SUMMARY: In Schuiling v. Harris, 286 Va. 187 (2013), the Virginia Supreme Court ruled that a provision in an arbitration clause of an employment agreement stating that any disputes were to be resolved by arbitration administered by a specifically named entity was not unenforceable when the entity was no longer in existence at the time the dispute arose.
William Schuiling hired Samantha Harris to be his full- time, live-in housekeeper. As a condition of employment, Harris signed an arbitration agreement which required all claims, disputes, or controversies arising out of, or related to, her employment to be resolved “exclusively by arbitration administered by the National Arbitration Forum [“NAF”].”
Several years after the contract was entered into, Harris filed suit against Schuiling in Virginia state court alleging multiple torts, statutory violations, and breach of contract. Schuiling filed a motion to enforce arbitration, stating that the NAF was no longer available to administer the arbitration and requesting that the trial court appoint a substitute arbitrator. Harris opposed the motion, arguing that the NAF was exclusively designated as the arbitrator. She contended that the parties’ agreement to arbitrate was conditioned on the NAF conducting the arbitration. Since the NAF was unavailable, and since the agreement did not provide for the appointment of a substitute arbitrator, Harris argued the agreement was unenforceable. The trial court agreed. The Virginia Supreme Court granted Schuiling’s interlocutory appeal.
The Supreme Court reversed, concluding that the agreement’s severability clause required that the term providing that an arbitration was to be administered by the NAF could be severed from the agreement. In addition to the language of the severability clause itself, the court stated that the sole object of the entire agreement was to require arbitration. Since the agreement contained no other provisions that would survive failure of the arbitration requirement, a determination that the NAF’s designation was not severable would defeat the entire agreement.
The court also held that the parties were presumed to know that under Virginia law, the trial court was empowered to appoint an arbitrator when the method of arbitrator appointment in the agreement fails or cannot be followed.
The court stated that nothing in the agreement indicated that the parties contemplated the contingency that the NAF might be unavailable and intended the arbitration requirement itself to terminate if that contingency occurred. The court held that the inclusion of the word “exclusively” indicated nothing more than a designation of the single arbitrator to decide a dispute presuming that arbitrator would be available if called upon.
The court concluded that the severability clause reflected that the parties intended the NAF to be the exclusive arbitrator so long as it was available. If the NAF’s unavailability made its appointment unenforceable, however, the designation would be severed. The absence of a provision for the appointment of a substitute arbitrator indicates nothing more than the parties’ presumed knowledge that the Virginia Code provided the necessary mechanism for the appointment of an arbitrator.
IMPORT OF DECISION: Although this case does not involve a reinsurance agreement, its holding may be applicable to arbitrations under reinsurance contracts. It is not uncommon for a reinsurance agreement to provide that an arbitrator or umpire is to be selected by an organization specifically named in the agreement. It sometimes occurs that the organization is no longer in existence or may not be available to appoint an arbitrator. Most state arbitration statutes, as well as the Federal Arbitration Act, contain provisions authorizing courts to appoint arbitrators if the method provided in the arbitration agreement fails for any reason. This case is authority for the proposition that if the appointing entity is no longer available to appoint an arbitrator, the parties’ agreement to arbitrate remains enforceable, and a court may be requested to make the appointment.