[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
January 30, 2004
No. 03-12129
THOMAS K. KAHN
Non-Argument Calendar CLERK
________________________
D. C. Docket No. 03-00002-CV-2
CHARLES K. MCKNIGHT,
JEAN B. MCKNIGHT,
Plaintiffs-Appellees,
versus
CHICAGO TITLE INSURANCE CO., INC.,
Defendant-Appellant.
________________________
Appeal from the United States District Court
for the Southern District of Georgia
_________________________
(January 30, 2004)
Before BARKETT, HULL and COX, Circuit Judges.
PER CURIAM:
I. INTRODUCTION
This appeal presents a single issue: whether the Federal Arbitration Act, 9
U.S.C. § 1, et seq., preempts the Georgia Arbitration Code, Ga. Code Ann. § 1, et.
seq., inasmuch as the Georgia Arbitration Code expressly excludes from its coverage
arbitration provisions in insurance contracts. We conclude that it does not: by virtue
of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b), the Federal Arbitration Act does
not preempt the insurance contract provision of the Georgia Arbitration Code.
Because the district court also came to this conclusion, we affirm the district court’s
order denying the Defendant’s motion to compel arbitration.
II. BACKGROUND AND PROCEDURAL HISTORY
In 1991, Charles and Jean McKnight, Plaintiffs below, acquired a tract of
property in Georgia, and contracted with Defendant, Chicago Title Insurance
Company, for title insurance. The insurance contract included an arbitration
provision, which read, in pertinent part:
Unless prohibited by applicable law, either the Company or the insured
may demand arbitration . . . . All arbitrable matters when the Amount
of Insurance is $1,000,000 or less shall be arbitrated at the option of
either the Company or the insured. All arbitrable matters when the
Amount of Insurance is in excess of $1,000,000 shall be arbitrated only
when agreed to by both the Company and the insured. . . .
The law of the situs of the land shall apply to an arbitration . . . .
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(R.1-1 at Ex. 1 at Conditions and Stipulations ¶ 14.) The title insurance policy
guaranteed that the McKnights would have a fifty-foot-wide easement on their
property.
In 2001, when they attempted to subdivide the property, the McKnights learned
that the easement was only twenty feet wide, and thus the property was unsuitable for
subdividing. They then made a claim against Chicago Title for the diminished value
of the property. Chicago Title denied the claim, and the McKnights filed this breach-
of-contract action in the district court. Chicago Title moved to compel arbitration,
and the district court denied its motion, reasoning that the Georgia Arbitration Code’s
exclusion of arbitration provisions in insurance contracts made the arbitration
provision in this case unenforceable.1 Chicago Title appeals the denial of the motion.
III. CONTENTIONS OF THE PARTIES AND STANDARDS OF REVIEW
Chicago Title contends that the district court erred in concluding that the
Georgia Arbitration Code makes the arbitration provision unenforceable. This was
1
Alternatively, the district court reasoned that the arbitration provision had not been triggered,
as the amount of the insurance policy exceeded $1,000,000 at the time of the claim, and the
McKnights had not agreed to arbitrate, as required by the provision. The court based its assessment
of the policy’s worth on an index the McKnights provided, and stated that Chicago Title did not
dispute the accuracy of this index. The record, however, shows that Chicago Title did indeed dispute
the accuracy of the McKnight’s index, by providing a competing index which valued the policy at
less than $1,000,000. The trial court did not make any findings of fact about which was the proper
index to use, and thus it was error to support its conclusion with the McKnight’s index. But, because
we conclude that the district court correctly found that the provision was otherwise unenforceable,
this error is harmless.
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a conclusion of law which we review de novo. Parker v. Secretary for the Dep't of
Corrs., 331 F.3d 764, 768 (11th Cir. 2003). See also Davis v. Southern Energy
Homes, Inc., 305 F.3d 1268, 1270 (11th Cir. 2002) (“We review a district court’s
order denying a motion to compel arbitration de novo.”).
IV. DISCUSSION
The sole issue in this appeal involves the intersection of three statutes. First
is the Federal Arbitration Act, which provides the general rule:
A written provision in any . . . contract evidencing a transaction
involving commerce to settle by arbitration a controversy thereafter
arising out of such contract or transaction, or the refusal to perform the
whole or any part thereof, or an agreement in writing to submit to
arbitration an existing controversy arising out of such a contract,
transaction, or refusal, shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any
contract.
9 U.S.C. § 2. This federal rule, that arbitration provisions in contracts involving
commerce will be enforced, generally preempts state law to the contrary. Volt Info.
Sciences, Inc. v. Board of Trustees of the Leland Stanford Junior Univ., 489 U.S. 468,
478, 109 S. Ct. 1248, 1255 (1989) (“[W]e have held that the FAA preempts state laws
which ‘require a judicial forum for the resolution of claims which the contracting
parties agreed to resolve by arbitration.’”) (citation omitted). The parties in this case
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agree that the contract containing the arbitration provision at issue is a contract
evidencing a transaction involving commerce.
Second is the exception to the rule, found in the McCarran-Ferguson Act,
which leaves the regulation of the insurance industry to the states:
No Act of Congress shall be construed to invalidate, impair, or
supersede any law enacted by any State for the purpose of regulating the
business of insurance, . . . unless such Act specifically relates to the
business of insurance . . .
15 U.S.C. § 1012(b). In the right circumstances, the McCarran-Ferguson Act
provides an exception to the general rule of arbitration under the Federal Arbitration
Act. If the state has an anti-arbitration law enacted for the purpose of regulating the
business of insurance, and if enforcing, pursuant to the Federal Arbitration Act, an
arbitration clause would invalidate, impair, or supersede that state law, a court should
refuse to enforce the arbitration clause. Standard Sec. Life Ins. Co. of New York v.
West, 267 F.3d 821, 823 (8th Cir. 2001) (stating and applying this exception). The
parties and we agree that the Federal Arbitration Act does not itself specifically relate
to the business of insurance.
Third is the statute we must interpret to determine whether it falls into the
general rule or the exception. It is the Georgia Arbitration Act, and specifically the
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part of that act which excludes arbitration provisions in insurance contracts from its
coverage. That provision reads:
[The Georgia Arbitration Code] shall apply to all disputes in which the
parties thereto have agreed in writing to arbitrate and shall provide the
exclusive means by which agreements to arbitrate disputes can be
enforced, except the following, to which this part shall not apply:
...
(3) Any contract of insurance, as defined in paragraph (1) of Code
Section 33-1-2; provided, however, that nothing in this paragraph
shall impair or prohibit the enforcement of or in any way
invalidate an arbitration clause or provision in a contract between
insurance companies;
Ga. Code Ann. § 9-9-2(c). Based on this provision, Georgia courts refuse to enforce
arbitration provisions in insurance contracts. Continental Ins. Co. v. Equity
Residential Props. Trust, 565 S.E.2d 603, 605-06 (Ga. Ct. App. 2002) (affirming,
based on § 9-9-2(c)(3), trial court’s denial of a motion to compel arbitration pursuant
to an insurance contract), cert. denied (Ga. 2002). Cf. Pinnacle Constr. Co., Inc. v.
Osborne, 460 S.E.2d 880, 882 (Ga. Ct. App. 1995) (affirming, based on § 9-9-2(c)(8),
trial court’s denial of motion to compel arbitration, where construction company
attempted to enforce un-initialed arbitration provision of a real estate sales contract).
Because the parties do not dispute that the Federal Arbitration Act’s
preempting Ga. Code Ann. § 9-9-2(c)(3) would invalidate, impair, or supersede § 9-
9-2(c)(3), we are left with only one question: whether § 9-9-2(c)(3) is “a law enacted”
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by Georgia “for the purpose of regulating the business of insurance,” as that term is
used in the McCarran-Ferguson Act. The McCarran-Ferguson Act does not define
this term, but a pair of Supreme Court cases do. The Court stated in Secs. and Exch.
Comm’n v. National Secs., Inc., 393 U.S. 453, 460, 89 S. Ct. 564, 568 (1969) that, in
the McCarran-Ferguson Act, Congress was seeking to leave to the states the
“relationship between insurer and insured, the type of policy which could be issued,
its reliability, interpretation, and enforcement.” Thus, “[s]tatutes aimed at protecting
or regulating this relationship, directly or indirectly are laws regulating the ‘business
of insurance.’” Id. at 460, 89 S. Ct. at 568-69. Later, in Union Labor Life Ins. Co. v.
Pireno, 458 U.S. 119, 129, 102 S. Ct. 3002, 3009 (1982), the Court enumerated “three
criteria relevant in determining whether a particular practice is part of the ‘business
of insurance:’”
first, whether the practice has the effect of transferring or spreading a
policyholder's risk; second, whether the practice is an integral part of the
policy relationship between the insurer and the insured; and third,
whether the practice is limited to entities within the insurance industry.
None of these criteria is necessarily determinative in itself . . .
Based on these definitions of laws regulating the business of insurance, we conclude,
like the only other two federal courts of appeals to address this question have
concluded, that a provision in a state’s arbitration code excepting insurance contracts
is a law regulating the business of insurance. See Mutual Reinsurance Bureau v.
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Great Plains Mut. Ins. Co., 969 F.2d 931, 934-35 (10th Cir. 1992) and West, 267 F.3d
at 824 (both holding that insurance-contract exceptions to state arbitration codes
satisfied the McCarran-Ferguson Act, and thus that the state laws were not preempted
by the Federal Arbitration Act).
First, Ga. Code Ann. § 9-9-2(c)(3) affects the relationship between insurer and
insured. Specifically, it impacts the enforcement of the policy issued by the insurer,
by expressly invalidating the parties’ chosen mode of contract enforcement. Mutual
Reinsurance Bureau, 969 F.2d at 933. Second, § 9-9-2(c)(3) affects the transferring
or spreading of a policyholder's risk, by “introducing the possibility of jury verdicts
into the process for resolving disputed claims.” West, 267 F.3d at 824. By limiting
the enforceability an agreement to spread risk - and all insurance contracts embody
an agreement to spread risk - the Georgia legislature has altered this aspect of
underwriting. Mutual Reinsurance Bureau, 969 F.2d at 933. Third, § 9-9-2(c)(3)
“regulates an integral part of the insurer-insured relationship by invalidating an
otherwise mandatory insurance contract term that allows either party to compel
arbitration of policy disputes, thus subjecting all policy disputes to the possibility of
a jury trial.” West, 267 F.3d at 824. Fourth, § 9-9-2(c)(3) is expressly limited to
entities within the insurance industry: it is clear that the Georgia legislature intended
this subsection to apply only to the insurance industry.
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Fifth and finally, Georgia, speaking through one of its courts, has itself
characterized § 9-9-2(c)(3) as a law enacted to regulate the business of insurance.
Continental Ins., 565 S.E.2d at 605. In Continental Ins., 565 S.E.2d at 605-06, the
court addressed the very issue we address today, and concluded that the McCarran-
Ferguson Act excepted § 9-9-2(c)(3) from preemption by the Federal Arbitration Act.
Georgia’s highest court gave its tacit approval to this decision by denying certiorari.
Id. While the Continental Ins. court’s characterization of § 9-9-2(c)(3) as a law
enacted to regulate the business of insurance is not binding on us, it is relevant to our
inquiry, because “Congress, in leaving the ‘business of insurance’ to the States, ‘was
legislating concerning a concept which had taken on its coloration and meaning
largely from state law, from state practice, from state usage.’” Rush Prudential HMO,
Inc. v. Moran, 536 U.S. 355, 369 n.5, 122 S. Ct. 2151, 2161 n.5 (2002) (concluding
that an HMO was an insurer for purposes of ERISA’s preemption provision’s savings
clause, in part because the home state of the insurer regulated the HMO through its
insurance department; quoting SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S.
65, 69, 79 S. Ct. 618, 620-21 (1959)). Considering the Continental Ins. court’s
characterization, along with the other four considerations, we conclude that § 9-9-
2(c)(3) is a law enacted to regulate the business of insurance, within the meaning of
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the McCarran-Ferguson Act. Thus, § 9-9-2(c)(3) is excepted from preemption by the
Federal Arbitration Act.
V. CONCLUSION
Because we conclude that the McCarran-Ferguson Act excepts § 9-9-2(c)(3)
from preemption by the Federal Arbitration Act, the district court’s denial of Chicago
Title’s motion to compel arbitration is affirmed.
AFFIRMED.
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