In a recent dispute involving a crop insurance policy, the Texas Supreme Court held that an independent insurance agency could not compel arbitration of certain claims brought against it in state court by an insured (JJ Farms) where the agency was not a signatory to the operative arbitration agreement in the subject policy.

The dispositive issue the Texas Supreme Court addressed was the question of arbitrability, on which the court decided the trial court was charged with determining whether a valid arbitration agreement existed because there was no clear and unmistakable evidence that JJ Farms agreed to arbitrate arbitrability with non-signatories such as the agency. Therefore, the Texas Supreme Court reviewed the decision on arbitrability de novo.

On de novo review, the court assessed under a myriad of legal theories whether the underlying arbitration agreement between the insurer (R&H) and JJ Farms allowed for arbitration of disputes with non-signatories. First, the court concluded the insurance policy's arbitration agreement did not require arbitration with non-signatories because the plain terms limited disagreements to be arbitrated to only those between the insured and insurer. Second, the court rejected an agency theory of arbitrability because R&H did not exercise control over the agency. Third, the court declined to confer third-party beneficiary status upon the agency because the insurance contract did not facially benefit it, nor did any language in the federal statute governing crop insurance grant third-party beneficiary status to insurance agents. Fourth, the court considered and ultimately discarded both direct-benefits estoppel, because the insurance policy did not impose duties or obligations on the agency, and alternative estoppel, because even though JJ Farms's claims were intertwined with the insurance policy the relationship between R&H and the agency was insufficiently close to infer consent by JJ Farms to arbitrate the dispute.

Jody James Farms, JV v. The Altman Grp., Inc. , No. 17-0062 (Tex. May 11, 2018).

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