Mid-Wеst National Life Insurance Company of Tennessee (Mid-West) appeals the district court’s ruling that the provision in the insurаnce policy it sold to Mark and Jannett Murphy (Murphys) that compels arbitration in disputes over policy coverage is unenforceable.
I.
BACKGROUND AND PRIOR PROCEEDINGS
In April of 2000 Mid-West issued a health insurance policy to the Murphys. The policy was acquired thrоugh an independent sales agent, James Parish, and covered Mark Murphy as the insured and Jannett, Cody, Lexa, *331 and Tayla Murрhy as his dependents. In December of 2000, Mark Murphy was diagnosed with multiple sclerosis and submitted a claim to Mid-West for the treаtment of his illness. Mid-West refused to pay the claim, and the Murphys filed suit against Mid-West.
Mid-West moved to stay the proceedings and to compel arbitration pursuant to a clause in the insurance policy which provides that “if the claim is $10,000 or less, the dispute shall be settled by arbitration if either one of us demands arbitration.” The Murphys unpaid medical expenses werе less than $10,000.
The district court denied Mid-West’s motions on the grounds that the provision in the policy allocating the costs of аrbitration was unconscionable and thus revocable under I.C. § 7-901. The relevant provision in the policy states:
Each рarty shall pay the costs of its arbitrator. The parties shall bear equally the expenses of the third arbiter and all оther expenses of arbitration. Attorney fees and expenses for witnesses, will not be deemed to be expensеs of arbitration, but will be borne by the party incurring them.
I.C. § 7-901 states:
Validity of arbitration agreement
A written agreement to submit any existing controversy to arbitration or a prоvision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This act does not apply to arbitration agreements between employers and employees or between their respective representatives (unless otherwise provided in the agreement),
(emphasis аdded). The district court determined that the arbitration provision was procedurally unconscionable becausе insurance contracts by them nature are contracts of adhesion giving rise to an automatic disparity in the bargаining positions between the insurer and the insured. Further, the provision was substantively unconscionable because the costs of arbitration would be so prohibitively expensive that the Murphys would have to forgo some or all of their claims. Sрecifically, the district court noted that even while Mid-West had agreed to use only one non-doctor arbitrator, the cost of that arbitrator plus the costs of witnesses and attorney fees was at a minimum $2,500, more than the Murphys could afford. Based upon these determinations the district court ruled the arbitration clause was unenforceable. Mid-West aрpealed.
II.
STANDARD OF REVIEW
In disputes involving arbitration, this court has stated:
“The question of arbitrability is a question of law properly decided by the court.” Local 2-652 v. EG & G Idaho, Inc.,115 Idaho 671 , 674,769 P.2d 548 , 551 (1989), citing AT & T Technologies, Inc. v. Communications Workers,475 U.S. 643 ,106 S.Ct. 1415 ,89 L.Ed.2d 648 (1986). When questions of law are presented, this court exercises free review and is not bound by findings of the district court, but is free to draw its own conclusions frоm the evidence presented. Mutual of Enumclaw v. Box,127 Idaho 851 , 852,908 P.2d 153 , 154 (1995), citing Automobile Club Ins. Co. v. Jackson,124 Idaho 874 , 876,865 P.2d 965 , 967 (1993).
Lewis v. CEDU Educational Services, Inc.,
Ill
THE REVOCATION EXCEPTION IN I.C. SECTION 7-901 INCLUDES UNCON-SCIONABILITY AS A BASIS FOR REVOCATION OF AN ARBITRATION AGREEMENT, BUT THE ARBITRATION PROVISION IN THIS CASE IS NOT UNCONSCIONABLE
In
Lovey v. Regence Blue Shield of Idaho,
03.14 ISCR 585,
IY.
THE PROHIBITIVE COSTS OF ARBITRATION IN THIS CASE RENDERS THE ARBITRATION PROVISION UNENFORCEABLE
While there is no showing of procedural or substantive unconscionability the prohibitive costs of arbitration in this ease renders the arbitration provision unenforceable.
Lovey
noted that in
Green Tree Financial Corp.-Alabama v. Randolph,
The threshold concern in considering the arbitration agreement is that it is applicable to claims of $10,000 or less. This relatively small amount is burdened with extensive costs more appropriate for large value claims. Each party is to pay its own arbitrator and share equally the expenses of a third arbiter and all other expenses of arbitration. The agreement provides that attorney fees and expenses for witnesses will be borne by the party incurring them. On its face this is a hefty load for a medical claim of less than $10,000. Perhaps in recognition of this, Mid-West agreed to use only one non-doctor arbitrator. Despite this reduction, the district court found that the cost of the arbitrator, plus the costs of witnesses and attorney fees was at a minimum $2,500 and that the Mur-phys could not afford that amount. That determination is supported by the record. Effectively the arbitration agreement in this case turns the purposes of аrbitration upside down. It is an expensive alternative to litigation that precludes the Murphys from pursuing the claim.
V.
CONCLUSION
The decision of the district court declaring the arbitration provision unenforceable is affirmed. The Murphys are awarded costs.