South-Western Legal Studies in Business

Third-Party Beneficiaries of Contract Bound by Arbitration Provisions
Description Tennessee high court held that the third-party beneficiary of a health-insurance contract that contained an arbitration provision to control disputes between the primary parties also applies to the third-party when that party attempts to enforce the contract.
Topic Alternate Dispute Resolution
Key Words Arbitration; Insurance; Third Party
C A S E   S U M M A R Y
Facts Benton was a passenger in a car that was struck by another vehicle. He was in the Vanderbilt University hospital for five days, running up a bill of $31,500. He was insured by Blue Cross, which had a contract with Vanderbilt that provided that it would bill at a discounted rate for services and that it would not bill members for the difference between the full bill and the discounted rate, which was $14,800 in this case. Hence, Benton was a third-party beneficiary of that contract. Vanderbilt sued to recover the $14,800 from the driver of the car that struck Benton. Benton sued Vanderbilt, contending that it had agreed to full payment with the discounted sum. Vanderbilt moved to compel arbitration, contending that Benton was bound by an arbitration provision in the insurance because he was a third-party beneficiary to the insurance contract. The trial court held that Benton was not bound by the arbitration provision; the appeals court reversed. Benton appealed.

Affirmed. A third party is an intended third-party beneficiary of a contract and is entitled to enforce its terms where 1) the parties to the contract have not agreed otherwise, 2) recognition of the third-party's right to performance is appropriate to effectuate the parties' intent, and 3) terms or circumstances indicate that performance of the promise is intended or will satisfy an obligation owed by the promise to the third party. An arbitration provision in a contract is enforceable against a third-party beneficiary who has filed a cause of action seeking to enforce the contract.

Citation Benton v. Vanderbilt University, 137 S.W.3d 614 (Sup. Ct., Tenn., 2004)

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