Is a Binder Binding? Yes, Says Alabama Supreme Court in Win for Arbitration Clauses

Is a binder binding, even if the property owner never received the insurance policy? Yes, it is, the Alabama Supreme Court decided last week in a case that marks another win for insurers relying on binding arbitration agreements.

When Francine Pickett’s mobile home in Pine Hill, in rural southwest Alabama, caught fire in 2022, she ended up suing two carriers and her insurance agent, arguing that they had all acted with negligence, bad faith or even fraud: One insurer had canceled her policy without notifying her, and what she thought was her new carrier had refused to pay the fire claim because the previous policy had been canceled for lack of premium payments, Pickett said in her lawsuit complaint.

American Bankers Insurance Co. of Florida, which held the mobile home policy from 2019 to 2022, pointed to its binding arbitration clause, requiring that the dispute be heard by an arbitrator, not a court of law. American Bankers is one of a growing number of Florida-based insurers building arbitration into their policies – as well as pre-policy documentation. Others include American Integrity Insurance, also domiciled in Florida. Florida’s insurer of last resort and the state’s largest carrier, Citizens Property Insurance Corp., now requires an option of hearing claims disputes by administrative law judges at a state agency, a resolution method similar to arbitration.

In the American Bankers’ Alabama case, a circuit court in Wilcox County found in the policyholder’s favor, noting that the arbitration agreement was part of the insurance policy, a policy the trailer owner said she never saw.

“Due to no policy or arbitration agreement ever being delivered to the plaintiff in 2022, Francine Pickett was never able to exercise her option, as set out in defendant American Bankers of Florida’s application, to inspect the policy and arbitration agreement in the first three days of delivery and determine whether she wanted to keep the policy or purchase a policy from another carrier,” the circuit court judge noted.

But on appeal, American Bankers argued that while Pickett may not have received the actual policy, she did receive a temporary binder of information. That binder was essentially a contract and it mentioned the arbitration requirement. A party can assent such an agreement without a signature, said American Bankers, which is part of the Assurant brand.

“Here, Pickett accepted the binder, never rejected it, and has now sued [American Bankers] for damages under it. She ratified her acceptance of it with her claims against [American Bankers]. And so her signature is not required; her assent is evident,” the insurer’s attorneys said in court.

American Bankers also argued that Pickett had also agreed to arbitration under the rules of case law handed down in previous decisions by the Alabama Supreme Court. In a 2013 case, also involving American Bankers of Florida, the court found that “even when an insured claims to have ‘never … received the written policies containing the [arbitration] provisions,’ an insured is still bound to arbitrate if the insured makes a claim against the insurer that relies on the policy.”

And in a 2004 decision, the high court reasoned that by simply utilizing the insurance policy, the insured makes him or herself subject to an arbitration provision, American Bankers argued.

The state Supreme Court last week agreed with American Bankers’ arguments. The justices found that while Pickett utilized the policy, she can’t then refuse to adhere to it.

“A plaintiff cannot seek the benefits of a contract but at the same time avoid the arbitration provision in the contract,” the court wrote in the Feb. 14 decision, citing a 2003 court opinion.

The Pickett decision, written by Justice Kelli Wise, notes that the binder sent by the insurance company was enough of a contract. “Pickett’s claims against American Bankers arise from and rely on the binder. Accordingly, Pickett cannot claim the benefits of the binder while also repudiating its terms and conditions. Therefore, the trial court erred when it denied American Bankers’ motion to compel.”

The high court reversed the trial court and remanded the case for further proceedings on American Banker’s motion to compel arbitration.

The attorney representing American Bankers, Nick Hoisington, could not be reached for comment. In his brief to the court, Hoisington summed up the insurer’s argument: “Pickett has one option to avoid arbitration: She can dismiss her claims against ABIC (American Bankers) with prejudice.”

If she keeps her claims, it is because she has assented to the binder and her policy, Hoisington wrote. And by assenting, she validates the arbitration provision.

The lawyer for Pickett, Amanda Cook, declined to comment because Pickett’s related lawsuits are still pending — against the insurance agency, Davison Insurance Agency, which advised Pickett on obtaining coverage for her home; and against American Modern Property and Casualty Insurance Co., the carrier that denied Pickett’s fire claim.

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