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Dms Services, Inc. et al v. the Superior Court of Los Angeles County

May 15, 2012

DMS SERVICES, INC. ET AL., PETITIONERS,
v.
THE SUPERIOR COURT OF LOS ANGELES COUNTY, RESPONDENT; ZURICH SERVICES CORP. ET AL., REAL PARTIES IN INTEREST.



(Super. Ct. No. EC055245) ORIGINAL PROCEEDINGS in mandate. Donna Fields Goldstein, Judge.

The opinion of the court was delivered by: Perluss, P. J.

CERTIFIED FOR PUBLICATION

Petition granted in part and order to show cause discharged in part.

DMS Services, LLC, Diversified Maintenance Services, Inc., DMS Facility Services, LLC and DMS Facility Services, Inc. (collectively DMS) petitioned this court for a writ of mandate seeking to vacate the trial court's order compelling arbitration of its cause of action for breach of contract and related claims against Zurich Services Corporation (ZSC), the third party administrator for DMS's workers' compensation insurance claims, and its cause of action for declaratory relief against Zurich American Insurance Company and American Zurich Insurance Company (collectively Zurich Insurance). The court ordered arbitration of each of those claims based on an arbitration clause in DMS's workers' compensation insurance agreements with Zurich Insurance. Even though ZSC was not a signatory to the insurance agreements, the court concluded ZSC could compel arbitration under the doctrine of equitable estoppel. Because DMS is not an agent or alter ego of Zurich Insurance and its claims against ZSC are not founded upon, or inextricably intertwined with, the insurance agreements containing the arbitration provision, the trial court erred in compelling arbitration of the claims against ZSC under equitable estoppel principles. Accordingly, we grant the petition as to DMS's claims against ZSC. Because DMS's declaratory relief claim against Zurich Insurance was included for protective purposes only, we discharge as improvidently granted the order to show cause directed to the order compelling arbitration of that claim.

FACTUAL AND PROCEDURAL HISTORY

1. DMS's Deductible Agreements with Zurich Insurance

DMS is in the business of providing commercial janitorial services. From 2005 through 2011 DMS annually purchased workers' compensation insurance policies from Zurich Insurance. Those policies did not contain an arbitration clause. However, Zurich Insurance also required DMS to sign annual deductible agreements, which purported to supersede any deductible endorsement to the workers' compensation policies. Those ancillary agreements contained an arbitration provision mandating any dispute arising out of the interpretation, performance or alleged breach of the policy agreement to be settled by binding arbitration in Illinois administered by the American Arbitration Association.

2. DMS's Claims Administration Contract with ZSC

During the same period, that is, from 2005 through 2011, DMS annually contracted with ZSC to act as a third party administrator for workers' compensation claims filed under the Zurich Insurance policies. Among other things, ZSC was responsible for reviewing claims and loss reports; investigating all qualified claims; creating and maintaining claim files; and adjusting, settling or defending claims. None of DMS's agreements with ZSC contained an arbitration clause.

3. Zurich Insurance's Arbitration Demand Seeking Monies Owed Under Policies

In February 2011 Zurich Insurance initiated arbitration proceedings against DMS before the American Arbitration Association (the AAA arbitration) pursuant to the arbitration provision in its deductible agreements with DMS. Zurich sought more than $3.5 million in payment from DMS for premiums and reimbursement of workers' compensation insurance claim deductibles.

On March 18, 2011 DMS filed a request for action with the Department of Insurance seeking an administrative ruling the deductible agreements, including the arbitration provision contained in them, were invalid because they had not been filed with and approved by the Department of Insurance in accordance with Insurance Code section 11658.*fn1

4. DMS's Action Against ZSC for Breach of the Claims Administration Agreement and Against Zurich Insurance for Declaratory Relief

On March 22, 2011 DMS filed the instant action against ZSC, asserting claims for breach of contract and tortious breach of the implied covenant of good faith and fair dealing. DMS alleged ZSC had breached its obligations as a third party administrator by mishandling claims made against the policies, causing DMS to overpay several claims. Anticipating ZSC's assertion the dispute was subject to the arbitration provision contained in the deductible agreements, DMS's complaint also included a cause of action for declaratory relief against Zurich Insurance seeking a ...


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