A Texas appellate court determined that an insurance company's inclusion of an agreement to arbitrate in a homeowners insurance policy was valid and enforceable because insured was charged with knowledge of the policy terms and conditions.

In In re Farmers and Ranchers Mutual Insurance Co., No. 04-08-00128-CV, 2008 WL 2133116 (Tex. App. May 21, 2008), Farmers issued a homeowners insurance policy to DeLeon. Following, DeLeon sued Farmers for breach of contract after a dispute arose about a claim he made under the policy.

Farmers moved to compel arbitration pursuant to the arbitration agreement in the policy. The lower court denied the motion. Farmers filed a motion for a writ of mandamus. The Court noted that a party seeking to compel arbitration must establish the existence of a valid arbitration agreement that covers the claims asserted.

Once the party has satisfied this initial burden, the burden shifts to the party resisting arbitration to establish a defense to the obligation to arbitrate. The Court noted that as a preliminary matter, Farmers met its evidentiary burden to show the existence of an arbitration agreement. As evidence, Farmers submitted a sworn copy of the arbitration agreement in DeLeon's policy.

The Court rejected DeLeon's arguments that attempted to establish a defense to enforcing arbitration. The Court noted that since DeLeon's suit is based on the insurance policy, he cannot try to enforce all of the agreement except the arbitration provision. The Court also rejected DeLeon's argument that he did not sign the arbitration agreement. Texas law does not require that arbitration agreements be signed, so long as they are written and agreed to by the parties.

DeLeon also argued that he was not notified of the agreement to arbitrate. As the insured, DeLeon had a duty to read the policy and was charged with knowledge of the policy terms and conditions. Further, as to whether DeLeon was told about the agreement to arbitrate is irrelevant, given that the agreement to arbitrate appeared in the policy, DeLeon was charged with knowledge of the policy under the law.

The Court granted Farmer's writ of mandamus and ordered the lower court to compel arbitration.