Insurer can’t compel arbitration in school sex abuse case

A California appeals court has upheld a lower court’s ruling denying an insurer’s motion to compel arbitration in a coverage dispute involving a school sex abuse case.

Los Angeles Unified School District faced claims alleging its negligence had caused hundreds of students to be repeatedly exposed to abuse by two teachers working at Miramonte Elementary School, according to Wednesday’s ruling by the California Court of Appeals in Los Angeles in Los Angeles Unified School District v. Safety National Casualty Corp.

In September 2015, the Los Angeles Unified School District sued 27 insurance companies, including St. Louis-based Safety National, that had issued it more than 100 primary or excess liability insurance policies spanning the years between 1975 and 2012, according to the ruling.

The school district, which sought more than $200 million in damages, charged the insurers with breach of contract and breach of covenant of good faith and fair dealing for refusing to provide coverage in the case, according to the ruling.

Safety National’s policy contained an arbitration clause, and the insurer filed a motion to compel arbitration and to dismiss or stay the action against it.

The trial court denied the motion to compel arbitration, which the state appeals court panel upheld. The insurer had contended the Federal Arbitration Act applied as a matter of law to the parties’ dispute, said the ruling.

“Many cases have discussed whether and when the FAA’s procedural provisions apply in state courts,” said the ruling. “In this case, however, there is no agreement to abide by state rules, and no agreement to abide by FAA procedural rules.

“Instead, the agreement is completely silent, with no terms mentioning or alluding to the FAA, California law, or any other state law or rules or procedure,” the ruling says.

“Under these circumstances, we hold the principles discussed in (a previous case) compel the conclusion that California procedure applies in California courts,” said the ruling.

“Where, as here, the parties do not ‘expressly designate that any arbitration proceeding should move forward under the FAA’s procedural provisions rather than under state procedural law’ … California procedures necessarily apply,” said the ruling, quoting the earlier case, and denying the insurer’s motion.