Non-Signatory to Agreement Can't Compel Arbitration
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In Alex Weingarten v. Certain Underwriters At Lloyd's, London Subscribing To Policy Number IML-0114N0-190029, B321148, California Court of Appeals, Second District, Fourth Division (March 23, 2023) Certain Underwriters at Lloyd's, London (Lloyd's
Underwriters) appealed from the trial court's order denying their motion to compel arbitration of plaintiff Alex Weingarten's complaint for breach of implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and negligent misrepresentation.
FACTUAL BACKGROUND
The Underlying Malpractice Action
In 2013, Adam Levin, Tristen Lazareff, and Criterion Capital Partners, LLC, retained Weingarten Brown LLP to defend them in the case entitled MXB Holdings LP, et al. v. Adam Levin, et al (the MXB action). The retainer agreement (the Levin/Weingarten retainer agreement) contained an arbitration provision.
Adam Levin and Criterion Capital Partners, LLC, filed an action in the Los Angeles Superior Court for legal malpractice and breach of fiduciary duty against Weingarten et al (the malpractice action). The complaint alleged Weingarten negligently represented the defendants in the MXB action. The parties later stipulated to arbitration before JAMS based on the arbitration provision in the retainer agreement. Weingarten notified Lloyd's Underwriters about the malpractice action, and Lloyd's Underwriters accepted the defense of the Weingarten defendants.
The arbitrator found in favor of Adam Levin and Criterion Capital Partners, LLC, and issued an award that exceeded Weingarten's insurance coverage.
The Bad Faith Action
Weingarten sued Lloyd's Underwriters for breach of the implied covenant of good faith and fair dealing, intentional infliction of emotional distress, and negligent misrepresentation. In the operative complaint (the SAC) Weingarten alleged Lloyd's Underwriters acted in bad faith in the malpractice action by, among other things, "[r]ejecting settlement within the policy limits..."
On January 31, 2022, Lloyd's Underwriters filed a motion to compel arbitration of the SAC based on the arbitration provision in the Levin/Weingarten retainer agreement. Weingarten opposed the motion, arguing: the insurance policy issued by Lloyd's Underwriters does not contain an arbitration provision; Lloyd's Underwriters are not intended, or third party, beneficiaries of the Levin/Weingarten retainer agreement; and the doctrine of equitable estoppel is inapplicable. After a hearing on the motion to compel arbitration, the trial court denied the motion.
DISCUSSION
Motion to Compel Arbitration
Lloyd's Underwriters contended that the trial court erred by denying their motion to compel arbitration based on the arbitration clause in the Weingarten/Levin retainer agreement. A third party beneficiary is someone who may enforce a contract because the contract is made expressly for his or her benefit. The terms of the contract must demonstrate the express intent to confer the benefit.
The Court of Appeal concluded that Lloyd's Underwriters were not third party beneficiaries of the Levin/Weingarten retainer agreement. The retainer agreement describes the scope of legal services to be provided by Weingarten's law firm to the defendants in the MXB action. Nothing in the retainer agreement demonstrates an express intent to benefit a third party-whether Lloyd's Underwriters specifically or any other insurance company generally.
The FAC does not assert claims against Lloyd's Underwriters that are based on the Levin/Weingarten retainer agreement; the claims are based on the insurance policy provided to Weingarten by Lloyd's Underwriters. The FAC, therefore, does not rely on or use any terms of the Levin/Weingarten retainer agreement as a foundation for its claims. Accordingly, the Court of Appeals concluded there was no basis in law or equity for preventing Weingarten from suing Lloyd's Underwriters in court.
Before referring a dispute to an arbitrator, the court determines whether a valid arbitration agreement exists. Thus, the trial court properly determined the threshold issue of whether the nonsignatory defendants (Lloyd's Underwriters) could compel the signatory plaintiff (Weingarten) to arbitrate his claims.
ZALMA OPINION
If the Lloyd's Underwriters wished to arbitrate disputes between themselves and their insureds it would have been easy to include in the contract of insurance an arbitration agreement like the agreement in the Weingarten retainer agreement. Although the Lloyd's Underwriters provided a defense to the malpractice agreement they refused a proposed settlement within the policy limits. Weingarten claims it was harmed because Lloyds' Underwriters failed to accept the settlement, a common bad faith claim. The attempt to compel arbitration was designed to avoid trial on the bad faith issue and, although creative, it did not have a basis in fact or law that the Court of Appeal was willing to accept.
(c) 2023 Barry Zalma & ClaimSchool, Inc.
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Barry Zalma, Esq., CFE, now limits his practice to service as an insurance consultant specializing in insurance coverage, insurance claims handling, insurance bad faith and insurance fraud almost equally for insurers and policyholders. He practiced law in California for more than 44 years as an insurance coverage and claims handling lawyer and more than 54 years in the insurance business. He is available at http://www.zalma.com and [email protected]
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Write to Mr. Zalma at [email protected]; http://www.zalma.com; http://zalma.com/blog; daily articles are published at https://zalma.substack.com. Go to the podcast Zalma On Insurance at https://anchor.fm/barry-zalma; Follow Mr. Zalma on Twitter at https://twitter.com/bzalma; Go to Barry Zalma videos at Rumble.com at https://rumble.com/c/c-262921; Go to Barry Zalma on YouTube- https://www.youtube.com/channel/UCysiZklEtxZsSF9DfC0Expg; Go to the Insurance Claims Library – https://zalma.com/blog/insurance-claims-library.
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Barry Zalma, Esq., CFE
is available at http://www.zalma.com and [email protected]
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In Madelaine Chocolate Novelties, Inc., d.b.a. The Madelaine Chocolate Company v. Great Northern Insurance Company, No. 23-212, United States Court of Appeals, Second Circuit (June 20, 2025) affirmed the trial court ruling in favor of the insurer.
BACKGROUND
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Foremost Insurance Company (“Foremost”) sued Michael B. Steele (“Steele”), Sarah Brown (“Brown”), and Kevin Lee Price (“Price”) (collectively, “Defendants”). Foremost sought declaratory relief in the form of a declaration that
1. it owes no insurance coverage to Steele and has no duty to defend or indemnify Steele in an underlying tort action and
2. defense counsel that Foremost has assigned to Steele in the underlying action may withdraw his appearance.
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ZIFL Volume 29, Issue 10
The Source for the Insurance Fraud Professional
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Zalma’s Insurance Fraud Letter (ZIFL) continues its 29th year of publication dedicated to those involved in reducing the effect of insurance fraud. ZIFL is published 24 times a year by ClaimSchool and is written by Barry Zalma. It is provided FREE to anyone who visits the site at http://zalma.com/zalmas-insurance-fraud-letter-2/ You can read the full issue of the May 15, 2025 issue at http://zalma.com/blog/wp-content/uploads/2025/05/ZIFL-05-15-2025.pdf
This issue contains the following articles about insurance fraud:
Health Care Fraud Trial Results in Murder for Hire of Witness
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Insurance Coverage Dispute:
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Immigrant Criminals Attempt to Profit From Insurance Fraud
People who commit insurance fraud as a profession do so because it is easy. It requires no capital investment. The risk is low and the profits are high. The ease with which large amounts of money can be made from insurance fraud removes whatever moral hesitation might stop the perpetrator from committing the crime.
The temptation to do everything outside the law was the downfall of the brothers Karamazov. The brothers had escaped prison in the old Soviet Union by immigrating to the United...
