BCS Insurance Company (BCS) issued claims-made errors and omissions insurance policies to Wellmark, Incorporated (Wellmark) annually between 1994 and 1997. The 1994, 1995 and 1996 policies contained mandatory arbitration clauses but the 1997 policy provided for optional arbitration and gave the choice to the insured. In four class action lawsuits brought in 1994, 1995, 1996 and 1997, Wellmark (which did business as Blue Cross and Blue Shield of Iowa) was accused of making illegal profits based on undisclosed agreements it had with medical providers. Wellmark settled the lawsuits and sought coverage from BCS.

After attempts at negotiation failed, Wellmark filed suit against BCS seeking coverage under the 1997 policy. BCS believed arbitration of all of Wellmark's claims was required and filed suit to compel it. By agreement of the parties, the district court ordered arbitration of the claims made under the 1994, 1995 and 1996 policies under the mandatory arbitration provisions in those policies. Since the arbitration clause in the 1997 policy was optional, the court refused to order arbitration of the claim against that policy. The plain language of the 1997 policy permitted, but did not require arbitration, and that should have been enough to turn away BCS's attempt to compel Wellmark to arbitrate the 1997 claim. BCS claimed it was not that simple, because when a policy contained an arbitration clause, a federal presumption of arbitration applied. This argument was easily dispatched, because the Federal Arbitration Act directed courts to place arbitration agreements on equal footing with other contracts but it did not require arbitration when the parties had not agreed to it.

The court also rejected BCS's argument that the "relation back" clause in the 1997 policy brought the 1997 claim within the mandatory arbitration clauses of the earlier policies. The relation back provision appeared in the liability limits section of the policy and stated that claims that arose from the same or interrelated acts were treated as a single claim deemed made at the time the earliest claim was made. BCS asserted the claim made under the 1997 policy was related to other claims dating back to 1994 and the 1997 claim should have been deemed a single claim under the 1994 policy. Since that policy had a mandatory arbitration clause, the 1997 claim should also have been arbitrated. The district court construed this provision to apply to claims that arose from several interrelated wrongful acts within the 1997 policy period, not across policy periods. Based on this interpretation, it refused to rewrite the clear and unambiguous language of the 1997 policy's arbitration clause to make the 1997 claim arbitrable against Wellmark's wishes.

The appellate court did not agree with the district court's engaging in an interpretation of the relation back provision in deciding whether to compel arbitration of the 1997 claim. This did not mean that the BCS argument prevailed either. The court rejected this reading of the policy, stating that this clause may or may not operate to limit the availability or scope of coverage for this claim. That, however, was a question on the merits of the claim, not on its arbitrability. The arbitration clause of the policy unambiguously allowed for but did not require arbitration. It provided that any controversy that arose out of or relating to the 1997 policy was arbitrable but only at the insured's option. The choice belonged to the insured and Wellmark chose litigation. The district court properly refused to compel arbitration and their decision was affirmed.

BCS Insurance Company, Plaintiff-Appellant, v. Wellmark, Incorporated, doing business as Blue Cross and Blue Shield of Iowa, Defendant-Appellee. U.S. Court of Appeals, Seventh Circuit. No. 04-2575. Filed June 1, 2005. Appeal from the U.S. District Court, Northern District of Illinois. Affirmed. 2005 CCH Personal and Commercial Liability Cases. Paragraph 32,006.