The opinion
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION
Gina DeFrank, et al.,
Case No: 2:19-cv-3645
Plaintiffs,
Judge Graham
v.
Magistrate Judge Vascura
Atlantic Specialty Insurance Co., LLC,
Defendant.
Opinion and Order
Plaintiffs Gina DeFrank and her minor child, T.G, are Ohio residents who bring this diversity
action against defendant Atlantic Specialty Insurance Company (ASIC), a limited liability company
organized under the laws of New York. The complaint asserts causes of action for breach of contract
and bad faith regarding insurance claims made by plaintiffs for an accidental death benefit and a
survivor’s benefit under an occupational accident policy issued to decedent Robert Crouse.
This matter is before the court on ASIC’s motion to compel arbitration, which is granted.
I. Background
Robert Crouse, a truck driver, was struck and killed by an oncoming car in August 2017 while
he was outside the cab of his disabled truck along I-70 in Guernsey County, Ohio. Crouse worked as
an independent contractor for FAF, Inc.
Crouse had purchased coverage under an Occupational Accident Policy in 2016. The Policy
was originally issued by OneBeacon America Insurance Company and has since been assumed by
ASIC. The Policy was issued to Transportation Industry Trust, with FAF identified as a participating
organization.
Crouse named DeFrank as his beneficiary in one of the enrollment forms. The Policy
provided for a death benefit of $50,000 to the beneficiary. It also provided for a survivor’s benefit of
$250,000 to a surviving spouse or dependent child.
The nature of Crouse’s relationship with DeFrank and T.G. is not entirely clear from the
complaint. According to defendant, DeFrank was Crouse’s live-in girlfriend. See Doc. 11-1 (email
sent by DeFrank to a claims adjuster stating that she and Crouse were not married). According to
defendant, DeFrank claimed that T.G. qualified as Crouse’s foster child. See Doc. 11 at PAGEID120.
Following Crouse’s death, DeFrank filed a claim for the accidental death benefit, which was
paid in the full amount of $50,000 in September 2018. But, according to the complaint, ASIC acted
in bad faith during the claims process by delaying payment, conducting an investigation and raising
unfounded coverage issues. One such issue related to ASIC’s threat to deny coverage based on a
toxicology report, which plaintiffs allege showed no more than the presence of a prescribed
medication in Crouse’s blood system. Another coverage issue raised by ASIC concerned whether
Crouse died in the course of performing his job (“under dispatch”), which plaintiffs contend he clearly
did. The complaint alleges that ASIC tried to leverage these fabricated issues in an unsuccessful
attempt to get DeFrank to settle the claim for $25,000.
Additionally, DeFrank and T.G. filed claims for the survivor’s benefit. ASIC denied their
claims on the grounds that DeFrank was not Crouse’s spouse and that T.G. was not his dependent
child. See Doc. 13-1 (September 10, 2018 Letter from the claims adjuster to DeFrank). According to
plaintiffs, ASIC acted in bad faith by refusing to accept documentation showing that T.G. was
Crouse’s foster child.
The complaint asserts three counts: Count I – bad faith in the processing of the accidental
death benefit claim; Count II – breach of contract in denying the survivor’s benefit claims; and Count
III – bad faith in denying the survivor’s benefit claims.
ASIC contends that these claims must be submitted to arbitration under the Policy’s
arbitration provision.
II. Standard of Review
The Federal Arbitration Act (“FAA”) provides that arbitration agreements in contracts
involving interstate commerce “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. Where a cause of action
is determined to be covered by arbitration, the court “shall on application of one of the parties stay
the trial of the action until such arbitration has been had in accordance with the terms of the
agreement, providing the applicant is not in default in proceeding with such arbitration.” 9 U.S.C. § 3.
The FAA “establishes that, as a matter of federal law, any doubts concerning the scope of
arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the
construction of the contract language itself, or an allegation of waiver, delay, or a like defense to
arbitrability.” Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24-25 (1983). “An order
to arbitrate the particular grievance should not be denied unless it may be said with positive assurance
that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.
Doubts should be resolved in favor of coverage.” United Steelworkers of Am. v. Warrior & Gulf Nav. Co.,
363 U.S. 574, 582–83 (1960) (footnote omitted).
Further, “the Supreme Court has held that the FAA preempts state law regarding arbitration.”
Glazer v. Lehman Bros., Inc., 394 F.3d 444, 451 (6th Cir. 2005) (citing Southland Corp. v. Keating, 465 U.S.
1, 10–11 (1984)). Even so, state contract law governs issues of formation, such as validity, revocability,
and enforceability, with respect to arbitration clauses. See Perry v. Thomas, 482 U.S. 483, 492 n. 9 (1987).
“’The federal policy favoring arbitration, however, is taken into consideration even in applying
ordinary state law.’” Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d 370, 377 (6th Cir. 2005)
(internal quotation marks omitted).
III. Discussion
Defendant moves to compel arbitration under the following provision of the Policy:
Arbitration. Any contest to a claim denial under this Policy will be settled by
arbitration administered by the American Arbitration Association in accordance with
its Commercial Arbitration Rules, and judgement on the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The arbitration will occur
at the offices of the American Arbitration Association nearest to the Insured Person
or the person claiming to be the beneficiary.
Doc. 7-1 at PAGEID 97.
In determining whether to compel arbitration, a court must first determine whether the parties
agreed to arbitrate. Stout v. J.D. Byrider, 228 F.3d 709, 714 (6th Cir. 2000). If they did, the court must
determine the scope of their agreement. Id. “[I]f the court concludes that some, but not all, of the
claims in the action are subject to arbitration, it must determine whether to stay the remainder of the
proceedings pending arbitration.” Id.
Plaintiffs do not dispute the validity and enforceability of the arbitration provision. In fact,
plaintiffs concede in their response brief that Counts II and III are contests to the denial of their
claims for the survivor’s benefit and therefore must be arbitrated. See Doc. 13 at PAGEID 135.
However, plaintiff DeFrank argues that Count I is not subject to arbitration because it does
not relate to a claim denial. DeFrank’s claim for the accidental death benefit was paid out in full. In
her view, the claim of bad faith in Count I concerns the manner in which ASIC handled her claim.
The court finds that Count I is covered by the arbitration clause. As presented in the
complaint, the bad faith claim is based on the delay of payment – specifically the “1 year, 3 weeks, and
3 days” that it took for ASIC to “begrudgingly” pay the accidental death benefit. Compl., ¶ 55. The
complaint alleges that under the Policy, “ASIC agreed to pay the Accidental Death Benefit
‘immediately upon receipt of written Proof of Loss that is acceptable to Us.’” Id., ¶ 46 (quoting the
Policy; emphasis added in the complaint). It further alleges that DeFrank immediately submitted
acceptable proof of loss but ASIC conducted an unwarranted, one-year investigation. Id., ¶ 48. Thus,
the basis of the bad faith claim is that ASIC denied payment for over one year. See id., ¶ 58 (alleging
that ASIC acted in bad faith “through its foot-dragging”).
Under these circumstances, the bad faith claim amounts to a contest about a claim denial that
occurred for a one year period. The delay represents ASIC’s denial of the immediate payment to
which the DeFrank alleges she was due under the terms of the Policy. The actionable conduct is
ASIC’s refusal to timely pay the benefit, and the delay should be treated like a denial.
To the extent there is any doubt whether the bad faith claim is a contest to a claim denial, the
court must resolve the doubt in favor of arbitration. Moses H. Cone., 460 U.S. at 24-25. This was
course taken in the case of Morgan v. Atlantic Specialty Insurance Co., No. 2:17-cv-167, 2018 U.S. Dist.
LEXIS 181503 (S.D. Miss May 21, 2018). Morgan, as here, dealt with a policy issued by OneBeacon,
and later assumed by ASIC, that had an arbitration clause which covered “any contest to a claim
denial.” Plaintiff brought claims for breach of contract and bad faith. ASIC’s alleged bad faith was
in its delay as it sought additional information and conducted further investigation. Plaintiff (wishing
to avoid arbitration) argued that his dispute did not relate to a claim denial because the insurer had
not officially denied his claim; rather, it closed its file. The court found that construing the bad faith
claim as merely an alleged delay in payment did not help plaintiff because the delay was tantamount
to a temporary denial of payment. Morgan, 2018 U.S. Dist. LEXIS 181503 at **14-15. The court held
that any doubts about whether ASIC’s bad faith conduct was a claim denial should be resolved in
favor of arbitration. Id.
So too here, plaintiff DeFrank’s bad faith claim reflects her contest to ASIC’s refusal to grant
her insurance claim at the time which she contends ASIC was contractually obligated to pay her. Her
dispute is covered by the Policy’s arbitration clause.
IV. Conclusion
Accordingly, defendant’s motion to compel arbitration (doc. 11) is granted. The court will
stay the proceedings while the parties submit plaintiffs’ claims to arbitration. The parties shall file a
status report with the court within 30 days of the conclusion of the arbitration proceedings.
s/ James L. Graham
JAMES L. GRAHAM
United States District Judge
DATE: July 7, 2020