558 F.2d 948 (9th Cir. 1977), 75-1790, Commercial Ins. Co. of Newark, N. J. v. Pacific-Peru Const. Corp.

Docket Nº:75-1790.
Citation:558 F.2d 948
Party Name:COMMERCIAL INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff-Appellee, v. PACIFIC-PERU CONSTRUCTION CORP. and the Hawaii Corporation, Defendants-Appellants. The HAWAII CORPORATION, Defendant, Third-Party Plaintiff-Appellant, v. AMERICAN INTERNATIONAL UNDERWRITERS CORPORATION, Third-Party Defendant-Appellee.
Case Date:August 10, 1977
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 948

558 F.2d 948 (9th Cir. 1977)

COMMERCIAL INSURANCE COMPANY OF NEWARK, NEW JERSEY, Plaintiff-Appellee,

v.

PACIFIC-PERU CONSTRUCTION CORP. and the Hawaii Corporation,

Defendants-Appellants.

The HAWAII CORPORATION, Defendant, Third-Party Plaintiff-Appellant,

v.

AMERICAN INTERNATIONAL UNDERWRITERS CORPORATION, Third-Party

Defendant-Appellee.

No. 75-1790.

United States Court of Appeals, Ninth Circuit

August 10, 1977

Page 949

[Copyrighted Material Omitted]

Page 950

Terence J. O'Toole, Carlsmith, Carlsmith, Wichman & Case, Honolulu, Hawaii, argued, for defendants-appellants.

Peter G. Wheelon, Honolulu, Hawaii, argued, for plaintiff-appellee.

Appeal from the United States District Court for the District of Hawaii.

Before ELY, HUFSTEDLER and WRIGHT, Circuit Judges.

HUFSTEDLER, Circuit Judge:

Commercial Insurance Company of Newark, N. J. ("CIC"), a New Jersey corporation, obtained a summary judgment in its favor requiring Pacific-Peru Construction Corp. ("Pacific-Peru"), a Nevada corporation, and The Hawaii Corporation ("HC"), 1 a Hawaii corporation, to indemnify CIC pursuant to bonding, indemnity, and reinsurance contracts executed in connection with construction work performed in Peru. Federal jurisdiction was grounded on diversity. The district court granted summary judgment on two grounds: (1) CIC was entitled to indemnification because its right thereto was based on Peruvian judgments, the validity of which the district court could not go behind; and (2) a clause in the indemnity agreement requiring Pacific-Peru to deposit collateral security upon demand was specifically enforceable. We affirm the district court, applying contract principles, without reaching the question whether the Peruvian judgments were valid.

In 1966, Pacific-Peru entered a contract to build a public housing project in Peru for Asociacion Nacional Pro Vivienda Propriata De Los Servidores del Estado ("VIPSE"), a Peruvian organization of government employees. Pacific-Peru's construction contract with VIPSE required Pacific-Peru to obtain a construction bond in VIPSE's favor. Accordingly, Pacific-Peru signed a bonding agreement with El Pacifico Compania De Seguros Y Reaseguros ("El Pacifico"), as surety. El Pacifico is a Peruvian corporation, twenty percent of which is owned by an affiliate of American International Underwriters, Inc. ("AIU"). AIU, a New York corporation, was El Pacifico's foreign manager on the bond as well as CIC's agent. El Pacifico, in turn, required Pacific Construction, HC's predecessor and parent company of Pacific-Peru (hereinafter also referred to as "Pacific-Peru"), to sign an agreement promising to indemnify

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El Pacifico if El Pacifico became liable on the construction bond. El Pacifico then entered into a contract of reinsurance with CIC in which CIC agreed to reimburse El Pacifico for any liability El Pacifico incurred under the construction bond with Pacific-Peru.

From 1966 to 1969, Pacific-Peru substantially performed the construction contract and received progress payments for its work. A dispute arose between Pacific-Peru and VIPSE as to the monies still due appellant under the contract. After various settlement attempts had failed, the dispute went to arbitration in Peru pursuant to an arbitration clause in the construction contract. The arbitral tribunal found in favor of VIPSE after invalidating a wage escalation provision in the contract and concluding that there were construction defects in the project. The Supreme Court of Peru reversed the decision of the arbitral tribunal because it found that the tribunal had no jurisdiction to invalidate the wage escalation provision and because the award contained several "contradictions."

On remand to the same arbitral tribunal, Pacific-Peru challenged the tribunal for lack of impartiality. Appellants' challenge failed and once more, the tribunal found for VIPSE, although its award was approximately half that of its previous award. The Peruvian Supreme Court affirmed the award of the arbitral tribunal although it contained, according to appellants, the same contradictions and invalidated the same contract provision involved in the first award.

After Pacific-Peru refused to pay the award, and at VIPSE's request, a Peruvian judge attached El Pacifico's bond in spite of El Pacifico's argument that the bond did not cover the entire amount of the arbitral award. El Pacifico appealed the attachment order to the Superior Court of Peru which court affirmed the attachment award and held that the bond covered the entire award. 2 El Pacifico then tried to appeal the decision of the Superior Court, but the Superior Court held that its decision was not appealable. El Pacifico did not appeal the denial of the appeal to the Peruvian Supreme Court although appellants contend that Peruvian procedure would have permitted the appeal.

On January 28, 1974, a Peruvian judge ordered El Pacifico to pay the award promptly, in absence of which liability would be doubled. El Pacifico complied with the Peruvian judge's order and on February 11, 1974, CIC, pursuant to its reinsurance agreement, reimbursed El Pacifico for the amount of the award.

CIC then filed this diversity action in the district court in Hawaii seeking indemnification from Pacific-Peru under the indemnity agreements and the reinsurance contract. HC filed a third-party complaint against AIU, alleging that AIU wrongfully caused El Pacifico to pay VIPSE the amount of the arbitral award. 3 The district court dismissed HC's complaint for lack of personal jurisdiction.

The...

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