The Alabama Supreme Court has held that an arbitration provision in homeowners’ policies is valid and enforceable. American Bankers Ins. Co. of Florida v. Tellis, 2015 WL 3935260 (Ala. June 26, 2015).

Multiple homeowners sued the same insurer, alleging that their premiums far exceed the value of the coverage because, even if the insured property was a total loss, they could not receive the full value of their policies. The insurer moved to compel arbitration under the Federal Arbitration Act and the policies’ mandatory arbitration provisions. The policyholders opposed, arguing that they never consented to the provision and that it was unconscionable. The trial court denied the motion to compel arbitration in each of the cases. The insurer appealed, and the appeals were consolidated.

The Alabama Supreme Court reversed, holding that the provisions were enforceable. It rejected the policyholders’ argument that they did not agree to the provision, holding that each manifested assent to the policies, including the arbitration provision, by accepting and acting upon the policies when they renewed coverage and paid premiums. Rejecting the argument that the insureds never received the proper forms containing the provision, the Supreme Court held that they had a duty to read the policy, including the declarations page which indicated that the arbitration provision was contained in the policy. It also held that the Federal Arbitration Act compelled arbitration because the policies – issued to Alabama residents by a Florida insurer – affected interstate commerce. Finally, it rejected the claim of unconscionability, holding that arbitration would not be more costly to the policyholders because, according to the provision’s terms, the costs would be paid by the insurer and the arbitration proceedings would be conducted in the county where each policyholder resided.