Credit Life Insurer Denied Arbitration Based Upon Arbitration Provision In A Loan Agreement

A federal appellate court recently held, under Georgia law, that a credit life insurer could not compel arbitration based upon an arbitration provision in a loan agreement to which it was not a party. The majority opinion in Lawson v. Life of the South Ins. Co., 648 F.3d 1166 (11th Cir. 2011), held the facts did not support the insurer's attempt to compel arbitration under the loan agreement as a third-party beneficiary or based upon equitable estoppel. Of particular note is the concurring opinion by Judge Pryor which endorsed dicta from the Georgia Supreme Court's opinion in Love v. Money Tree, Inc., 614 S.E.2d 47 (Ga. 2004), over an express reading of O.C.G.A. § 9-9-2(c)(3), to declare all "insurance disputes" off limits for arbitration.

The Lawsons financed the purchase of a vehicle through a loan from the dealership. The loan agreement between the Lawsons and the dealership ("Loan Agreement") contained an arbitration provision which stated, in part, "[i]f any Dispute arises, either you or we may choose to have the Dispute resolved by binding arbitration."

The Loan Agreement gave the Lawsons the option to purchase credit life insurance through a one-time, up-front payment included in the total amount financed under the Loan Agreement. The Lawsons checked a box on the Loan Agreement to purchase the optional credit life insurance and obtained a separate credit life insurance policy with Life of the South Insurance Company ("Policy"). The Policy did not contain an arbitration provision.

The Policy stated that if the Lawsons paid off the loan early, they would be eligible for a refund of any remaining unearned premium paid for the credit life insurance. The Lawsons paid off the loan two-and-a-half years early, but Life of the South failed to refund the unearned amount of the premium paid by the Lawsons.

As a result of Life of the South's failure to pay the Lawsons the unearned premium, the Lawsons filed a nationwide class action against Life of the South, seeking contract and tort damages and injunctive relief. In response, Life of the South moved to compel arbitration based upon the arbitration provision in the Loan Agreement. The U.S. District Court for the Middle District of Georgia denied Life of the South's motion to compel arbitration on the ground that Georgia law prohibits arbitration of "insurance disputes." Lawson v. Life of the South Ins. Co., 2010 WL 1416551, at *4-6 (M.D. Ga. Mar. 31, 2010) (citing O.C.G.A. § 9-9-2(c)(3)).

The...