Is this arbitration clause enforceable in South Dakota, and does it matter that this is an employment contract or an insurance policy?
A written arbitration agreement is presumptively valid, and South Dakota's version of the Uniform Arbitration Act expressly reaches employment agreements while excluding insurance policies. SDCL 21-25A-1: "A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This chapter also applies to arbitration agreements between employers and employees or between their respective representatives." Once a valid agreement is shown, SDCL 21-25A-5 makes enforcement close to automatic: "On application of a party showing an agreement described in § 21-25A-1, and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration." Rossi Fine Jewelers, Inc. v. Gunderson confirms the resulting presumption: "If there is doubt whether a case should be resolved by traditional judicial means or by arbitration, arbitration will prevail."
The trap
South Dakota's Act takes the opposite position from states whose arbitration statutes exclude employer-employee agreements by default: SDCL 21-25A-1's second sentence affirmatively brings employment arbitration agreements INTO the chapter rather than carving them out, so a drafter should not assume an opt-in clause is needed to make an employee arbitration agreement subject to this chapter. Insurance is treated the opposite way: SDCL 21-25A-3 removes insurance policies from the chapter entirely and goes further, making an arbitration or forum-limiting clause in an insurance policy affirmatively VOID: "This chapter does not apply to insurance policies and every provision in any such policy requiring arbitration or restricting a party thereto or beneficiary thereof from enforcing any right under it by usual legal proceedings in ordinary tribunals or limiting the time to do so is void and unenforceable." That voiding rule has its own exception, though: the same section preserves arbitration clauses between insurance companies themselves: "nothing in this chapter may be deemed to impair the enforcement of or invalidate a contractual provision for arbitration entered into between insurance companies." A drafter should confirm which side of the insurance-policy line a clause falls on before assuming either the general validity rule or the insurance-policy voiding rule applies. One more thing § 21-25A-5 does that "the court shall order the parties to proceed with arbitration" alone does not show: the order is not automatic where the agreement itself is denied. The section continues "but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied." A party that disputes ever having agreed gets that threshold question decided by the court, and the application can be DENIED.
5 authorities
- statuteSDCL § 21-25A-1enactment date not established
The words that state the rule
A written agreement to submit any existing controversy to arbitration or a provision in a written contract to submit to arbitration any controversy thereafter arising between the parties is valid, enforceable and irrevocable, save upon such grounds as exist at law or in equity for the revocation of any contract. This chapter also applies to arbitration agreements between employers and employees or between their respective representatives.
- statuteSDCL § 21-25A-3enactment date not established
The words that state the rule
This chapter does not apply to insurance policies and every provision in any such policy requiring arbitration or restricting a party thereto or beneficiary thereof from enforcing any right under it by usual legal proceedings in ordinary tribunals or limiting the time to do so is void and unenforceable.
- statuteSDCL § 21-25A-3enactment date not established
The words that state the rule
However, nothing in this chapter may be deemed to impair the enforcement of or invalidate a contractual provision for arbitration entered into between insurance companies.
The words that state the rule
If there is doubt whether a case should be resolved by traditional judicial means or by arbitration, arbitration will prevail.
- statuteSDCL § 21-25A-5enactment date not established
The words that state the rule
On application of a party showing an agreement described in § 21-25A-1 , and the opposing party's refusal to arbitrate, the court shall order the parties to proceed with arbitration, but if the opposing party denies the existence of the agreement to arbitrate, the court shall proceed summarily to the determination of the issue so raised and shall order arbitration if found for the moving party, otherwise, the application shall be denied.