                       IN THE SUPREME COURT OF MISSISSIPPI

                                  NO. 2003-CA-01367-SCT

GULF INSURANCE COMPANY

v.

NEEL-SCHAFFER, INC.


DATE OF JUDGMENT:                           05/23/2003
TRIAL JUDGE:                                HON. DENISE OWENS
COURT FROM WHICH APPEALED:                  HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT:                    SHERYL BEY
                                            DOUGLAS A. MANGEL
                                            BRIAN A. COLEMAN
ATTORNEYS FOR APPELLEE:                     ROY H. LIDDELL
                                            ROBERT JAMISON BAREFIELD, JR.
NATURE OF THE CASE:                         CIVIL - CONTRACT
DISPOSITION:                                REVERSED AND REMANDED - 12/09/2004
MOTION FOR REHEARING FILED:
MANDATE ISSUED:



       BEFORE COBB, P.J., CARLSON AND RANDOLPH, JJ.

       CARLSON, JUSTICE, FOR THE COURT:

¶1.    Gulf Insurance Company (“Gulf”) appeals from a chancery court order denying its

Motion to Compel Arbitration filed against Neel-Schaffer, Inc. (“Neel-Schaffer”).   The motion

was based on an arbitration clause contained in the insurance contract between Gulf and Neel-

Schaffer. From that same order, Gulf also appeals the chancellor’s preliminary injunction

which enjoined the then-pending arbitration proceedings in New York. Finding that the

chancellor erred in denying the motion to compel arbitration, this Court reverses the judgment
entered by the Chancery Court of the First Judicial District of Hinds County and remands this

case for further proceedings consistent with this opinion.

                  FACTS AND PROCEEDINGS IN THE CHANCERY COURT

¶2.     Neel-Schaffer entered into an insurance contract with Gulf by which Gulf agreed to

provide employment-related practices liability insurance (“EPLI”) coverage for claims made

against Neel-Schaffer and reported to Gulf during the period from August 1, 2000, to April 1,

2001. This was the fourth consecutive EPLI contract between the two parties. As in the prior

three policies, Section VI of the Policy provided:

        We have no duty to provide coverage under this Policy unless there has been full
        compliance with all the Conditions contained in this Policy:

        A.      Arbitration. Any controversy arising out of or relating to this Policy or
                its breach shall be settled by binding arbitration in accordance with the
                rules of the American Arbitration Association. The arbitration panel will
                consist of three (3) arbitrators. One of the arbitrators will be chosen by
                you and one arbitrator will be chosen by us. Those two arbitrators will
                then choose the third arbitrator. Unless the parties otherwise agree,
                within thirty (30) days of the parties submitting their case and related
                documentation, the arbitration panel will issue a written decision
                resolving the controversy and stating the facts reviewed, conclusions
                reached, and the reasons for reaching those conclusions. The arbitration
                panel may make an award of Compensatory “Loss”, but may not award
                punitive or exemplary “Loss”. The decision of the arbitration will be
                final and binding on both parties in any court. You will bear the expense
                of the arbitrator chosen by you. We will bear the expense of the
                arbitrator chosen by us. You and we will share equally the expense of
                the other arbitrator. The arbitration panel will allocate any remaining
                costs of the arbitration proceeding.

(emphasis in original).




                                                     2
¶3.        In September 2000, one of Neel-Schaffer’s female employees discovered a camera

mounted underneath her desk, pointed chair-level.1             According to Neel-Schaffer’s complaint,

a company supervisor admitted to placing the camera under the desk but “strenuously denied”

any improper motive.         Following an internal investigation, Neel-Schaffer decided to retain the

supervisor, whereupon the female employee refused to work at Neel-Schaffer and alleged that

she was constructively discharged as of October 26, 2000. Subsequently, this employee

demanded $500,000 to settle her claims.

¶4.        On November 10, 2000, notice of this claim was received by Gulf’s agent, Rockwood

Programs, Inc., from Neel-Schaffer’s insurance agent, Pittman Insurance & Bonding, Inc.,

d/b/a Pittman, Seay & Turner (Pittman). Responding on November 22, 2000, Gulf agreed to

treat the settlement demand as a “claim” under the policy, and further agreed to engage counsel

and defend that claim subject to reservation of rights under the policy.               Gulf also set forth

several coverage defenses potentially applicable to the claim.

¶5.        The female employee filed a formal Charge of Discrimination against Neel-Schaffer

with the Equal Employment Opportunity Commission (EEOC) on November 21, 2000.

Shortly afterwards, the employee and Neel-Schaffer agreed to participate in private mediation.

¶6.        In anticipation of that mediation, and to avoid subsequent coverage litigation, Gulf and

Neel-Schaffer attempted to negotiate an acceptable contribution agreement. There is a dispute

as to whether a contribution agreement was actually reached; however, since this dispute is




           1
            Although the female employee is named in the record, we see no reason to reveal her name in this
opinion.

                                                       3
irrelevant to our discussion of the issues before us, we will not discuss the facts surrounding

the efforts to negotiate a contribution agreement.

¶7.     On March 21, 2001, Neel-Schaffer and its employee reached an agreement to settle her

claim for $215,000. Both Neel-Schaffer and Gulf dispute the nature of the settlement

payment. Neel-Schaffer alleged that the money was “compensatory damages”, that it paid it in

full, and that it should receive full reimbursement from Gulf because the payment is covered

under the Policy.       In accordance with the arbitration provision, Gulf filed a Demand for

Arbitration against Neel-Schaffer with the American Arbitration Association (“AAA”) on May

30, 2001. The parties disagreed as to the appropriate locale for the arbitration.               The Demand

was filed in New York, and Neel-Schaffer moved to transfer the arbitration proceedings to

Mississippi. 2   By letter dated October 12, 2001, the AAA determined that the arbitration

should go forward in New York.

¶8.     On October 22, 2001, Neel-Schaffer filed the instant Complaint for Declaratory

Judgment and Injunctive and Other Relief in the Chancery Court of the First Judicial District

of Hinds County, against Gulf as well as its insurance agent, Pittman, and Pittman’s successors,

Bancorpsouth Bank and Bancorpsouth Insurance Services, Inc. (collectively “Pittman”). Neel-

Schaffer alleged that its claims fell outside the scope of the arbitration provision. Neel-

Schaffer sought a chancery court declaration regarding coverage and the propriety of the


        2
          At one point, Gulf argued to the trial court that by objecting to the locale Neel-Schaffer implicitly
waived any objections to arbitration. However, while objecting to the locale, Neel-Schaffer specifically
reserved all rights to object to arbitration. In fact, in a letter dated October 5, 2001, Neel-Schaffer, through
counsel, requested that the arbitration proceedings be transferred to Jackson, Mississippi, or alternatively, to
Nashville, Tennessee; however in the last paragraph of the two-page letter, we find this language in italics:
“In submitting this argument concerning locale, Neel-Schaffer hereby reserves, and does not waive,
its objection to arbitrability of this dispute.”

                                                       4
arbitration provision as well as an order enjoining the AAA proceedings in New York. Neel-

Schaffer further set forth four counts against Gulf, seeking, inter alia, $250,000 in

compensatory damages and $10 million in punitive damages due to Gulf’s alleged wrongful

refusal to provide coverage for the settlement.3

¶9.     That same day, Neel-Schaffer applied for and received, ex parte, a temporary restraining

order from the chancery court thus enjoining the arbitration. The chancellor set a hearing for

October 30, 2001, on Neel-Schaffer’s request for preliminary injunctive relief.4                   On October

26, 2001, Gulf filed a Notice of Removal with the U.S. District Court for the Southern District

of Mississippi, Jackson Division, as well as a notice with the chancery court; therefore, the

scheduled October 30th chancery court hearing did not occur. Thereafter, on February 1, 2002,

the federal district court entered an order remanding this case back to state court.

¶10.    On October 18, 2002, Gulf filed a Motion to Compel Arbitration, requesting that Neel-

Schaffer’s claims be referred back to the then-stayed AAA arbitration and that the complaint

be dismissed. Both parties filed several responses in support of their respective positions. The

chancellor heard arguments on March 3, 2003. Since the issues raised by the parties were

basically identical, the parties agreed that the chancery court’s ruling on the motion to compel

would also dispose of Neel-Schaffer’s earlier motion for injunctive relief.



        3
          The four claims: Negligence, Breach of Contract, Tortious Breach of Contract and Breach of
Fiduciary Duty. The Negligence count was also directed against Pittman, from which Neel-Schaffer seeks
recovery of initial defense expenses incurred in the underlying lawsuit for the alleged failure to report timely
the claim to Gulf. Parenthetically, since the issue is not raised in this appeal, we will not address the propriety
of this action being commenced in chancery court as opposed to circuit court. As revealed in the transcript
of the chancery court proceedings, the appellate briefs, and oral arguments before this Court, Neel-Schaffer
fervently asserted that it was entitled to relief based on the chancery court’s “broad equitable powers.”

        4
         The motion for a preliminary injunction was filed four days later on October 26, 2001.

                                                        5
¶11.      By opinion and order on March 4, 2003, the chancery court denied Gulf’s request to

compel arbitration, and granted Neel-Schaffer’s motion for preliminary injunction enjoining

the arbitration proceedings. Subsequently, Gulf filed a Motion to Reconsider or, In the

Alternative, to Clarify Ruling and Certify for Appeal. A revised Opinion and Order was

rendered on May 23, 2003.

¶12.      The chancery court granted Gulf’s motion to certify its order as final for appeal

purposes pursuant to Miss. R. Civ. P. 54(b), and Gulf thus filed its notice of appeal. In today’s

appeal, by asserting that the chancery court erred in denying its motion to compel arbitration,

and by granting Neel-Schaffer’s motion for a preliminary injunction, Gulf raises the following

issues:

          I.     A valid and enforceable agreement to arbitrate exists between
                 Gulf and Neel-Schaffer under the Federal Arbitration Act;
          II.    Neel-Schaffer’s claims are encompassed by the arbitration
                 agreement;
          III.   The punitive damages waiver is a remedy limitation, not a
                 limitation on the scope of the parties’ agreement to arbitrate;
          IV.    Even if the arbitration agreement is ambiguous as to its scope, the
                 Federal Arbitration Act compels that arbitration be ordered; and,
          V.     Even if claims for punitive damages are not subject to mandatory
                 arbitration, Neel-Schaffer’s complaint is still arbitrable.

On the other hand, Neel-Schaffer states the issues as follows:

          I.     The arbitration provision contained in the policy is invalid,
                 unenforceable, void as against public policy, and Gulf should be
                 equitably estopped from relying on any agreement to arbitrate;
          II.    Even if the arbitration provision is found to be valid, Neel-
                 Schaffer’s claims against Gulf fall outside the scope of the
                 arbitration agreement contained in the policy;
          III.   Punitive damage claims are also beyond the scope of the
                 arbitration agreement;
          IV.    The arbitration provision contained in the policy is substantively
                 unconscionable; and,


                                                   6
        V.      Neel-Schaffer has not waived its right to object to arbitration.

We will restate the issues as they are discussed.

                                              ANALYSIS

¶13.    We review de novo the trial court’s grant or denial of a motion to compel arbitration.

East Ford, Inc. v. Taylor, 826 So.2d 709, 713 (Miss. 2002) (citing Webb v. Investacorp, Inc.,

89 F.3d 252, 256 (5th Cir. 1996)).

¶14.    The chancellor’s initial opinion and order of March 4, 2003, held that the arbitration

provision was ambiguous based on the fact that claims involving punitive damages fell outside

its scope. Citing an official opinion rendered by the Mississippi Attorney General and the

Mississippi Department of Insurance policy, the chancery court held that the provision was

contrary to state law.        The chancery court noted that the policy forms at issue were

inadvertently approved by the Mississippi Department of Insurance and that Gulf should not

be allowed to benefit from this error.

¶15.    Gulf filed a Motion to Reconsider or, in the Alternative, to Clarify Ruling and Certify

for Appeal. In this motion, Gulf discussed several potential errors with the ruling and cited a

recent decision by the Fifth Circuit in American Heritage Life Ins. Co. v. Orr, 294 F.3d 702

(5th Cir. 2002). The chancery court subsequently entered a second opinion in which it denied

Gulf’s motion but modified its original reasoning.         In its modified ruling, the chancery court

held that there was a valid arbitration agreement, but that the language concerning punitive

damages was ambiguous.         The chancery court reaffirmed that the claim for punitive damages

fell outside the scope of the arbitration agreement.       This second opinion and order also cited




                                                    7
Orr and discussed the McCarran-Ferguson Act, 15 U.S.C. § 1012(b).5 The parties refer to both

orders in their briefs.

¶16.    In determining whether to grant a motion to compel arbitration under the Federal

Arbitration Act, courts generally conduct a two-pronged inquiry. East Ford, 826 So2d at 713.

See also Sanderson Farms, Inc. v. Gatlin, 848 So.2d 828, 841-42 (Miss. 2003) (Cobb, J.,

dissenting). The first prong involves a determination of whether the parties agreed to arbitrate

the dispute in question.     Gatlin, 848 So.2d at 842.          There are two considerations under this

prong: whether there is a valid arbitration agreement and whether the parties’ dispute is within

the scope of the arbitration agreement.                Id. The second prong involves whether legal

constraints external to the parties’ agreement foreclose the arbitration of those claims. Id.

¶17.    The arguments on appeal raise two issues: whether the arbitration provision is

unenforceable under state law or public policy; and, if enforceable, did Neel-Schaffer’s claims

fall outside the scope of the arbitration provision.

        I.       WHETHER THE PARTIES AGREED TO ARBITRATE THE
                 DISPUTE IN QUESTION.

        A. Whether the Arbitration Agreement is Valid and Enforceable.

¶18.    The arguments regarding validity and enforceability of the arbitration provision revolve

around the Mississippi Department of Insurance’s (“MDI”) inadvertent approval of the policy

form at issue.6 As noted, the initial order relied on the MDI’s error as grounds for denying the


        5
        This second opinion and order is silent as to whether it rescinds or supplants the first opinion and
order which was entered.

        6
         The parties use the terms valid and enforceable interchangeably. These terms are not synonymous.
That said, it is not clear whether the following analysis regarding the MDI’s inadvertent approval is not more
properly considered under prong two (i.e., external legal constraints limiting the provisions’ enforceability).

                                                       8
motion to compel. In the second order, the chancery court did not mention this error. Instead,

it held that the arbitration provision was valid but ambiguous, and therefore the claim for

punitive damages fell outside of its scope. This Court shall thus determine whether the

arbitration provision is valid notwithstanding the MDI’s inadvertent approval. However, before

considering this issue, we must first address the dispute between the parties regarding the

controlling law.

¶19.    The error in question occurred on February 19, 1998, when the MDI approved the EPLI

policy form at issue.      At that time, it was MDI’s policy not to approve policy forms that

contained a mandatory arbitration provision. The form was approved despite this policy.

Although the record is less than clear on this point, we proceed on the premise that the same

form was resubmitted and approved annually until 2001. On August 24, 2001, Commissioner

of Insurance George Dale sent a letter informing Gulf that the form was inadvertently approved

and that the mandatory arbitration provision was against his and the MDI’s policy. He also

stated in this letter that he directed the MDI legal staff to initiate the formal disapproval

procedure pursuant to Miss. Code Ann. § 83-2-11(2) (Rev. 1999).7



Nevertheless, because both parties address this issue under the validity consideration incorporated in the first
prong, we shall also.

        7
         Section 83-2-11 provides as follows:

        (1) The commissioner shall disapprove a rate or policy form or endorsement if the
        commissioner finds that the rate is unjustified, or the policy form or endorsement:
                (a) Is in any respect in violation of or does not comply with this code; or
                (b) Contains or incorporates by reference any inconsistent, ambiguous or misleading
        clauses or exceptions and conditions which unreasonably or deceptively affect the risk
        purported to be assumed in the general coverage of the contract.
        (2) Disapproval procedure:
                (a) Upon disapproval of a filing, the commissioner shall issue an order specifying the
        manner in which the filing fails to meet the requirements of this chapter. The filer shall be

                                                       9
¶20.    The record before us does not reveal whether the formal disapproval procedure was

actually initiated and if so, its outcome. Under            § 83-2-11, the Commissioner is required to

issue an order specifying the results of the formal disapproval proceedings.                 Because none is

contained in the record and neither party refers to such order, we conclude that formal

disapproval proceedings were never completed. Gulf claims that the MDI and it agreed that

Gulf would modify future EPLI policies issued in Mississippi, effective December 2001.                      Gulf

claims the agreement was that it would change policies “on a going-forward basis.”8

Additionally, Gulf notes that the policy at issue- coverage beginning August 1, 2000 to April

1, 2001- was not affected by this resolution.




        given a hearing upon written request made within thirty (30) days after the disapproval order.
                 (b) If the commissioner disapproves a rate, policy form or endorsement
        currently in effect, the commissioner shall issue such an order only after a hearing
        held on not less than twenty (20) days written notice to the filing insurer or rating
        organization. The insurer or rating organization may waive the hearing. An order shall
        be issued within fifteen (15) days after the close of the hearing or within thirty (30)
        days after the filing of a waiver of hearing and shall specify in what respects the rates
        policy form or endorsement fail to meet the requirements of this chapter. The order
        shall also state when the further use of such policy form or endorsement or rate in
        contracts of insurance made thereafter shall be prohibited which shall be within a
        reasonable period of time, but not less than forty-five (45) days. The order may include
        a provision for premium adjustment for policies issued, renewed or nonrenewed after
        the effective date of such order.
        (3) Whenever an insurer has no legally effective rates as a result of the commissioner's
        disapproval of rates or other act, the commissioner on request of the insurer shall specify
        interim rates for the insurer that are sufficient to protect the interests of all parties and the
        commissioner may order that a specified portion of the premiums be placed in an escrow
        account approved by the commissioner. When new rates become legally effective, the
        commissioner shall order the escrowed funds or any overcharge in the interim rates to be
        distributed appropriately, except that refunds to policyholders that are de minimis shall not
        be required.

(emphasis added).

        8
         We interpret this to mean “prospectively.”

                                                       10
¶21.    Contained in the record is an affidavit accompanied by exhibits, all of which are sworn

to by Deputy Commissioner Lee Harrell.                 In his affidavit, Deputy Harrell addressed the

inadvertent approval. 9 The accompanying documents reveal that in “November/December 1998"

the MDI expressed its position to Gulf regarding mandatory arbitration provisions in insurance

policy forms.10        Neel-Schaffer advances several arguments based on the fact that after the

November/December 1998 notice, Gulf continued to submit a form that contained provisions

prohibited by MDI policy.

                 1.      Controlling Law: Federal Arbitration Act and
                         the McCarran-Ferguson Act.

¶22.    The parties dispute whether the Federal Arbitration Act (“FAA”) is controlling or

whether, pursuant to the McCarran-Ferguson Act, state law “reverse-preempts” the FAA. 11 Gulf

argues that the arbitration provision is enforceable under the FAA.                 See Federal Arbitration

Act, 9 U.S.C. § 1 et seq. Citing § 2 of the FAA, Gulf notes that a written arbitration provision

in a contract evidencing a transaction affecting commerce shall be “valid, irrevocable, and

enforceable,” unless recognized grounds exist to revoke the contract.                  Neel-Schaffer argues




        9
         Deputy Harrell stated that the MDI disagreed with any construction of the provision that effectuates
a waiver of punitive damages in direct actions by the insured against the insurer.

        10
           Gulf argues that it acted at all times in good faith. There is no indication that when MDI reiterated
its position regarding a mandatory arbitration provision, it was in response to or related to the specific
insurance policy form at issue.

        11
         The federal cases have utilized the doctrine of “reverse-preemption.” See Orr, 294 F.3d at 708.
In today’s case, this simply means that the allegation is that the later-enacted McCarran-Ferguson Act
preempted the earlier-enacted Federal Arbitration Act because of an alleged invalidation of Mississippi law
if the FAA were applied. Stated differently, the issue here is whether existing Mississippi law “reverse-
preempts” federal law.

                                                      11
that the arbitration provision is unenforceable based on the fact that it is contrary to “state law

as enacted by the State of Mississippi through the Mississippi Department of Insurance.”

¶23.    We briefly discuss the McCarran-Ferguson Act. The primary intent of Congress in

enacting McCarran-Ferguson was to ensure that the states would continue to have the ability

to tax and regulate the business of insurance. Group Life & Health Ins. Co. v. Royal Drug Co.,

440 U.S. 205, 217-19, 99 S.Ct. 1067, 1076-77, 59 L.Ed.2d 261 (1979). The Act provides in

relevant part:

        (a) State regulation. The business of insurance, and every person engaged
        therein, shall be subject to the laws of the several States which relate to the
        regulation or taxation of such business.

        (b) Federal regulation. No Act of Congress shall be construed to invalidate,
        impair, or supersede any law enacted by any State for the purpose of regulating
        the business of insurance, or which imposes a fee or tax upon such business,
        unless such Act specifically relates to the business of insurance[.]...

15 U.S.C. § 1012 (emphasis added). Neel-Schaffer’s argument requires that this Court find that

the MDI policy is the legal equivalent to state law as discussed under the Act. The local federal

district and circuit courts have rejected this arguments, and we do so as well.

¶24.    In so holding, we note that Neel-Schaffer’s argument is not altogether unreasonable.

Neel-Schaffer argues that in instances where a legislative branch has delegated its authority to

regulate to an administrative agency and where that agency is considered the final regulatory

authority, the agency’s regulations should be considered the legal equivalent to statutes.

Nevertheless, Neel-Schaffer presents no compelling argument as to why this Court should not

adopt the view held by the local federal courts.          Further reasoning to reject Neel-Schaffer’s




                                                    12
argument is the fact that the Act incorporates the term “enact.” The use of this term seemingly

denotes a legislative enterprise.12

¶25.      In American Heritage Life Ins., Co. v. Harmon, 147 F. Supp. 2d 511 (N.D. Miss.

2001), Chief Judge Davidson discussed the appropriate application of the McCarran-Ferguson

Act to arbitration cases:

          The McCarran-Ferguson Act is designed to clear the way for state laws
          regulating the business of insurance, by displacing any federal law that conflicts
          with such state laws. But McCarran-Ferguson applies only in the narrow range
          of cases involving state regulation of the insurance industry, [and] permits a state
          law to reverse preempt a federal statute only if: (I) the federal statute does not
          specifically relate to the "business of insurance;" (ii) the state law was enacted
          for the "purpose of regulating the business of insurance;" and (iii) the federal
          statute operates to "invalidate, impair, or supersede" the state law. Munich Am.
          Reinsurance Co. v. Crawford, 141 F.3d 585, 590 (5th Cir.1998).

          The Defendant's reverse preemption argument fails because the Defendant has
          failed to point to a single Mississippi state law that the FAA has purportedly
          invalidated, impaired, or superseded. Instead, the Defendant appears to argue that
          because Mississippi's Commissioner of Insurance is seemingly opposed to
          approving insurance policies that contain binding arbitration clauses,
          McCarran-Ferguson reverse preempts the FAA. The Fifth Circuit has made
          clear, however, that McCarran-Ferguson only permits state laws or statutes to
          reverse preempt federal statutes; informal policies of state officials may not do
          so. Munich Am. Reinsurance Co., 141 F.3d at 590. As such, the Defendant's
          claim of reverse-preemption fails and the McCarran-Ferguson Insurance
          Regulation Act is inapplicable.

147 F. Supp. 2d at 515. See also Group Life, 440 U.S. at 210, 99 S.Ct. at 1073. (defining the

“business of insurance” as considered in the McCarran-Ferguson Act).                 In the end, Judge

Davidson held that the defendant’s claims should be referred to arbitration. 147 F. Supp. 2d

at 517.

          12
          “Enact” is defined as follows: “To establish by law; to perform or effect; to decree. The common
introductory formula in making statutory laws i s , `Be it enacted.’ See Enacting clause.”Black’s Law
Dictionary (5th ed. 472).

                                                   13
¶26.    Subsequent to Judge Davidson’s decision in Harmon, the Fifth Circuit addressed this

issue. In Orr, the Fifth Circuit affirmed the district court’s decision to grant American

Heritage’s motion to compel arbitration. The appellate court found that the McCarran-

Ferguson Act did not reverse-preempt the FAA and rejected the argument that an attorney

general’s opinion or administrative policy was the functional equivalent of a state statute

relating to insurance. 294 F.3d at 708-09. “The Act bars application of the FAA to insurance

contracts only in the context of a state statute evincing the same, not mere policy statements

of state officials or administrative rule interpretations of governmental entities.”                 Id. at 708

(emphasis within)(citations omitted). 13

¶27.    We today adopt the sound reasoning set out in Harmon and Orr. Accordingly, we hold

that the McCarran-Ferguson Act is inapplicable in today’s case and that the FAA is not reverse-

preempted by the MDI’s policy.

                 2.       Effect of the Inadvertent Approval on the
                          Validity or Enforceability of Policy

¶28.    In the initial opinion and order of March 4, 2003, the chancery court based its decision

to deny arbitration at least in part on an attorney general’s opinion and the MDI’s inadvertent

approval of Gulf policy forms which mandated arbitration. The chancellor opined:

        The Court also notes that the Mississippi Attorney General has rendered an
        official opinion that “Mississippi law does not provide that punitive damages can
        be excluded from insurance policies.” Furthermore, it is the policy of the
        Mississippi Insurance Department not to approve policy forms that mandate

        13
           In Orr, the Fifth Circuit considered the MDI’s authority to prohibit arbitration clauses in light of its
ruling. Id. at 709. In doing so, it held that the Commissioner had no authority to prohibit arbitration clauses
relating to insurance. Id. As a result, the MDI changed its policy and now allows arbitration provisions
provided certain restrictions are met. It is unclear under what authority the MDI now believes it can impose
restrictions beyond that which is provided by FAA and judicial precedent.

                                                       14
        arbitration. The policy was inadvertently approved by the Mississippi Insurance
        Department. Gulf should not benefit by resubmitting a policy provision it has
        been previously informed was unacceptable but which was erroneously approved
        by the Mississippi Insurance Department.

Lee Harrell, a Deputy Commissioner of Insurance for the State of Mississippi, submitted an

affidavit which is part of the record in this case.   In this affidavit, Deputy Harrell stated, inter

alia, that the MDI had in the past approved Gulf’s submission of certain policy forms for a new

program of employment related practices liability, and that these forms contained mandatory

arbitration provisions. Deputy Harrell, in referring to a prior letter from Commissioner Dale,

likewise stated in his affidavit:

        [I]t had been the policy of the Department of Insurance – and Commissioner
        Dale’s policy as Commissioner of Insurance – not to approve policy forms,
        policy applications and other documents that provide for mandatory arbitration.
        Commissioner Dale explained that the approval of Gulf Insurance Company’s
        employment related practices liability form containing a mandatory arbitration
        provision was the result of “inadvertent oversight” and “it should not have
        occurred.” (emphasis in the original).

As already noted, there is also in the record an attorney general’s opinion written in response

to Commissioner Dale’s inquiry as to whether certain insurance policies, including

employment-practices liability policies, could exclude coverage for punitive damages under

Mississippi law, and if so, would the Commissioner of Insurance have statutory discretion to

disapprove policy forms which excluded punitive damages from coverage.                 In sum, the

attorney general’s opinion concluded that the Commissioner of Insurance was “vested with

sufficient [statutory] authority to set Department policy as to whether punitive damage

exclusions are permissible.” Orr involved an appeal from the United States District Court for




                                                15
the Northern District of Mississippi. The Orr court addressed the effect of an attorney

general’s opinion or a state official’s policy statement on the FAA.

        The [McCarran-Ferguson] Act bars application of the FAA to insurance
        contracts only in the context of a state statute evincing the same, not mere
        policy statements of state officials or administrative rule interpretations of
        governmental entities. See Miller v. Nat’l Fidelity Life Ins. Co., 588 F.2d 185,
        186-87 (5th Cir. 1979). The party seeking to avail itself of the Act must
        demonstrate that application of the FAA would invalidate, impair, or supersede
        a particular state law that regulates the business of insurance. Id. At 187. “The
        test under McCarran-Ferguson is not whether a state has enacted statutes
        regulating the business of insurance, but whether such state statutes will be
        invalidated, impaired, or superseded by the application of federal law.” Id.
        Appellants fail to identify any statute that would be impaired, invalidated, or
        superseded by the application of the FAA. Instead, Appellants try to perpetrate
        a judicial end-run by asserting that an attorney general’s opinion or insurance
        department’s regulatory, administrative policy is the functional equivalent of a
        state law relating to insurance, thereby triggering the provisions of the Act.
        Appellants’ arguments are without merit.

        First, “[o]pinions of the Mississippi Attorney General do not have the force of
        law....” Frazier v. Lowndes County, Mississippi Bd. of Educ., 710 F.2d 1097,
        1100 (5th Cir. 1983) (citing Local Union No. 845, United Rubber, Cork,
        Linoleum and Plastic Workers of Am., Home Assoc. v. Lee County Bd. of
        Supervisors, 369 So.2d 497, 498 (Miss. 1979)).            Second, because no
        Mississippi statute addresses, much less prohibits or restricts, arbitration of
        credit insurance-related claims, disputes or controversies, the Commissioner
        of Insurance for the State of Mississippi (the “Commissioner”) is without
        regulatory authority to prohibit arbitration clauses relating to insurance.
        (Emphasis in the original).

294 F.3d at 708-09.

¶29.    It is abundantly clear that it was not the intent of McCarran-Ferguson to reverse-

preempt the application of the FAA because it was in conflict with state insurance department

policy and an attorney general’s opinion. Stated differently, a state insurance department policy

and an attorney general’s opinion are not “state laws” which are being invalidated by the

application of the FAA. Thus, the learned chancellor erred in relying on the “inadvertent

                                                    16
approval” theory espoused by Neel-Schaffer, and in finding that the Commissioner of

Insurance and the Attorney General could disapprove insurance policy forms which included

mandatory arbitration provisions.

¶30.    Notwithstanding our foregoing discussion on the effect of a state department policy on

the FAA, we again emphasize that the Mississippi Code provides a specific statutory

mechanism for the Commissioner to disapprove a policy form currently in effect.         See Miss.

Code Ann. § 83-2-11.         Even assuming arguendo that state department policy could reverse-

preempt the FAA, which it cannot, it is of no moment in today’s case because pursuant to the

provisions of § 83-2-11, the policy form remained in effect until a hearing and order was

entered disapproving the form.         The Commissioner only indicated that he planned to initiate

the disapproval process and that should such ever be done, it would not limit the enforceability

of the form at that time but prohibit future use of the form.

¶31.    However, the record is void of MDI’s initiation of formal proceedings to reverse the

inadvertent approval. The Legislature created a procedure in which the MDI could reverse

approval of policy forms. In this instance, the MDI chose not to institute such proceedings.

Thus until the conclusion of formal reversal proceedings, a policy form previously approved

would remain valid and enforceable. Again, based on our finding that today’s application of the

FAA does not invalidate any state law, the fact that Neel-Schaffer alleges that the MDI policy

form approval was inadvertent is of no moment.

¶32.    Finally, Neel-Schaffer makes several arguments based upon principles of equity,

estoppel and unconscionability. These are procedurally barred and without merit.           As to




                                                     17
substantive unconscionability, this issue is procedurally barred based on the fact that it is

raised for the first time during this appeal.14

¶33.    Finally, Neel-Schaffer argues that Gulf should be equitably estopped from attempting

to enforce an arbitration clause which it knew was contrary to MDI policy. The doctrine of

equitable estoppel requires proof of a belief and reliance on some representation, a change of

position as a result of the representation, and detriment or prejudice caused by the change of

position. Mound Bayou Sch. Dist. v. Cleveland Sch. Dist., 817 So.2d 578, 583 (Miss. 2002).

Neel-Schaffer does not address what misrepresentation Gulf made directly to it or how it acted

on such misrepresentation.       Moreover, Neel-Schaffer fails to reveal to us how it was ultimately

prejudiced. This argument is without merit.

¶34.    For the foregoing reasons, we unhesitatingly find that the arbitration clause contained

in Gulf’s insurance contract with Neel-Schaffer was valid and enforceable.

        B.       Whether the parties’ dispute is within the scope of the arbitration
                 agreement.

¶35.    In its second opinion/order, the chancery court found that while there was a valid

agreement between the parties to arbitrate, the punitive damage provision of the arbitration

agreement was ambiguous, and that Neel-Schaffer’s claim for punitive damages thus fell

outside the scope of the provision. We find that the chancery court erred and that the

arbitration provision is not ambiguous in its scope.




        14
           Neel-Schaffer argues that the arbitration provision is substantively unconscionable based on the fact
that it waives its right to seek punitive damages.

                                                       18
¶36.    The first sentence of the arbitration clause explicitly defines its scope.15 The specific

part of the arbitration clause found to be ambiguous does not involve the scope.16                      Instead, it

involves whether Neel-Schaffer waived its right to seek punitive damages or, more specifically,

the arbitrator’s authority to award punitive damages.

¶37.    The chancery court ruled that the punitive damage provision of the arbitration agreement

was subject to two interpretations. The chancellor opined:

        It is not readily apparent from reading the arbitration provision what the drafter
        meant. One reading is that no punitive damages could be recovered. Another is
        only that the panel of arbitrators could not award punitive damages, but rather
        that the issue of punitive damages was to be left to the courts. This ambiguity
        is to be construed against the drafter. Therefore, the Court finds that the dispute
        in question, a claim for punitive damages, does not fall within the scope of that
        arbitration agreement.          Having then found that the first prong of the test,
        whether the parties agreed to arbitrate the dispute in question, has not been
        satisfied, it is not necessary to reach the second prong.

¶38.    Though the chancery court’s opinion focuses on the issue of scope, its interpretations

differ generally on whether the provision sets forth a complete or limited waiver of punitive

damages. That is, whether Neel-Schaffer waived any right to seek punitive damages or whether

such provision merely limited the arbitrators’ authority to grant such damages and thereby

allowing Neel-Schaffer whatever opportunity provided under the law to pursue punitive

damages in court.

¶39.    Gulf argues that the sentence in question is not ambiguous.                     Gulf contends that this

sentence limits the remedies that potential arbitrators could award and that it does not limit the


        15
           The first sentence states: “Any controversy arising out of or relating to this Policy or its breach shall
be settled by binding arbitration in accordance with the rules of the American Arbitration Association.”

        16
         This sentence states: The arbitration panel may make an award of Compensatory “Loss”, but may
not award punitive or exemplary “Loss.” (Emphasis in the original).

                                                        19
scope of the arbitration provision.            Gulf agrees with the chancery court’s first suggested

interpretation in that the sentence prohibits the arbitration panel from awarding either party

punitive damages. Gulf maintains that the scope of the arbitration provision is plainly set forth

in the first sentence, which provides: “Any controversy arising out of or relating to this

Policy or its breach shall be settled by binding arbitration in accordance with the rules of the

American Arbitration Association.” (emphasis added).

¶40.    Gulf notes that although the chancery court ruled that the provision was ambiguous

regarding whether punitive damages fell within the scope, it declined to enforce the provision

to the extent that there was no ambiguity. Gulf is confused as to why the chancery court

declined to enforce the entire provision despite finding only that claims for punitive damage

fall outside the scope.

¶41.    Neel-Schaffer maintains that the provision is ambiguous and that therefore chancery

court correctly ruled that its claims against Gulf fell outside its scope.     Neel-Schaffer likewise

argues that there is a difference between “claim” and “loss” as defined under the policy and as

referenced in the provision. The chancery court did not address this distinction nor did Neel-

Schaffer raise such before it.

¶42.    Neel-Schaffer dismisses as semantic Gulf’s argument that the limitation goes to

remedy as opposed to scope. It argues that if the Court were to adopt Gulf’s reasoning then

it must also conclude that Neel-Schaffer waived its right to seek punitive damages.            Neel-

Schaffer strongly denies that it waived its right to seek punitive damages and contends that

there is no proof that it intended to do so.




                                                      20
¶43.    As to scope, the first sentence of the arbitration eliminates any doubt. The parties

agreed that “[a]ny controversy arising out of or relating to this Policy or its breach,” would be

subject to binding arbitration. Neel-Schaffer does not argue that its claims do not arise out of

or relate to the policy. Because of this and the fact that there is no ambiguity as to scope, Neel-

Schaffer’s claims unquestionably fall within the scope of the arbitration agreement.

¶44.    In finding that the punitive damage provision was ambiguous, the chancellor relied on

the doctrine of contra proferentem – where a contract is ambiguous it will be construed

against the drafter. Gulf argues that the chancery court relied on the doctrine of contra

proferentem to supplant the federal policy to construe ambiguities concerning the scope of

arbitrability in favor of arbitration. See Mastrobuouno v. Shearson Lehman Hutton, Inc., 514

U.S. 52, 62, 115 S.Ct. 1212, 131 L.Ed. 2d 76 (1995). The FAA "is a congressional declaration

of a liberal policy favoring arbitration agreements, notwithstanding any state substantive or

procedural policies to the contrary." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp.,

460 U.S. 1, 24, 103 S.Ct. 927, 74 L.Ed.2d 765 (1983).

¶45.    Based on clearly established federal law and our case law addressing arbitration issues,

there is no doubt here that in those instances where this Court must interpret arbitration

provisions, the doctrine of contra proferentem must succumb to the federal policy.             The

federal policy, as an interpretive guideline, specifically concerns arbitration agreements, while

on the other hand the doctrine of contra proferentem is a general rule of contract

construction. The instant dispute (regarding the interpretation of the provision) is the type

dispute that the FAA policy sought to eliminate.




                                                    21
¶46.    Neel-Schaffer contends that a remedial limitation necessarily limits the scope of

arbitration. In support of this, Neel-Schaffer relies on Mulder v. Donaldson, Lufkin, &

Jenerette, 623 N.Y.S.2d. 560 (N.Y. App. Div. 1995) for the proposition that where an

arbitrator lacks authority to award punitive damages, a party may pursue a court action for

punitive damages despite the fact that they already had been awarded compensatory damages

in arbitration.17 However, the scenario advanced by Neel-Schaffer would create a system where

a party seeking punitive damages would prosecute an action in two different forums, and thus

nullifying the effort under the FAA to reduce litigation costs.

¶47.    In sum, we conclude that there is no ambiguity in the provisions of the arbitration

agreement.     In the case sub judice, two companies and its employees/officers, sophisticated

in business affairs, agreed to submit any dispute arising out of or related to the policy to a non-

judicial forum. In doing so, the parties agreed that this forum would be without authority to

render an award for punitive damages. It was likewise agreed that the ultimate resolution from

the arbitrators would be final and binding. The argument that Neel-Schaffer’s claims fall

outside the scope of the arbitration agreement thus allowing Neel-Schaffer to seek punitive

damages in a separate court proceeding is without merit. We thus find that the parties’ dispute

in today’s case was within the scope of the arbitration agreement.




        17
         Under New York law, the power to award punitive damages is limited to judicial tribunals and may
not be exercised by arbitrators. Garrity v. Lyle Stuart, Inc., 353 N.E.2d 793 (N.Y. 1976). See also
Mastrobuono, 514 U.S. 52 (1995); Belco Petroleum Corp. v. AIG Oil Rig, Inc., 565 N.Y.S.2d 776 (N.Y.
App. Div. 1991).

                                                     22
¶48.    Having thus found that there was a valid arbitration agreement and that the parties’

dispute fell within the scope of the arbitration agreement, we find that the parties in today’s

case agreed to arbitrate the dispute in question.

        II.     WHETHER LEGAL CONSTRAINTS EXTERNAL TO THE
                PARTIES’ AGREEMENT FORECLOSE THE
                ARBITRATION OF THOSE CLAIMS.

¶49.    While the parties do not address this issue, we are compelled to at least briefly do so

since this is the second prong in the required two-prong test in determining the validity of a

motion to compel arbitration under the FAA.          East Ford, 826 So.2d at 713. This issue was

addressed by the United States Supreme Court in Mitsubishi Motors Corp. v. Soler Chrysler-

Plymouth, Inc., 473 U.S. 614, 105 S.Ct. 3346, 87 L.Ed.2d 444 (1985). The Court stated:

        That is not to say that all controversies implicating statutory rights are suitable
        for arbitration.     There is no reason to distort the process of contract
        interpretation, however, in order to ferret out the inappropriate. Just as it is the
        congressional policy manifested in the Federal Arbitration Act that requires
        courts liberally to construe the scope of the arbitration agreements covered by
        the Act, it is the congressional intention expressed in some other statute on
        which the courts must rely to identify any category of claims as to which
        agreements to arbitrate will be held unenforceable. (Citations omitted).

                                                    ******

        In sum, the Court of Appeals correctly conducted a two-step inquiry, first
        determining whether the parties’ agreement to arbitrate reached the
        [issues].........and then, upon finding that it did, considering whether legal
        constraints external to the parties’ agreement foreclosed the arbitration of those
        claims. We endorse its rejection of Soler’s [contentions].

473 U.S. at 627-28, 105 S.Ct. at 3354-55.




                                                      23
¶50.    Succinctly stated, a meticulous review of the record, and our discussion thus far, clearly

reveal that there is absolutely no existing legal constraint external to the parties’ arbitration

agreement which would out of necessity foreclose the arbitration of those claims.

                                            CONCLUSION

¶51.    For the foregoing reasons, we find (1) that inasmuch as there was a valid arbitration

agreement and the parties’ dispute was within the scope of the arbitration agreement, Gulf and

Neel-Schaffer agreed to arbitrate the dispute in issue; and (2) that there were no legal

constraints external to the parties’ agreement which would foreclose the arbitration of those

claims. Having so found, we thus conclude that the learned chancellor erred in denying Gulf’s

motion to compel arbitration under the Federal Arbitration Act and in granting Neel-Schaffer’s

motion for preliminary injunction enjoining arbitration proceedings.        We therefore reverse the

chancery court’s judgment denying Gulf’s motion to compel arbitration and granting Neel-

Schaffer’s motion for preliminary injunction enjoining arbitration proceedings as set forth in

the May 23, 2003, Order and Opinion, and remand this case to the Chancery Court of the First

Judicial District of Hinds County for action consistent with this opinion, including dismissal

of Neel-Schaffer’s complaint and referring this case to arbitration.

¶52.    REVERSED AND REMANDED.

     SMITH, C.J., WALLER AND COBB, P.JJ., EASLEY AND DICKINSON, JJ.,
CONCUR. RANDOLPH, J., CONCURS IN PART WITHOUT SEPARATE WRITTEN
OPINION. DIAZ AND GRAVES, JJ., NOT PARTICIPATING.




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