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In affirming a lower court order denying a motion to compel arbitration, a Texas appellate court construed an arbitration agreement in a reinsurance contract as permissive rather than mandatory because the agreement used permissive language and expressly provided that either party could accept or reject the other party's request to arbitrate.
In Travelers Indemnity Co. v. Texas Municipal League Joint Self-Insurance Fund, No. 01-08-00062-CV, 2008 WL 2756874 (Tex. App. July 17, 2008), Travelers entered into a reinsurance agreement with Texas Municipal League (TML). TML is a joint insurance fund providing property, boiler, and machinery physical damage insurance for Texas participants.
The City of Bunker Hill Village (Bunker Hill) was one such participant. Bunker Hill made a claim to TML for damage to one of its water wells and TML covered the claim. TML made a claim for reinsurance to Travelers, but Travelers denied the claim.
TML filed suit against Travelers for breach of contract. Travelers filed a motion to compel arbitration pursuant to the dispute resolution provisions of the reinsurance agreement. The trial court denied the motion to compel arbitration.
On appeal, the Court highlighted that the reinsurance agreement used permissive language in the dispute resolution provisions. For example, the agreement stated that a party may seek to arbitrate any dispute. However, the agreement also stated that one party may accept or reject the other's party request for arbitration.
The Court further noted: "[I]f we were to hold that the arbitration provision here is mandatory, the language allowing a party to reject for arbitration would be meaningless, and we would be failing to give effect to all the provisions of the agreement."
Travelers cited different cases where Texas courts have previously held that arbitration agreements using permissive language can still be interpreted as requiring arbitration. The Court noted that the case at hand was distinguishable from those cases in many ways, mainly because none of the other cases had an explicit provision allowing one party to reject the other's request for arbitration.
The Court determined that the reinsurance agreement between the parties did not reflect intent to make arbitration the exclusive, mandatory remedy for dispute resolution. Since the arbitration agreement was not mandatory, the Court affirmed the lower court's denial of the motion to compel.
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