Nielsen Contracting, Inc. v. Applied Underwriters, Inc.
232 Cal. Rptr. 3d 282
Cal. Ct. App. 5th2018Background
- Nielsen (insured) signed an RPA with AUCRA (Applied subsidiary) that materially amended a previously filed CIC guaranteed-cost workers’ compensation policy by adding a broad arbitration clause (including a delegation clause) requiring arbitration in the British Virgin Islands.
- Nielsen sued Applied, AUCRA, and CIC alleging the RPA was an unlawful, unconscionable adhesion contract and was void because the RPA (and its arbitration/delegation clauses) were not filed with or approved by the California Insurance Commissioner as required by Ins. Code §11658 and Cal. Code Regs. tit.10, §2268.
- The Insurance Commissioner previously issued Matter of Shasta Linen finding a substantially identical RPA unlawful and void for failure to file and approve; defendants later entered a stipulated cease-and-desist acknowledging Shasta Linen as precedential.
- AUCRA moved to compel arbitration relying on the RPA’s delegation clause (and AAA rules) to have the arbitrator decide enforceability of the arbitration agreement.
- Nielsen specifically challenged the delegation clause’s enforceability, arguing it was a collateral endorsement that had to be filed and thus was void. The trial court denied the motion to compel, holding the court must decide the delegation/enforceability challenge and that the clauses were void for failure to file.
- Defendants appealed; the appellate court affirmed, holding the court correctly resolved the delegation question and the arbitration/delegation provisions are unenforceable because they were not filed/approved.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Who decides enforceability of delegation clause? | Nielsen: She specifically challenged the delegation clause as unlawful (unfiled collateral agreement), so the court must decide. | AUCRA: Delegation clause clearly delegates enforceability questions to the arbitrator; Rent‑A‑Center means arbitrator decides unless delegation is specifically attacked. | Court/Affirmed: Nielsen did specifically challenge the delegation clause; under Rent‑A‑Center the court must resolve such a specific challenge. |
| Whether arbitration/delegation clauses required filing with Insurance Commissioner | Nielsen: Clauses materially modified CIC policy’s dispute-resolution terms and thus were collateral/endorsements subject to filing and approval; unfiled clauses are unlawful and void. | Defendants: AUCRA not insurer; RPA not a policy/endorsement; clauses didn’t modify filed CIC policy and thus not subject to filing requirement. | Court/Affirmed: Clauses were collateral endorsements modifying the filed policy and had to be filed; failure to file rendered them unlawful and unenforceable. |
| Whether FAA preempts state filing rule or prevents court invalidation | Nielsen: State filing rules and regulatory enforcement apply; FAA does not bar arbitrability determination when agreement unlawful under state law. | Defendants: FAA favors enforcement; arbitration clause/severability should be enforced; section 11658.5 shows Legislature did not intend voiding unfiled arbitration clauses. | Court/Affirmed: FAA’s savings clause allows contract defenses; state law renders unfiled clause unlawful and void; §11658.5 does not negate filing/approval requirement for endorsements. |
| Remedy for unfiled arbitration clause | Nielsen: Void and unenforceable; parties may litigate in court. | Defendants: No express statutory forfeiture; policy reasons weigh against voiding the clause. | Court/Affirmed: Void and unenforceable as a matter of law; no unjust enrichment/forfeiture concerns warranted exception. |
Key Cases Cited
- Rent‑A‑Center, West, Inc. v. Jackson, 561 U.S. 63 (U.S. 2010) (court must decide specific challenges to delegation clauses; delegation clause is severable)
- Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440 (U.S. 2006) (challenges to validity of entire contract are for arbitrator unless arbitration clause itself is challenged)
- Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (U.S. 1967) (separability doctrine: arbitration clause treated as independent)
- AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (U.S. 2011) (FAA savings clause permits generally applicable contract defenses)
- First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938 (U.S. 1995) (parties may clearly delegate arbitrability to arbitrator; courts enforce clear delegation)
- Minnieland Private Day School, Inc. v. Applied Underwriters Captive Risk Assurance Co., 867 F.3d 449 (4th Cir. 2017) (upholding district court decision that court—not arbitrator—should resolve enforceability of similar RPA delegation clause challenged under state law)