Eleventh Circuit Prohibits Insurer from Arbitrating Class Action Refund Suit

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Lawson v. Life of the South Insurance Co. (11th Cir. (Ga.) Aug. 10, 2011)

The Eleventh Circuit recently rejected an insurer’s attempt to arbitrate a putative class action lawsuit charging the insurer with failing to refund unearned premiums to policyholders that paid off loans early.

Plaintiffs Barbara and Jerry Lawson purchased a used 2000 Chevrolet Blazer from a Georgia car dealership. The couple financed the purchase by entering into a loan agreement that granted them the right to pay off the loan early. The loan agreement contained a clause entitled “Agreement to Arbitrate Disputes” that provided that either the buyer or the car dealership could opt to resolve any dispute through binding arbitration.

The Lawsons then executed a credit life insurance policy with defendant Life of the South that provided that Life of the South would pay the balance the Lawsons owed on the car loan if either of the Lawsons died before the loan was paid off. The policy provided that Life of the South would refund any remaining premium if the loan was paid off early.

The Lawsons paid off their loan two-and-a-half years early and, without having requested a refund from Life of the South or notifying it that they had paid off the loan, filed a nationwide consumer class action against Life of the South. On behalf of themselves and the purported class, the Lawsons sought a refund of the unearned premium due under the insurance policy because of the early termination of the loan, as well as damages under several contract and tort theories.

Life of the South filed a motion to compel arbitration based on the arbitration clause in the loan agreement, which provided the car dealership and the Lawsons with the right to force arbitration of any dispute arising from or relating to that agreement. The district court denied the motion on the ground that Georgia law prohibits the arbitration of disputes involving insurance. The Eleventh Circuit affirmed, holding that “the loan agreement does not show, on its face or elsewhere, an intent to allow anyone other than the Lawsons, the car dealership, Chase Manhattan, and the assignees of the dealership or Chase Manhattan to compel arbitration of a dispute, and Life of the South is none of those.” In addition, the Eleventh Circuit rejected Life of the South’s argument that the doctrine of equitable estoppel applied. To this end, the Eleventh Circuit stated that the Lawsons’ claim did not arise directly out of the loan agreement which contained the arbitration agreement.

For a copy of the decision, click here

Carrie Appler and Dan Gerber