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Mundi v. Union Security Life Insurance Co.

February 11, 2009


Appeal from the United States District Court for the Eastern District of California Oliver W. Wanger, District Judge, Presiding D.C. No. CV 06-1493 OWW.

The opinion of the court was delivered by: Tashima, Circuit Judge


Argued and Submitted December 9, 2008 -- San Francisco, California

Before: A. Wallace Tashima, William A. Fletcher, and Marsha S. Berzon, Circuit Judges.


Union Security Life Insurance Company ("USLIC") appeals a decision of the district court denying its motion to compel arbitration in its dispute with Jasviro Mundi, the widow of Decedent Harnam S. Mundi. USLIC issued a life insurance policy to cover a loan taken out by Decedent. The life insurance policy did not contain an arbitration agreement; however, the loan agreement, to which USLIC was not a party, did contain an arbitration provision. The question, therefore, is whether USLIC may enforce the arbitration agreement, even though it is a nonsignatory to the agreement. We have jurisdiction pursuant to 9 U.S.C. § 16, and we affirm the district court's denial of USLIC's motion to compel arbitration.


In May 2004, Decedent and Gurdip S. Gill obtained a home equity line of credit from Wells Fargo Bank, memorialized in a document called the EquityLine Agreement. Section 25 of the EquityLine Agreement required that "any dispute between me and the Bank, regardless of when it arises or arose, will be settled using the following procedures." The arbitration provision provided as follows:

A dispute is any unresolved disagreement between the Bank and me that relates in any way to accounts, loans, services or agreements subject to this Arbitration provision. It includes any claims or controversy of any kind, which arise out of or are in any way related to these accounts, loans, services or agreements. It includes claims based on broken promises or contracts, tort (injury caused by negligent or intentional conduct), breach of fiduciary duty or other wrongful actions. It also includes statutory, common law and equitable claim [sic]. A dispute also includes any disagreement about the meaning of this Arbitration Section and whether a disagreement is a "dispute" subject to binding arbitration as provided for in this Arbitration Section. No dispute may be joined in an arbitration with a dispute of any other person or arbitrated on a class action basis. Furthermore, I agree that any arbitration I have with the Bank shall not be considered with any other arbitration and shall not be arbitrated on behalf of others without the consent of both me and the Bank.

In conjunction with the line of credit, Decedent purchased credit insurance in the amount of $50,000 to cover the amount of the loan. The charges for the insurance were added to the amount of the loan each month. Wells Fargo was the creditor beneficiary of the insurance - the insurance certificate provided that claim payments would be made to the creditor beneficiary "to pay off or reduce your debt." The certificate contained two questions in a medical application section, and it stated that the life insurance would not be paid if death resulted from a pre-existing condition. The certificate further provided that the insurance would stop on the date the loan stopped, or on the date that the borrower was in default.

Following Decedent's death, Mundi filed a claim with USLIC, asking the insurer to pay the $50,000 amount that was outstanding on the line of credit. USLIC denied the claim, stating that Decedent had answered "no" to the medical questions on the insurance application, even though he did have treatment for at least one of the pre-existing conditions listed on the application. USLIC explained that it would not have issued coverage if it had been aware of Decedent's complete medical history and therefore denied coverage. Decedent's death was not the result of any of these pre-existing conditions.

Mundi filed a complaint in state court, alleging that she had been damaged by USLIC's refusal to pay the $50,000 to Wells Fargo and that USLIC acted in bad faith by unreasonably denying the claim. She sought to recover the costs that she had incurred and sought punitive damages.

USLIC removed the action to federal court and filed a motion to compel arbitration. The district court reasoned that, even though the insurance was purchased in order to repay the loan, Mundi's claims did not in any other way involve the terms of the EquityLine Agreement. The court further reasoned that the arbitration provision excluded the arbitration of claims of third parties and that USLIC was not an ...

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