality is not so one-sided as to invalidate clause; asymmetry is permissible under Alabama precedent | Held: Clause not substantively unconscionable; confidentiality concerns insufficient here; asymmetry not fatal under Alabama law |
| Whether nonsignatories (beneficiaries) can be compelled to arbitrate | Plaintiffs: Smith/Levins didn't sign or expressly assent to arbitration | Defendants: beneficiaries’ claims depend on and arise from the policy containing the arbitration clause, so equitable estoppel applies | Held: Beneficiaries’ contract-based claims are dependent on the policy; equitable estoppel binds them to arbitration |
| Whether conditions precedent (appeals/negotiation) to arbitration were unmet | Plaintiffs: appeal procedures/negotiation not exhausted so arbitration premature | Defendants: appeals were exhausted or not required; threshold issues are for arbitrator | Held: Whether conditions precedent were met is for arbitrator (Howsam) unless breach is indisputable; trial courts erred in refusing to enforce arbitration on this ground |
| Whether defendants waived arbitration by litigating (discovery; delay; motion to dismiss) | Levins: defendants substantially invoked litigation, causing prejudice, so they waived arbitration | Defendants: limited discovery and early plea/answer did not amount to substantial invocation; arbitration asserted early by Lincoln National | Held: No waiver — participation was not extensive/prejudicial enough under Alabama precedent; doubts resolved in favor of arbitration |
Key Cases Cited
- Aetna Insurance Co. v. Word, 611 So.2d 266 (Ala. 1992) (use of unapproved endorsement may render endorsement void under state filing statute)
- Ex parte McNaughton, 728 So.2d 592 (Ala. 1998) (Alabama law on mutuality and arbitration clauses)
- Blue Cross Blue Shield of Alabama v. Rigas, 923 So.2d 1077 (Ala. 2005) (standards for substantive and procedural unconscionability of arbitration clauses)
- Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79 (U.S. 2002) (arbitrators decide procedural gateway questions about conditions precedent to arbitration)
- Ting v. AT&T, 319 F.3d 1126 (9th Cir. 2003) (confidentiality clauses in arbitration can be unconscionable in some contexts)
- Iberia Credit Bureau, Inc. v. Cingular Wireless LLC, 379 F.3d 159 (5th Cir. 2004) (confidentiality clause not necessarily unconscionable; arbitration’s informality can justify secrecy)
- Metropolitan Life Ins. Co. v. Glisson, 295 F.3d 1192 (11th Cir. 2002) (endorsement/attachment to policy can make arbitration endorsement part of contract when properly attached and executed)